Denmark eliminated dividend taxation on corporate “portfolio” shareholdings, effective 1 January 2025 (for prior coverage, see the article in the February 2025 issue of Corporate Tax News). This change, adopted in December 2024 as part of Bill L 28, means that dividends a company receives on unlisted shares representing less than 10% ownership in the dividend paying company (i.e., tax-exempt portfolio shares) are now generally exempt from Danish tax. The reform aims to boost, in particular, small and mid-sized companies’ access to capital by making Denmark more attractive for both domestic and foreign portfolio investors. However, the tax exemption comes with important conditions designed to prevent abuse. In particular, the dividend recipient must be the “beneficial owner” (BO) of the dividend (not just a conduit through which the dividend flows), it may not have a controlling influence over the paying company (except in EU/tax treaty scenarios) and, where the investor is a nonresident, its country of residence must have a tax information-sharing agreement with Denmark.
This article outlines the new rules on tax-exempt portfolio share dividends and discusses key conditions and anti-avoidance measures affecting Danish and foreign shareholders.
Under Danish tax law, tax-exempt portfolio shares are defined as shares that are unlisted on any regulated market and constitute less than 10% of a company’s share capital. Both Danish and foreign companies can qualify as portfolio companies under this definition. Before 2025, Danish corporate shareholders were taxed on dividends from such minority shareholdings at an effective rate of 15.4% (70% of the dividends were included in taxable income and taxed at the 22% corporate tax rate). This partial taxation is abolished following the reform: dividends Danish companies receive on unlisted less-than-10% shareholdings are now tax-exempt in Denmark, matching the longstanding tax-exempt status of capital gains on such shares.
This change took effect for dividends declared on or after 1 January 2025. As noted above, the primary goal is to encourage investment in Danish companies—especially startups and smaller ventures—by removing the Danish dividend tax cost for minority corporate investors. In other words, under the new rules, a corporate investor can hold a small stake in a Danish company and receive dividends without incurring Danish taxation, provided certain conditions are fulfilled.
It is important to note that not all shares under the 10% threshold qualify as “tax-exempt portfolio shares.” For example, if the shares are listed on a stock exchange or a multilateral trading facility, they are considered taxable portfolio shares and dividends on such shares remain taxable (an anti-abuse rule preventing listed shares from effectively being “wrapped” in a non-listed company applies (see the “packaging” test below)). Likewise, if the shareholder is a life insurance company or the shares are held as stock/trading inventory, the exemption does not apply. Anti-avoidance caveats in the law ensure the exemption is not available if the paying company could deduct the dividends (e.g., where the instrument on which the dividends are paid is a hybrid instrument) or if the shares are held in a special investment company structure. These exceptions preserve the principle that only true equity returns on normal, unlisted minority shareholdings enjoy the tax break.
While the baseline rule is simple—no Danish tax on dividends from unlisted less-than-10% holdings—several key conditions and safeguard requirements must be complied with to obtain this tax-exempt treatment. The conditions apply in addition to those relating to the basic definition of “portfolio shares” and target potential tax avoidance setups. In summary, dividends will be tax-exempt only if (i) the recipient is the BO of the dividends; (ii) the recipient, if nonresident, does not have a controlling interest in the payer, except in tax treaty/EU situations; and (iii) the recipient, if nonresident, is resident in a country that exchanges tax information with Denmark.
Beneficial Ownership – Anti-Conduit Rule
The dividend-receiving company must be the actual BO of the dividend distribution to enjoy tax exemption. This is now explicitly required even where the dividends are paid between Danish companies, which is a new development in Danish law. Being the BO essentially means the dividend-receiving company may not be obliged to forward the payment to another person and may not just be a transient intermediary created to exploit the tax exemption.
If, for example, a Danish holding company receives a dividend and on-routes that amount (as a dividend or other payment) to another entity that would not have qualified for tax-exempt treatment had it received the dividend directly, the Danish holding company is not considered the BO of the dividend. In that case, the exemption is denied and the holding company must include the dividend in its taxable income (subject to a 22% tax) despite the shares being otherwise “tax-exempt portfolio shares.” This rule essentially replaces and broadens previous “flow-through” anti-avoidance provisions by focusing on substance over form: if a chain of entities is used purely to channel dividends from A to C via B to avoid tax, B will be taxed unless it has real ownership and purpose.
