Denmark

Companies are subject to tax on all income and are only allowed deductions on expenses that are related to the operations of the company.

According to Danish tax law, a territoriality principle prevails with respect to PEs and real estate located abroad. Hence, a Danish company is not taxed on its worldwide income. Instead, income from a PE outside Denmark or from real estate located abroad is excluded from taxable income. Non-resident companies are taxed only on profits from income sourced in Denmark. The CIT rate is 22%.

Hydrocarbon income tax

The ordinary CIT rate of 22% does not apply to Danish oil and gas upstream activities. Instead, there are two ‘ring fenced’ taxes on Danish oil and gas upstream activities. One very similar to the ordinary CIT; however, the tax rate is 25% instead of 22% and the income is ring fenced (i.e. no tax losses from other income can be deducted in income from the Danish oil and gas upstream activities). In addition to the 25% tax, a special income tax, labelled ‘hydrocarbon tax’, is levied on profits from the exploration and extraction of oil and gas on the Danish continental shelf at a rate of 52%. The 25% tax is deductible in computing the hydrocarbon tax, resulting in an effective tax rate of 64%.

Annual tax depreciation of platforms, wells, and inter-platform installations is allowed with up to 15% on a declining balance. Pipelines and other infrastructure assets can be depreciated with up to 7%.

Exploration costs can either be expensed or capitalised for tax purposes. If capitalised, the costs shall be amortised over five years with 20% annually from the year of first oil.

The following assets, which are subject to the special hydrocarbon tax (52%), qualify for an uplift of 5% in six years (30% in total):

• Exploration costs; however, only if capitalised, and only on exploration costs before declaration of commerciality on a specific field. After first oil in company, exploration costs can no longer be capitalised and thus no uplift can be claimed. Appraisal wells are regarded as exploration costs, and not a fixed asset as, for example, production wells.
• Platforms, wells, inter-platform installations, pipelines, and other fixed assets; however, only if the company owns the fixed assets, and not on leased or rented assets.

No uplift is granted under Chapter 2 (25%).

Temporary tax incentive regime

A voluntary and temporary tax incentive regime for oil and gas companies has been adopted (Chapter 3B).

The regime increases depreciation of production assets subject to hydrocarbon tax to 20% and uplift to 6.5% in six years (39% in total). Furthermore, it advances depreciation, as well as uplift, to time of payment. No accelerated depreciation/uplift applies to Chapter 2.

Chapter 3B is applicable to investments submitted for approval during the 'investment window' from 1 January 2017 until 31 December 2025 and finally approved by the Danish Energy Agency and completed no later than 31 December 2026. A decision to enter into the 3B regime should be made when filing the tax return for the first year the regime shall apply.

If the average annual oil price increases to 75 United States dollars (USD)/USD 85 per barrel, from 2022 a 5%/10% surtax will apply to income from upstream oil and gas production before interest and tax (Chapter 2) capped to 20.1% of capital expenditure investments made during the investment window. The surtax is deductible in the hydrocarbon tax. Any repayment obligation expires in 2037.

Related activities

Activity connected to the prospecting, exploration, or exploitation of oil and gas is taxed at 22%; however, it is taxable under a more aggressive regime than non-oil/gas activity. Any activity connected to oil and gas (e.g. drilling, seismic surveying, oilfield services) is taxable, regardless of whether a PE exists or not. This may be tempered by provisions in applicable double tax treaties (DTTs).

Tonnage Tax Scheme

Application of the Tonnage Tax Scheme

Danish tax law provides for a special tax scheme for shipping entities.

The main principle of the Tonnage Tax Scheme is that qualifying shipping entities are not taxed on the basis of their actual income derived from their business but on a fictitious income based on the net tons (NT) carrying capability of their fleet used for purposes covered by the Tonnage Tax Act.

The Tonnage Tax Scheme is available to:

• Danish shipping entities organised as limited liability companies (Aktieselskab [A/S] or Anpartsselskab [ApS])
• foreign shipping companies with the place of management and control in Denmark, and
• EU shipping companies with a PE in Denmark.

A decision to enter into the scheme should be made in the first income year where the entity qualifies for the Tonnage Tax Scheme, and the decision is binding for a period of ten years.

As a general rule, group-related shipping companies based in Denmark must make the same choice regarding the Tonnage Tax Scheme. However, shipping companies that do not have the same management or operating organisation and do not conduct business in related fields may be exempt from the joint decision provision.

Income from gross tonnage leased out on a bareboat basis exceeding 50% of the total gross tonnage is taxed under the general rules of Danish tax legislation. The assessment as to whether the condition is fulfilled is made at group level, and the calculation of leased out gross tonnage therefore does not include bareboat leasing between group companies domiciled in an EU/European Economic Area (EEA) country.

That the management of the company can be conducted from abroad to a certain extent, the seafarers can be foreigners, and the vessels can be strategically and commercially managed from EU/EEA if the place of effective management is still in Denmark to the effect that the entity is considered tax resident here. A principle of scale is used in the assessment and on a case-by-case basis.

