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Country Commercial Guides
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VII. INVESTMENT CLIMATE
Openness to Foreign Investment: Denmark is heavily dependent on foreign trade and international cooperation. It follows liberal trade and investment policies and encourages increased foreign investment. The Danish Government and quasi-official organizations are running campaigns to attract foreign investment, describing Denmark as a gateway to the large EU Single Market, to Scandinavia, and to the new democracies in Eastern Europe. With the completion in June 2000 of the Oresund Bridge connecting Denmark and Sweden, the Danish Government hopes that the Oresund region will become a center and a gateway which will attract significant foreign investment. Denmark treats foreign investors on a non-discriminatory, national treatment basis. U.S. and foreign firms may participate in Government financed and/or subsidized research and development programs on a national treatment basis. As a general rule foreign direct investment in Denmark may take place without restrictions and screening. Ownership restrictions apply to only a few sectors, including those for national security reasons (see below). The Embassy has no record of any non-governmental groups which have been opposed to a U.S. foreign investment. The investment climate is good also as a result of a stable, highly skilled and efficient labor force, and the corporation tax at 34 percent is among the lower in the EU. Work permits are easy to obtain for foreign managerial staff, but permits for white or blue-collar workers from countries outside the EU and the Nordic countries, who compete with Danish workers, are difficult to obtain. High-income foreigners stationed temporarily (maximum three years) in Denmark are subject to lenient income taxation - in 1999, 25 percent plus a 8 percent labor market contribution tax on gross income. Compared with the progressive income tax system applicable to Danes, this is an attractive incentive. Otherwise, personal income taxes in Denmark are among the very highest in the world. Investment in regional development areas may take advantage of certain grants and access to preferential financing. In 1998, Denmark changed its tax legislation to provide for tax-free treatment of dividends paid to and from holding companies in Denmark. More than 200 holding companies have reportedly been established to take advantage of this new tax treatment.
Conversion and Transfer Policies: Denmark has no restrictions on capital transfers. Denmark adheres to OECD and EU rules on the liberalization of capital movements, and has no foreign exchange restrictions, only reporting requirements. Profits can be freely repatriated, but are subject to Danish taxation. The Denmark/United States double taxation agreement, which dates back to 1948, is under revision at present.
Expropriation and Compensation: Public expropriation of private property is almost entirely limited to public construction purposes, such as bridge and highway projects, and then only with full compensation. There have been no cases of Danish or foreign companies being expropriated for other purposes since World War II.
Dispute Settlement: The Embassy has no knowledge or record of any disputes involving foreign, including U.S., direct investors in Denmark. The Danish legal system belongs to the "Nordic family" which is based on continuity through centuries in contrast with the Anglo-Saxon Common Law. In fact some Danish legislation from the 17th century, which has its roots dating back to the 13th century, still is in force. The Danish legal system includes written laws covering practically all commercial issues. Denmark has a written and consistently applied Bankruptcy law (Consolidated Act No. 118 of February 4, 1997). Monetary adjustments under the bankruptcy law are made in freely convertible Danish Kroner. Creditors' claims against a bankruptcy are met in the following order:
1) Costs and debt accrued during the treatment of the bankruptcy;
2) Other costs, including the court tax, relating to attempts to find a solution other than bankruptcy;
3) wage claims and holiday pay;
4) excise taxes owed to the Government;
5) all other claims.Financing of real estate, both private and business, are for the most part done through the well established Danish mortgage bond credit system, the security of which compares to that of Government bonds. All mortgage credits in real estate are recorded in local public registers of mortgages. Except for interests in cars and commercial ships, which are also publicly recorded, other chattel interests generally are unrecorded.
Denmark is a party to the 1965 Convention on the Settlement of Investment Disputes between States and Nationals of other States, and to the 1958 Convention of the Recognition and Enforcement of Foreign Arbitral Awards. Subsequent Danish legislation makes international arbitration of investment disputes binding in Denmark. In addition, Denmark is a party to the 1961 European Convention in International Commercial Arbitration and to the 1962 agreement relating to the application of this convention.
Performance Requirements/Incentives: Performance requirements are applied only in connection with investment in hydrocarbon exploration, where concession terms normally require a fixed work program, including seismic surveys and in some cases exploratory drillings, consistent with applicable EU directives.