Example: A foreign investor (or a group of foreign investors) in Country X, which has a tax treaty with Denmark but does not have a tax treaty with Country Y, sets up a Danish holding company to hold shares in a foreign operating company in Country Y, which has a beneficial tax treaty with Denmark that reduces tax on dividends paid by the operating company to a Danish shareholder. Without the BO requirement, Danish Holdco could receive dividends taxed at a reduced (or even zero) rate and then pay them on to the ultimate owner. Under the new rule, if those dividends are destined to “flow through” Danish HoldCo to the investor in Country X (which would not qualify for exemption if it held the shares directly), Danish Holdco will not be regarded as the BO and will be taxed at a rate of (up to) 22% on the dividends from Country X. The law makes it clear that the Danish company would only be taxed on the portion of the dividends corresponding to the tax advantage gained by routing the dividends through Denmark, which is in line with EU anti-abuse principles (and reduced, if applicable, by any Denmark–Country X tax treaty). This ensures Denmark cannot be used as a convenient conduit jurisdiction for untaxed dividends. On the other hand, if the Danish company retains the dividends or redistributes them in a way that does not confer a tax benefit on an otherwise ineligible party, it is deemed the BO and the dividends remain exempt.
No “Controlling Influence” by Certain Foreign Shareholders
The new rules distinguish between minority portfolio investors and de facto controllers. Even a shareholding below 10% can sometimes confer a controlling influence; for example, through high-vote shares or shareholder agreements that allow a minority to control more than 50% of the votes. The law now stipulates that if a foreign company receiving dividends has such a controlling influence over the Danish payer, the dividends will not be tax-exempt unless that foreign company is resident in the EU or in a country that has a comprehensive tax treaty with Denmark that entitles it to a reduction or the elimination of Danish dividend withholding tax. In other words, a foreign investor that effectively controls a Danish company cannot benefit from the 0% portfolio-dividend tax rate if it is resident in a non-treaty, non-EU jurisdiction. This condition aims to prevent investors from circumventing normal withholding tax rules by artificially keeping their stake just below 10% or by acting in concert through multiple smaller stakes.
The practical effect for a foreign investor in a no-treaty country is that obtaining de facto control (including joint control (as defined)) of a Danish company (even without formally crossing the 10% ownership threshold) disqualifies dividends it receives from the Danish company from enjoying the exemption. Such an investor’s dividends would be subject to standard Danish withholding (which for a corporation is typically 22% or 27%). On the other hand, an EU-based or treaty-protected investor is not penalised by this rule; if it has a controlling influence, it will likely fall within the scope of the EU Parent-Subsidiary Directive or qualify for a reduced withholding tax rate under an applicable tax treaty. For most genuine portfolio investors (who by definition do not control a company), this condition would not be an issue. But it closes a potential loophole where a controlling stake could masquerade as a “portfolio” holding with a view to avoiding tax.
Danish law adopts the broad definition of control found in section 2 of the Tax Assessment Act, i.e., more than 50% of the shares or votes, including rights held by related parties or agreements to act together, count towards control. Notably, the tax authorities have indicated that even acting in concert via a Danish holding company (where multiple foreign shareholders collectively control a Danish subsidiary) will trigger taxation, essentially treating the Danish holding company as taxable on the dividends if the aggregate owners behind it would not all qualify individually. This is a nuanced anti-avoidance position: even if each owner’s stake is small, using a joint Danish vehicle to achieve collective control over a Danish target can be viewed as an abusive arrangement, unless those owners are in EU/treaty jurisdictions.
Jurisdiction Must Allow Information Exchange
Another condition for foreign shareholders is that the recipient’s country of tax residence must have an information exchange agreement with Denmark (typically via a tax treaty or a specific Tax Information Exchange Agreement (TIEA)). This requirement ensures transparency and that the Danish tax authorities can verify the recipient’s status.