Ships on time-charter contracts without call/buy options can only be included in the tonnage tax scheme with a gross tonnage amount equivalent to four times the total gross tonnage of (i) owned tonnage, (ii) tonnage on bareboat terms, and (iii) tonnage on a 1-7 year time-charter when a purchase option is agreed upon at the same time as the time charter agreement is concluded, whereby the charterer has the option to purchase the ship at the latest at the expiry of the time charter contract, at maximum the market price. The Danish Tax Agency has a strict practice in terms of whether a time-chartered vessel with purchase option fulfils the conditions to qualify as own tonnage.  If the 1:4 ratio between own and chartered tonnage is not met, taxation of gross earnings under the general rules of Danish tax legislation only takes place if the total gross earnings are positive. Similarly, the income subject to tonnage taxation under the fixed rates based on NT, cf. taxable income below, will be reduced.

During the income year, shipping companies that have elected to use the tonnage tax system must, on average, maintain or increase the percentage of owned gross tonnage registered in an EU or European Economic Community (EEC) registry. This does not apply if the average EU/EEC registered tonnage of all the shipping companies using the Danish tonnage tax system has not been decreased or the average EU/EEC gross tonnage of the specific shipping company is at least 60%. The baseline for measuring the level of EU/EEC flagged ships is the level that the shipping company had when it first entered the tonnage tax system. If the flag rule is not met, taxation of gross earnings under the general rules of Danish tax legislation only takes place if the total gross earnings are positive. Similarly, the income subject to tonnage taxation under the fixed rates based on NT, cf. taxable income below, will be reduced.

Turnover from activities that are carried out in close connection with this business 'ancillary income', such as the usage of containers and loading facilities, rental of shop space on board, etc., may only be included in the Tonnage Tax Scheme if they account for less than 50% of the total turnover from business. The turnover includes income from the sale of vessels (which was actually made tax-exempt in 2007 for vessels acquired after 1 January 2007). If the threshold is exceeded, it will entail a taxation of the exceeding part of the company’s gross earnings. Ships used for exploration, diving, fishing, towing, sand dredging, etc. are specifically exempt from the scheme. The same applies for certain types of ships, such as barges, floating docks, etc. However, EU/EEC registered ships used for towage activities at sea (i.e. not in and around ports) during at least 50% of their operating time during the income year may be included in the Tonnage Tax Scheme.

Ship management companies may also use the Tonnage Tax Scheme. A ship manager is defined as a company doing business with crew management and technical management of ships qualified for use in the Tonnage Tax Scheme. It is a requirement that the ship manager has taken over the full operating responsibility and all obligations and responsibilities according to the International Safety Management codex.

Taxable income

The taxable income for the part of the business that qualifies for the Tonnage Tax Scheme is determined for each ship as a fixed amount of Danish kroner per 100 NT per day according to the following:

Minimum Tax Act (adoption of the GloBE rules from Pillar II)

On 7 December 2023, the Danish Parliament enacted legislation, specifically the Minimum Tax Act, incorporating Pillar Two into Danish Law. The bill implements the EU Directive of 15 December 2022 and the OECD Global Anti-Base Erosion Model Rules ensuring a global effective minimum taxation of 15%. The Minimum Tax Act came into effect on 31 December 2023.

On 4 June 2024, a new law amending the Minimum Tax Act was adopted introducing safeguard measures to prevent groups from entering into hybrid arrangements aimed at exploiting the CbC reporting transitional safe harbour rules in the Minimum Tax Act, which allows setting the top-up tax for a jurisdiction to zero if a safe harbour is met. The amendment law generally sought to implement the OECD Administrative Guidance from December 2023 and to ensure alignment of the Danish law with the international standard, including the introduction of simplified rules for non-material entities (permanent safe harbour). The provisions amending the Minimum Tax Act are given retroactive effect from 1 January 2024.

The rules apply to group entities that are part of a multinational group or a large national group, where the group has had an annual turnover of at least 750 million euros (EUR; approximately DKK 5.6 billion) in two of the last four financial years before the current year. The calculation of the effective tax rate is based on a specially calculated tax base, determined with reference to the consolidated financial statements of the group, and an assessment of the taxes that may be included in the calculation of the effective tax rate.

The Minimum Tax Act contains two distinct charging provisions: the Income Inclusion Rule (IIR) and the Undertaxed Profits Rule (UTPR). UTPR is secondary to the IIR. Furthermore, the bill implements a Qualified Domestic Minimum Top-up Tax (QDMTT) as well as the permanent and transitional safe harbours.

The Danish IIR and QDMTT will apply for fiscal years commencing on or after 31 December2023. The Danish UTPR will generally apply for fiscal years commencing on or after 31 December 2024. For fiscal years commencing on or before 31 December 2026, and ending no later than 30 June 2028, any top-up tax in a jurisdiction will be set at zero if the multinational group or large national group meets one of the transitional CbC reporting safe harbours.

For more detailed information and the most recent updates, please visit PwC’s Pillar Two Country Tracker.

Local income taxes

There is no local CIT or similar surcharge.