Performance incentives are mostly designed to protect the environment, mainly through reduced energy and water use. Denmark was the first of the EU countries, in January 1993, to introduce a carbon dioxide (CO2) tax on business and industry covering all sorts of energy uses. The present CO2 tax, e.g., on diesel oil is about $0.14 per gallon, on electricity $0.014 per kWh, on natural gas $0.03 per cubic meter, and on coal $33.61 per metric ton. However, companies with a production dependent on large use of energy, e.g., steel plants and glass and brick producers, may be able to avoid virtually the entire tax. In addition, companies which sign "energy savings agreement" with the Government benefit from reductions in the tax. In addition,a SO2 tax of DKK 20 ($2.75) per kilo of SO2 content is imposed on all fuels. Offsetting part of the CO2 tax on industry are a number of subsidy measures to promote renewable energy and natural gas use, and other measures reducing costs to business to avoid jeopardizing Danish competitiveness. A large number of other environmental and energy taxes are imposed and fall mostly on households.
Right to Private Ownership and Establishment: As a general rule, any foreign or domestic private entity may freely establish, own, and dispose of a business enterprise in Denmark. The capital requirement for establishing a corporation (aktieselskab) is DKK 500,000 and for establishing a private company (anpartsselskab) DKK 200,000. Registration fees are nominal. Capital can take the form of goods, equipment and/or cash on hand. There is a general requirement that managers and at least half of the Board of Directors must be Danish or EU residents.
Denmark, like most other countries, has restrictions on establishment in legal services and other areas. Danish (or EU or Nordic) professional certification and local Danish experience to practice in Denmark is required.
Ownership restrictions are applied in few sectors, including:
-- Hydrocarbon exploration. 20 percent Government participation, but no longer on a "carried interest" basis.
-- Arms production. Foreigners may hold maximum 40 percent of equity and 20 percent of voting rights.
-- Aircraft. Foreign citizens or airlines may not directly own or exercise control over aircraft registered in Denmark.
-- Ships registered in the Danish International Ships Register (DIS). A Danish legal entity or physical person must own a significant share and exercise a significant control (20-25 percent) over such ship. In addition, ships under bareboat charter to a Danish company may be registered in the DIS.
For EU physical persons and legal entities, some of the above restrictions do not apply.
Protection of Property Rights: Denmark is a party to, and enforces, a large number of international conventions and treaties concerning protection of intellectual property rights. Denmark and the EU are also parties to and have ratified the WTO "TRIPS" agreement. Denmark in general appears to offer adequate protection of property rights, but a small number of cases have arisen under of the "TRIPS" agreement (see below).
-- Patents: Denmark is a member of the World Intellectual Property Organization (WIPO). It adheres to the Paris Convention for the protection of Industrial Property, the Patent Cooperation Treaty (PCT), the Strasbourg convention, and the Budapest convention. Denmark has ratified the European Patent Convention and the EU Patent Convention.
-- Copyrights: Denmark is a party to the 1886 Bern Convention and its subsequent revisions, the 1952 Universal Copyright Convention and its 1971 revision, the 1961 International Convention for the Protection of Performers, etc., and the 1971 Convention for the Producers of Phonograms, etc. However, U.S. authors do not receive royalties from Denmark for photocopying of their works used in Danish schools and universities, because the Danish collecting agency Copy-Dan will not accept the validity of "en bloc" powers of attorney issued by U.S. publisher and author organizations.
Software piracy is a problem in Denmark and is estimated to cost the industry more than $100 million annually. Software piracy is expected to decline due to recent successful efforts by, among others, the international software company-owned Business Software Alliance. The U.S. Government since 1997 has placed Denmark on the U.S. Trade Act's "301 Watch List" for failure to meet TRIPS article 50 obligations to provide "inaudita altera parte" searches. In response, the Danish Government has set up a committee to find out which legislative changes are needed to meet its TRIPS requirements. Piracy of other items, including music records/CDs, film videocassettes and books, appears limited. There is no evidence that pirated products are imported to or exported from Denmark.
Trademarks: Denmark is a party to the 1957 Nice Arrangement and to this arrangement's 1967 revision. A new Danish trademark act entered into force January 1, 1992 which also implements the EU trademark directive harmonizing EU member countries' trademark legislation. Denmark, which formerly applied the "global exhaustion" principle on parallel imports, is now responding to a 1998 European Court ruling upholding "regional or community exhaustion". Denmark strongly supports the establishment of an EU-wide trademark system.
-- Trade Secrets: As a general rule, trade secrets are adequately protected in Denmark. However, Danish legislation which requires registration of the composition of and test data for certain chemical compounds and products at this point lacks adequate protection of such information for a number of chemical substances, including biocides. By a Danish Supreme Court ruling, the approving authorities at present are obligated to use such information for approval of similar and competitive products without the consent of the owner of those rights. The failure to protect such confidential data appears to be in violation of TRIPS Article 39.3.