A foreign company that is resident in a jurisdiction that does not exchange tax information with Denmark cannot receive Danish portfolio dividends tax-exempt. In practice, this excludes investors in countries blacklisted for non-cooperation or with no tax agreement with Denmark; for example, a company resident in a known secrecy jurisdiction without any exchange arrangement would still face Danish withholding tax on dividends. Conversely, most investors resident in OECD and EU countries, and others with treaties/TIEAs, satisfy the criterion.
It is worth noting that this test looks at the residence of the BO of the dividends. If the shareholding structure involves an intermediary that is not the BO, the relevant jurisdiction is that of the ultimate BO. The Ministry of Taxation cited an example: a foreign sub-holding (in a non-exchange country) immediately passes dividends to its parent in a country with information exchange. If there is no tax advantage in that routing (i.e. the parent would have been exempt in any event), the parent is treated as the BO and its country’s information exchange status suffices. In short, as long as the BO is in a cooperative jurisdiction, this condition is fulfilled.
For Danish companies (domestic shareholders), the new rules are largely positive: they can now receive dividends from minority stakes in other companies (Danish or foreign) without a tax cost, aligning Denmark with participation exemption regimes in many countries. This could encourage Danish corporations to invest in startups or foreign ventures as portfolio investors. However, Danish companies must be mindful of the beneficial ownership test. In purely domestic situations (e.g., where a Danish company owns shares in another Danish company), dividend income is tax-exempt by default, but if the Danish recipient is simply a conduit for a nonresident parent company, it will be taxed. This closes a loophole where foreign groups previously inserted a Danish holding company to exploit Danish-EU directives or other benefits. Now, if that Danish entity does not have substantive entitlement to the dividends, the Danish tax exemption is denied. The Danish company would then pay 22% corporate tax on the dividends, roughly equivalent to the withholding tax that was avoided. In essence, using Denmark as a location for funnelling dividends to tax haven parent companies is directly targeted by the new BO requirement. Danish companies serving as holding companies should make sure that if they receive dividends under the exemption, they are not contractually or practically bound to immediately transmit those funds to an unqualified party.
For foreign investors, the changes make Denmark a more attractive place to invest, as long as their investment structure is legitimate. A foreign corporate shareholder can receive dividends from a Danish company with 0% Danish withholding tax, even where its stake in the Danish company is less than 10%, which previously was not possible unless an applicable tax treaty provided for an exemption.
This particularly benefits investors from countries that may not have a favourable treaty rate for dividends; as long as their country is not hostile to information exchange, they can enjoy full relief at source. Notably, foreign venture capital funds, private equity and multinational companies taking minority positions in Danish enterprises stand to gain. The only foreign investors that cannot benefit are those in noncooperative jurisdictions or those that insist on control but are not protected by the EU/treaty umbrella. A foreign investor that does have a controlling stake in a Danish company and is in a treaty or an EU country, typically would be eligible for a reduced or zero rate via other provisions (the Parent-Subsidiary Directive provides for a 0% withholding tax on more-than-10% holdings within the EU, and most treaties significantly lower or eliminate tax on dividends from subsidiaries). For them, the new rules mainly extend similar benefits to less-than-10% holdings. However, a foreign investor that is, for example, resident in a non-treaty country and acquires a controlling interest in a Danish company, will still face Danish dividend tax—the new regime does not create a loophole that could be availed of in such a scenario.
Foreign investors should also be aware of the practical withholding procedure. Denmark operates a withholding tax system with respect to dividends. The law changes allow for a 0% rate, but as a safeguard, Danish companies paying dividends may still be required to withhold tax until qualification is confirmed. In fact, the law’s technical guidance indicates that if a foreign recipient claims the 0% rate for portfolio shares, the Danish payer can refrain from withholding only if the conditions are clearly fulfilled (which would include there being no indication of abuse). Otherwise, tax (27% for companies) might be withheld and the foreign shareholder would then have to reclaim it upon proving eligibility. This procedure ensures that Denmark does not inadvertently let revenue slip through abusive setups. Legitimate investors, however, will ultimately get a full refund if they satisfy the relevant criteria.
The Danish parliament and the tax authorities have signalled that they will be strongly focused on anti-avoidance in the context of this liberalisation. A number of existing anti-abuse rules, such as the intermediate holding company rule, will see reduced relevance. That rule was intended to prevent investors from pooling shares in a joint holding just to cross the 10% threshold and qualify for tax-exempt subsidiary dividends (the “reverse Christmas tree” structure). Now that even less-than-10% holdings can be tax-exempt, the incentive to form such structures has largely disappeared, except perhaps in cases involving listed shares (since listed shares remain taxable if the holding on which they are paid is under 10%). The intermediate holding rule is not repealed but, going forward, mainly targets arrangements seeking to avoid tax on listed share dividends by bundling stakes. Another rule that survives is the 85% “packaging” test: if an unlisted company’s assets are more than 85% listed shares, its shares are not treated as tax-exempt portfolio shares. This prevents turning what is economically a fund of listed equities into an “unlisted” company simply to escape tax, a niche but important safeguard in the new landscape.
Perhaps the most significant anti-abuse measure is now the beneficial ownership assessment, which as discussed extends to Danish recipients. Tax advisers note this introduces some uncertainty and complexity as determining BO status can be fact-specific. The Danish authorities have a body of practice (and court rulings, as well as EU case law) on beneficial ownership in dividend cases, and these will now apply equally to domestic corporate chains.
The fundamental principle is that each dividend distribution must be tested: is the immediate recipient genuinely entitled to the profit or is it a pass-through for someone else’s benefit? The legal history of L 28 includes examples: where a Danish holding with no real activity transmits dividends from a foreign subsidiary to a foreign parent that otherwise would face withholding, this is viewed as abuse and triggers tax at the Danish holding level. Conversely, a scenario where a Danish holding receives dividends and uses them to repay intercompany debt to its parent was initially viewed as likely not streaming (since the equity of the holding was not reduced), indicating not every movement of funds constitutes abuse if it does not produce a tax advantage. The line can be fine, so companies will want to document commercial reasons for their structures and flows. The key takeaway is that Denmark’s dividend exemption is generous for genuine investments but unforgiving where conduit arrangements are in place.
From an international planning perspective, one quirk of the new rules is that they eliminate Danish tax on many smaller holdings even for investors in jurisdictions that lack tax treaties with Denmark, provided the countries exchange information with Denmark. For example, an investor in a country with no treaty (when, normally, a 27% Danish withholding would apply) can avoid Danish tax by keeping its holding below 10% and fulfilling the relevant conditions. If the same investor increased its stake to 10% or more (making it a subsidiary share), it would still face Danish withholding (potentially even a special 44% rate if its country of residence were on a tax haven blacklist). Thus, in some cases, the less-than-10% position is actually more tax-efficient than a larger stake, an unusual reversal of the old system. This may influence how foreign investors will structure their ownership in Danish companies (possibly preferring a consortium of smaller holdings rather than a single large owner in a nontreaty country). Of course, an investor that is large enough to have control will often seek treaty protection or an EU structure; the new rule primarily benefits genuine portfolio investors, which, by their very nature, do not control the company in which they are invested.
In summary, Denmark’s removal of dividend tax on portfolio shares aligns its tax regime with the goal of attracting investment while balancing it with robust anti-avoidance rules. Danish companies enjoy greater flexibility and neutrality in the context of receiving intercorporate dividends (no taxation on small stakes) and foreign investors can invest in Danish ventures without the drag of Danish dividend withholding tax provided they are transparent and play by the rules. The beneficial ownership test and other conditions ensure that this generosity cannot be abused by routing income through Denmark to achieve unwarranted double nontaxation. Companies and investors should review their corporate structures, ensure compliance with the new conditions and possibly reconsider structures that involve de facto conduit companies. In practice, the Danish withholding tax administration will likely require documentation of beneficial ownership and tax residency status to be provided if the 0% rate is to apply. If in doubt, Danish payers may withhold tax and let the investor claim a refund upon proving eligibility. Over time, as these rules bed down, Denmark is expected to become a more popular holding jurisdiction for international investments, albeit one with strict anti-treaty-shopping guardrails.