-- Semiconductor Chip Layout Design: Denmark has legislation implementing EU regulations for the protection of the topography of semiconductor products which also extends protection to legal U.S. persons.
Transparency of the Regulatory System: As an industrialized country based on a free market economy, Danish economic policy and laws foster competition. The Danish Competition Law was revised in 1997 (Act No. 384, June 10, 1997) in order to reflects (in large part, anyway) the "prohibition" principle used in most other EU and OECD countries. As Denmark would like to see increasing foreign direct investments, its laws and policies, which grant "national treatment" to foreign investment, support that goal. Bureaucratic procedures appear streamlined and transparent.
Efficient Capital Markets and Portfolio Investment: As noted above, Denmark has fully liberalized foreign exchange flows, including for direct and portfolio investment purposes. Credit is allocated on market terms and is freely available (depending of course on collateral offered). A large variety of credit instruments are available, including, but not limited to: commercial bank overdraft facilities for operational purposes, investment loans, export credits and financial loans in foreign currencies.
Total assets of the five largest Danish banks amount to $179 billion and account for more than 80 percent of total banking sector assets. The two major banks, Den Danske Bank and Unibank, also operate as large financial supermarkets, each offering a broad variety of financial services. The Danish banking system is sound and under strict control by the Financial Sector Supervisory Authority.
Danish legal, regulatory, and accounting systems for the business sector are transparent and largely consistent with EU directives and regulations.
Danish company law and regulations, except in relation to the sectors mentioned above, do not authorize companies to specifically limit or prohibit foreign investment. Also the Embassy has no record of any efforts, by private sector or the Government, to restrict foreign participation in standards-setting consortia or organizations, or of practices used by private firms to restrict foreign investment.
Political Violence: Political violence, as a general rule, is unknown in Denmark.
Corruption: Corruption is generally unknown in Denmark. Corruption is covered under the Danish Penal Code (Consolidated Act. No. 648 of August 12, 1997, as amended) which provides for imprisonment of up to three years for the private individual(s) involved and up to six years for the public employee(s) involved. Denmark intends to have implementing legislation and ratification of the OECD Anti-Bribery Code (and of EU and the Council of Europe anti-bribery conventions) in place before the end of 1999. In addition, effective January 1, 1998, Denmark repealed the right to deduct bribes paid by business to officials at home and abroad. A recent international study shows that Denmark is at the bottom of the list of countries in which corruption is found. The Embassy has no record of corruption cases in Denmark or of U.S. firms seeing corruption as an obstacle to investment in Denmark.
Bilateral Investment Agreements: Denmark's bilateral investment agreements are generally with countries where Danish investments involve participation of the government-funded Industrialization Fund For Developing Countries and the Investment Fund for Central and Eastern Europe (see below). In addition, the Parliament in early 1996 approved the establishment of an "Investment fund for Growth Markets" aimed at promoting Danish/foreign joint ventures in high-growth developing countries, e.g., South Korea, Taiwan, Argentina and Chile. Investment agreements have been entered with the following countries as of year-end 1998 (in alphabetical order and with year of publication): Argentina (1995); Bulgaria (1996); Chile (1996); China, People's Republic of (1985); Estonia (1993); Hong Kong (1995); Hungary (1989); India (1997); Indonesia (1970); Korea, South (1988); Latvia (1995); Lithuania (1994); Malaysia (1993); Mongolia (1997); Nicaragua (1998); Pakistan (1997); Peru (1997); Poland (1991); Romania (1996); Russia (1997); Czech and Slovak Federal Republic (1993); Sri Lanka (1985); South Africa (1997); Turkey (1993); Ukraine (1995); Venezuela (1997); and Vietnam (1995).
OPIC and Other Investment Programs: OPIC programs are not applicable to U.S. investments in Denmark, but may be used by at least 95 percent U.S.-owned subsidiaries in Denmark to support their investments in developing countries and in former east bloc countries. Denmark is a member of the Multilateral Investment Guarantee Agency (MIGA).