Overall, the dividend measures represent a significant shift: a move from a partial taxation model to a nearly full participation exemption for portfolio dividends, which catches Denmark up with international norms. The change unlocks opportunities for capital formation in Denmark and simplifies taxation for many corporate investors, while the accompanying anti-abuse provisions serve to protect the tax base from aggressive tax planning. Both Danish and international taxpayers should find the new regime, if navigated properly, to be an improvement that rewards bona fide investment and penalises only misuse.
Arne Riis
BDO in Denmark
This article outlines the new rules on tax-exempt portfolio share dividends and discusses key conditions and anti-avoidance measures affecting Danish and foreign shareholders.
“Tax-Exempt Portfolio Shares”
Under Danish tax law, tax-exempt portfolio shares are defined as shares that are unlisted on any regulated market and constitute less than 10% of a company’s share capital. Both Danish and foreign companies can qualify as portfolio companies under this definition. Before 2025, Danish corporate shareholders were taxed on dividends from such minority shareholdings at an effective rate of 15.4% (70% of the dividends were included in taxable income and taxed at the 22% corporate tax rate). This partial taxation is abolished following the reform: dividends Danish companies receive on unlisted less-than-10% shareholdings are now tax-exempt in Denmark, matching the longstanding tax-exempt status of capital gains on such shares.This change took effect for dividends declared on or after 1 January 2025. As noted above, the primary goal is to encourage investment in Danish companies—especially startups and smaller ventures—by removing the Danish dividend tax cost for minority corporate investors. In other words, under the new rules, a corporate investor can hold a small stake in a Danish company and receive dividends without incurring Danish taxation, provided certain conditions are fulfilled.
It is important to note that not all shares under the 10% threshold qualify as “tax-exempt portfolio shares.” For example, if the shares are listed on a stock exchange or a multilateral trading facility, they are considered taxable portfolio shares and dividends on such shares remain taxable (an anti-abuse rule preventing listed shares from effectively being “wrapped” in a non-listed company applies (see the “packaging” test below)). Likewise, if the shareholder is a life insurance company or the shares are held as stock/trading inventory, the exemption does not apply. Anti-avoidance caveats in the law ensure the exemption is not available if the paying company could deduct the dividends (e.g., where the instrument on which the dividends are paid is a hybrid instrument) or if the shares are held in a special investment company structure. These exceptions preserve the principle that only true equity returns on normal, unlisted minority shareholdings enjoy the tax break.
Conditions for Qualifying for the Dividend Tax Exemption
While the baseline rule is simple—no Danish tax on dividends from unlisted less-than-10% holdings—several key conditions and safeguard requirements must be complied with to obtain this tax-exempt treatment. The conditions apply in addition to those relating to the basic definition of “portfolio shares” and target potential tax avoidance setups. In summary, dividends will be tax-exempt only if (i) the recipient is the BO of the dividends; (ii) the recipient, if nonresident, does not have a controlling interest in the payer, except in tax treaty/EU situations; and (iii) the recipient, if nonresident, is resident in a country that exchanges tax information with Denmark.Beneficial Ownership – Anti-Conduit Rule
The dividend-receiving company must be the actual BO of the dividend distribution to enjoy tax exemption. This is now explicitly required even where the dividends are paid between Danish companies, which is a new development in Danish law. Being the BO essentially means the dividend-receiving company may not be obliged to forward the payment to another person and may not just be a transient intermediary created to exploit the tax exemption.
If, for example, a Danish holding company receives a dividend and on-routes that amount (as a dividend or other payment) to another entity that would not have qualified for tax-exempt treatment had it received the dividend directly, the Danish holding company is not considered the BO of the dividend. In that case, the exemption is denied and the holding company must include the dividend in its taxable income (subject to a 22% tax) despite the shares being otherwise “tax-exempt portfolio shares.” This rule essentially replaces and broadens previous “flow-through” anti-avoidance provisions by focusing on substance over form: if a chain of entities is used purely to channel dividends from A to C via B to avoid tax, B will be taxed unless it has real ownership and purpose.
Example: A foreign investor (or a group of foreign investors) in Country X, which has a tax treaty with Denmark but does not have a tax treaty with Country Y, sets up a Danish holding company to hold shares in a foreign operating company in Country Y, which has a beneficial tax treaty with Denmark that reduces tax on dividends paid by the operating company to a Danish shareholder. Without the BO requirement, Danish Holdco could receive dividends taxed at a reduced (or even zero) rate and then pay them on to the ultimate owner. Under the new rule, if those dividends are destined to “flow through” Danish HoldCo to the investor in Country X (which would not qualify for exemption if it held the shares directly), Danish Holdco will not be regarded as the BO and will be taxed at a rate of (up to) 22% on the dividends from Country X. The law makes it clear that the Danish company would only be taxed on the portion of the dividends corresponding to the tax advantage gained by routing the dividends through Denmark, which is in line with EU anti-abuse principles (and reduced, if applicable, by any Denmark–Country X tax treaty). This ensures Denmark cannot be used as a convenient conduit jurisdiction for untaxed dividends. On the other hand, if the Danish company retains the dividends or redistributes them in a way that does not confer a tax benefit on an otherwise ineligible party, it is deemed the BO and the dividends remain exempt.
No “Controlling Influence” by Certain Foreign Shareholders
The new rules distinguish between minority portfolio investors and de facto controllers. Even a shareholding below 10% can sometimes confer a controlling influence; for example, through high-vote shares or shareholder agreements that allow a minority to control more than 50% of the votes. The law now stipulates that if a foreign company receiving dividends has such a controlling influence over the Danish payer, the dividends will not be tax-exempt unless that foreign company is resident in the EU or in a country that has a comprehensive tax treaty with Denmark that entitles it to a reduction or the elimination of Danish dividend withholding tax. In other words, a foreign investor that effectively controls a Danish company cannot benefit from the 0% portfolio-dividend tax rate if it is resident in a non-treaty, non-EU jurisdiction. This condition aims to prevent investors from circumventing normal withholding tax rules by artificially keeping their stake just below 10% or by acting in concert through multiple smaller stakes.
The practical effect for a foreign investor in a no-treaty country is that obtaining de facto control (including joint control (as defined)) of a Danish company (even without formally crossing the 10% ownership threshold) disqualifies dividends it receives from the Danish company from enjoying the exemption. Such an investor’s dividends would be subject to standard Danish withholding (which for a corporation is typically 22% or 27%). On the other hand, an EU-based or treaty-protected investor is not penalised by this rule; if it has a controlling influence, it will likely fall within the scope of the EU Parent-Subsidiary Directive or qualify for a reduced withholding tax rate under an applicable tax treaty. For most genuine portfolio investors (who by definition do not control a company), this condition would not be an issue. But it closes a potential loophole where a controlling stake could masquerade as a “portfolio” holding with a view to avoiding tax.
Danish law adopts the broad definition of control found in section 2 of the Tax Assessment Act, i.e., more than 50% of the shares or votes, including rights held by related parties or agreements to act together, count towards control. Notably, the tax authorities have indicated that even acting in concert via a Danish holding company (where multiple foreign shareholders collectively control a Danish subsidiary) will trigger taxation, essentially treating the Danish holding company as taxable on the dividends if the aggregate owners behind it would not all qualify individually. This is a nuanced anti-avoidance position: even if each owner’s stake is small, using a joint Danish vehicle to achieve collective control over a Danish target can be viewed as an abusive arrangement, unless those owners are in EU/treaty jurisdictions.
Jurisdiction Must Allow Information Exchange
Another condition for foreign shareholders is that the recipient’s country of tax residence must have an information exchange agreement with Denmark (typically via a tax treaty or a specific Tax Information Exchange Agreement (TIEA)). This requirement ensures transparency and that the Danish tax authorities can verify the recipient’s status.
A foreign company that is resident in a jurisdiction that does not exchange tax information with Denmark cannot receive Danish portfolio dividends tax-exempt. In practice, this excludes investors in countries blacklisted for non-cooperation or with no tax agreement with Denmark; for example, a company resident in a known secrecy jurisdiction without any exchange arrangement would still face Danish withholding tax on dividends. Conversely, most investors resident in OECD and EU countries, and others with treaties/TIEAs, satisfy the criterion.