Labor: The Danish labor force includes about 2.9 million persons. The total number employed in 1998 was about 2.7 million, of which the private sector accounted for 71 percent. Official unemployment in 1998 came to 182,700, or 6.4 percent of the labor force, which is below the estimated structural unemployment rate. Limited labor bottlenecks have occurred in some industries and in some private and public services, in part a result of the economic upturn through 1998 and of people temporarily withdrawing from the labor market in order to take advantage of the government's leave program. The participation rate for women in the workforce is among the highest in the world (about 80 percent for women aged between 16 and 60 years). The labor force is highly organized with more than two million trade union members accounting for more than 80 percent of all wage and salary earners. Labor disputes and strikes occur sporadically in connection with new labor contract negotiations. As a general rule labor/ management relations are excellent, based on dialogue rather than confrontation. Labor market conditions and wages are in general covered by national contracts, which were traditionally negotiated every two years. However, in connection with the 1995 contract negotiations, the industrial sector entered three-year contracts while other sectors entered two-year contracts. Labor contracts were negotiated in early 1997 covering wage earners in private sector outside the industrial sector (one, two and three-year contracts). New two-year industrial labor contracts were legislated by the Parliament in early 1998 following a 12-day conflict due to failure to attain rank-and-file approval of the first agreement reached between management and labor. New public sector (three-year contracts) was entered in early 1999, following a short strike by nurses. Employers are complaining that the out-of-step contracts have caused a spiral effect in unions' claims, with a negative impact for the economy so, provided the industry enters two-year contracts in 2000, all labor contracts would be brought back in step in 2002.
The contractual work week for most wage earners is 37 hours. Employees are entitled to five weeks of paid annual leave. Denmark has well-functioning unemployment insurance and sick-pay schemes.
Danish wages are high by international standards, but employer contributions to social security are very low. Thus, total employer costs per hour worked are lower in Denmark than in Germany, Switzerland, Belgium, Norway, Japan, Austria and the Netherlands. In 1998, the average total direct hourly wage cost in manufacturing was DKK 151 ($ 22.55). The lowest paid worker (retail trade) received about DKK 80 ($ 12.00) per hour. Indirect employer costs, including overtime, holiday and vacation pay, and social contributions add about 16 percent to the direct costs. Danish wages are expected to increase about 4.5 to 5 percent in both 1999 and 2000. Denmark adheres to ILO conventions protecting worker rights. In a modern industrialized society like Denmark, with an expensive, highly skilled labor force, and labor cost factors have impacted significantly on the country's technological direction. Most Danish manufacturers, even the smaller ones, use state-of-the art computers in production and administration.
Foreign Trade Zones/Free Ports: The only free port in Denmark is the Copenhagen Free Port. The concession for running the free port is granted to the Copenhagen Free Port and Stevedoring Company, which is fully owned by the Copenhagen Port Authority. The facilities in the free port are basically used for imports, exports, and transit trade but there are also a few manufacturing firms. However, new manufacturing operations can only be established with the permission of the customs authorities, which is granted only if special reasons exist for having the facility in the free port area. Certain minor procedures, such as preparing and finishing imported automobiles for sale, are not considered production, and are allowed in the free port. The Copenhagen Free Port welcomes foreign companies establishing warehouse and storage facilities, whether for servicing Denmark only or Scandinavia, part or all of the EU, or East European and Baltic countries.
Capital Outflow Policy: Denmark has no restrictions on exports of capital and outward direct investment. Investments in developing countries, in east and central European countries and in emerging markets with a per capita GNP not exceeding $5,435 (1998) is promoted through the government-funded Industrialization Fund for the Developing Countries (IFU), the Investment Fund for East and Central Europe (IO), and the Investment Fund for Emerging Markets (IFV), all under the same administration. The funds offers assistance in identifying projects and establishing joint ventures, which is also freely available to foreign-owned, including U.S., companies based in Denmark. In the project identification phase, the funds provide loans at preferential rates to finance feasibility studies which may be converted to a non-repayable grant if the project is established. In the active investment phase, the funds participate with share capital (up to 30 percent and with participation on the Board of Directors) and loans. The funds' total engagement in a project usually will not exceed 25 percent of the total investment. Once a project is financially consolidated and running smoothly, the funds withdraw from it. As noted above, OPIC programs may be used by U.S. subsidiaries in Denmark, including as a supplement to IFU/IO programs.
Foreign Investment Statistics:
Source: Danish Central Bank Foreign Direct Investment (FDI) Statistics.
For the four years ending in 1998, foreign direct investment flows averaged DKK 19.4 billion annually ($2.9 billion). EU countries provided 51% of this. The EU breakdown was the U.K. 16% of total FDI, Sweden 14%, the Netherlands 7%, Germany 6%, and other EU countries 8%. Norway provided 7% and the United States 36%. The U.S. FDI figure includes U.S. Ameritech's takeover in 1998 of a controlling interest in the Tele Danmark which cost close to $4 billion and is the largest FDI ever in Scandinavia.