It is worth noting that this test looks at the residence of the BO of the dividends. If the shareholding structure involves an intermediary that is not the BO, the relevant jurisdiction is that of the ultimate BO. The Ministry of Taxation cited an example: a foreign sub-holding (in a non-exchange country) immediately passes dividends to its parent in a country with information exchange. If there is no tax advantage in that routing (i.e. the parent would have been exempt in any event), the parent is treated as the BO and its country’s information exchange status suffices. In short, as long as the BO is in a cooperative jurisdiction, this condition is fulfilled.
Impact and Anti-Abuse Implications
For Danish companies (domestic shareholders), the new rules are largely positive: they can now receive dividends from minority stakes in other companies (Danish or foreign) without a tax cost, aligning Denmark with participation exemption regimes in many countries. This could encourage Danish corporations to invest in startups or foreign ventures as portfolio investors. However, Danish companies must be mindful of the beneficial ownership test. In purely domestic situations (e.g., where a Danish company owns shares in another Danish company), dividend income is tax-exempt by default, but if the Danish recipient is simply a conduit for a nonresident parent company, it will be taxed. This closes a loophole where foreign groups previously inserted a Danish holding company to exploit Danish-EU directives or other benefits. Now, if that Danish entity does not have substantive entitlement to the dividends, the Danish tax exemption is denied. The Danish company would then pay 22% corporate tax on the dividends, roughly equivalent to the withholding tax that was avoided. In essence, using Denmark as a location for funnelling dividends to tax haven parent companies is directly targeted by the new BO requirement. Danish companies serving as holding companies should make sure that if they receive dividends under the exemption, they are not contractually or practically bound to immediately transmit those funds to an unqualified party.For foreign investors, the changes make Denmark a more attractive place to invest, as long as their investment structure is legitimate. A foreign corporate shareholder can receive dividends from a Danish company with 0% Danish withholding tax, even where its stake in the Danish company is less than 10%, which previously was not possible unless an applicable tax treaty provided for an exemption.
This particularly benefits investors from countries that may not have a favourable treaty rate for dividends; as long as their country is not hostile to information exchange, they can enjoy full relief at source. Notably, foreign venture capital funds, private equity and multinational companies taking minority positions in Danish enterprises stand to gain. The only foreign investors that cannot benefit are those in noncooperative jurisdictions or those that insist on control but are not protected by the EU/treaty umbrella. A foreign investor that does have a controlling stake in a Danish company and is in a treaty or an EU country, typically would be eligible for a reduced or zero rate via other provisions (the Parent-Subsidiary Directive provides for a 0% withholding tax on more-than-10% holdings within the EU, and most treaties significantly lower or eliminate tax on dividends from subsidiaries). For them, the new rules mainly extend similar benefits to less-than-10% holdings. However, a foreign investor that is, for example, resident in a non-treaty country and acquires a controlling interest in a Danish company, will still face Danish dividend tax—the new regime does not create a loophole that could be availed of in such a scenario.
Foreign investors should also be aware of the practical withholding procedure. Denmark operates a withholding tax system with respect to dividends. The law changes allow for a 0% rate, but as a safeguard, Danish companies paying dividends may still be required to withhold tax until qualification is confirmed. In fact, the law’s technical guidance indicates that if a foreign recipient claims the 0% rate for portfolio shares, the Danish payer can refrain from withholding only if the conditions are clearly fulfilled (which would include there being no indication of abuse). Otherwise, tax (27% for companies) might be withheld and the foreign shareholder would then have to reclaim it upon proving eligibility. This procedure ensures that Denmark does not inadvertently let revenue slip through abusive setups. Legitimate investors, however, will ultimately get a full refund if they satisfy the relevant criteria.