FDI in Denmark by Country of Origin (annual inflows in billions of Kroner)
1995 1996 1997 1998 TOTAL ALL 19.4 11.0 10.3 37.0 (percentage of (1.9%) (1.0%) (0.9%) (3.2%) GDP) of which EU total 15.8 9.0 7.9 7.0 of which -United Kingdom 8.0 0.7 2.3 1.5 -France 0.6 0.4 0.7 0.8 -The Netherlands 2.0 1.6 0.8 0.8 -Germany 1.5 1.6 0.6 1.1 -Sweden 3.1 3.2 3.1 1.7 Other total 3.6 2.0 2.4 30.0 of which --Norway 0.5 0.5 1.4 3.1 --United States 1.0 1.0 0.5 25.7 --Japan 0.0 0.1 0.0 0.0 FDI in Denmark, Distribution by Sectors (annual inflows in billions of Kroner) 1995 1996 1997 1998 TOTAL ALL 19.4 11.0 10.3 37.0 Manufacturing 2.3 3.0 3.2 1.8 of which -Food/Beverages 0.9 0.4 0.6 0.2 -Chemical Industry 0.2 0.4 0.2 0.1 -Metalworking 0.6 1.2 1.6 1.3 Building/Construction 1.2 0.5 1.1 0.1 Agriculture and Raw Materials 0.0 1.0 0.5 0.8 Trade, Hotels, etc. 3.3 2.1 1.9 2.7 Transport and Communication 1.7 1.0 0.7 25.0 Financial Sector and Business services 10.6 2.9 2.6 5.5 Danish FDI abroad by Country of Destination (annual outflows in billions of Kroner): 1995 1996 1997 1998 TOTAL ALL 20.5 18.9 22.1 29.3 (Percentage of GDP) (2.0%) (1.8%) (2.0%) (2.5%) of which EU total 9.6 14.0 14.2 21.6 of which -United Kingdom 0.9 1.4 3.1 11.5 -France 0.7 0.6 0.3 0.2 -The Netherlands 1.1 5.5 0.7 1.0 -Germany 2.9 0.9 2.9 1.3 -Sweden 2.2 4.4 5.0 3.4 Other total 10.9 4.9 7.9 7.7 of which --Norway 0.3 0.4 0.7 2.4 --Switzerland 2.3 0.8 1.7 1.2 --Eastern Europe 1.1 1.5 1.3 1.1 --United States 5.3 1.1 1.9 0.8 --Japan 0.1 0.2 0.1 0.3H. Major Foreign Investors: The major foreign investors in Denmark are other EU countries, Norway and the United States. The Danish Central Bank, most recently in late 1998, published detailed FDI stock figures as of the end of 1996. Total FDI in Denmark (equity capital and inter-company loans net) was valued at DKK 132.8 billion, distributed between Sweden (DKK 21.1 billion), the United States (DKK 17.7 billion), Norway (DKK 17.6 billion), United Kingdom (DKK 16.1 billion), the Netherlands (DKK 11.4 billion), other EU countries (DKK 26.0 billion, and other countries (DKK 22.8 billion). The figure for the U.S. increased sharply in 1998 with U.S. Ameritech's take-over of a controlling interest in the national telecommunication entity Tele Danmark (which almost tripled U.S. FDI to some $6 billion). Other major U.S. FDI in Denmark is in oil exploration, trade, and financial services.
There are about 250 U.S. subsidiaries in Denmark representing roughly one-quarter of the present value of total FDI in Denmark. Reference is also made to the U.S. Department of Commerce's publication Survey of Current Business which provides additional information on the U.S. FDI position in Denmark.
The following major FDI in Denmark by U.S. companies are:
Ameritech Telecommunications IBM Information Technology (IT) Compac IT Hewlett-Packard IT Texaco Energy Amerada Hess Hydrocarbon exploration GE Capital Bank Finance York Holdings Corp. Refrigerating Equipment Tenneco Inc. Automotive Computer Sciences Corp., USA Information technology BellSouth Telecommunications Lucent Technologies Optical fibers
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[end of document] Note* International Copyright, United States Government, 1998 (or other year of first publication). All rights under foreign copyright laws are reserved. All portions of this publication are protected against any type or form of reproduction, communications to the public and the preparation of adaptations, arrangement and alterations outside the United States. U. S. copyright is not asserted under the U.S. Copyright Law, Title17, United States Code.
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