Holding Structures and Anti-Abuse Provisions
The Danish parliament and the tax authorities have signalled that they will be strongly focused on anti-avoidance in the context of this liberalisation. A number of existing anti-abuse rules, such as the intermediate holding company rule, will see reduced relevance. That rule was intended to prevent investors from pooling shares in a joint holding just to cross the 10% threshold and qualify for tax-exempt subsidiary dividends (the “reverse Christmas tree” structure). Now that even less-than-10% holdings can be tax-exempt, the incentive to form such structures has largely disappeared, except perhaps in cases involving listed shares (since listed shares remain taxable if the holding on which they are paid is under 10%). The intermediate holding rule is not repealed but, going forward, mainly targets arrangements seeking to avoid tax on listed share dividends by bundling stakes. Another rule that survives is the 85% “packaging” test: if an unlisted company’s assets are more than 85% listed shares, its shares are not treated as tax-exempt portfolio shares. This prevents turning what is economically a fund of listed equities into an “unlisted” company simply to escape tax, a niche but important safeguard in the new landscape.Perhaps the most significant anti-abuse measure is now the beneficial ownership assessment, which as discussed extends to Danish recipients. Tax advisers note this introduces some uncertainty and complexity as determining BO status can be fact-specific. The Danish authorities have a body of practice (and court rulings, as well as EU case law) on beneficial ownership in dividend cases, and these will now apply equally to domestic corporate chains.
The fundamental principle is that each dividend distribution must be tested: is the immediate recipient genuinely entitled to the profit or is it a pass-through for someone else’s benefit? The legal history of L 28 includes examples: where a Danish holding with no real activity transmits dividends from a foreign subsidiary to a foreign parent that otherwise would face withholding, this is viewed as abuse and triggers tax at the Danish holding level. Conversely, a scenario where a Danish holding receives dividends and uses them to repay intercompany debt to its parent was initially viewed as likely not streaming (since the equity of the holding was not reduced), indicating not every movement of funds constitutes abuse if it does not produce a tax advantage. The line can be fine, so companies will want to document commercial reasons for their structures and flows. The key takeaway is that Denmark’s dividend exemption is generous for genuine investments but unforgiving where conduit arrangements are in place.
From an international planning perspective, one quirk of the new rules is that they eliminate Danish tax on many smaller holdings even for investors in jurisdictions that lack tax treaties with Denmark, provided the countries exchange information with Denmark. For example, an investor in a country with no treaty (when, normally, a 27% Danish withholding would apply) can avoid Danish tax by keeping its holding below 10% and fulfilling the relevant conditions. If the same investor increased its stake to 10% or more (making it a subsidiary share), it would still face Danish withholding (potentially even a special 44% rate if its country of residence were on a tax haven blacklist). Thus, in some cases, the less-than-10% position is actually more tax-efficient than a larger stake, an unusual reversal of the old system. This may influence how foreign investors will structure their ownership in Danish companies (possibly preferring a consortium of smaller holdings rather than a single large owner in a nontreaty country). Of course, an investor that is large enough to have control will often seek treaty protection or an EU structure; the new rule primarily benefits genuine portfolio investors, which, by their very nature, do not control the company in which they are invested.
BDO Insight
In summary, Denmark’s removal of dividend tax on portfolio shares aligns its tax regime with the goal of attracting investment while balancing it with robust anti-avoidance rules. Danish companies enjoy greater flexibility and neutrality in the context of receiving intercorporate dividends (no taxation on small stakes) and foreign investors can invest in Danish ventures without the drag of Danish dividend withholding tax provided they are transparent and play by the rules. The beneficial ownership test and other conditions ensure that this generosity cannot be abused by routing income through Denmark to achieve unwarranted double nontaxation. Companies and investors should review their corporate structures, ensure compliance with the new conditions and possibly reconsider structures that involve de facto conduit companies. In practice, the Danish withholding tax administration will likely require documentation of beneficial ownership and tax residency status to be provided if the 0% rate is to apply. If in doubt, Danish payers may withhold tax and let the investor claim a refund upon proving eligibility. Over time, as these rules bed down, Denmark is expected to become a more popular holding jurisdiction for international investments, albeit one with strict anti-treaty-shopping guardrails.Overall, the dividend measures represent a significant shift: a move from a partial taxation model to a nearly full participation exemption for portfolio dividends, which catches Denmark up with international norms. The change unlocks opportunities for capital formation in Denmark and simplifies taxation for many corporate investors, while the accompanying anti-abuse provisions serve to protect the tax base from aggressive tax planning. Both Danish and international taxpayers should find the new regime, if navigated properly, to be an improvement that rewards bona fide investment and penalises only misuse.
Arne Riis
BDO in Denmark