Open Subsidiary vs Branch in Denmark: Complete Guide

Introduction

It’s important to choose between opening a branch or a subsidiary when growing your company in Denmark. A subsidiary is a distinct legal entity that frequently offers greater operational autonomy and restricted liability, whereas a branch is an extension of the parent firm that has full liability but direct supervision. 

Both structures have various tax ramifications and compliance needs, and Denmark has a corporate tax rate of 22%. The decision is based on your business’s long-term strategy, operational requirements, and financial objectives. To assist you in making an informed choice, we’ll go over the main distinctions in this post, including taxation, expenses, and legal obligations.

Subsidiary vs Branch in Denmark: Which is better?

In order to find out which structure is better among subsidiary vs branch in Denmark, consider the following:

Legal Structure and Liability

When considering whether to open subsidiary vs branch in Denmark, it’s important to understand the legal structure and liability differences:

Subsidiary 

A subsidiary is a business that operates independently of its parent firm. This implies that the parent business has limited liability so any monetary losses are limited to the subsidiary. Although it necessitates greater compliance, this structure provides greater legal protection.

Branch 

In contrast, a branch is not an independent entity. Since the branch functions as an extension of the parent business, the parent is entirely responsible for all debts and liabilities incurred by the branch.

Ultimately, your company’s risk tolerance and legal preferences will determine whether to build a subsidiary or branch in Denmark. Each has unique benefits and things to think about.

Taxation and Financial Reporting

When deciding whether to open a subsidiary vs a branch in Denmark, taxation and financial reporting play a major role:

Subsidiary

Under Denmark’s 22% corporation tax rate, a subsidiary is taxed as a distinct legal company. It must adhere to local accounting norms, which may provide flexibility for tax planning, and file independent financial reports. Withholding taxes may also apply when profits are repatriated to the parent firm.

Branch

A branch’s profits are included in the parent company’s overall tax returns since it is taxed as a part of the parent business. While this arrangement makes some reporting easier, it could not provide as many opportunities for tax efficiency as a subsidiary. Financial statements for their Danish business must still be submitted by branches.

Your tax plan and reporting preferences will determine whether you should open a subsidiary or branch in Denmark.

Operational Independence and Control

When deciding whether to open subsidiary vs branch in Denmark, operational independence and control are key factors:

Subsidiary

A subsidiary has greater operational independence because it functions as a distinct legal entity. With little supervision from the main firm, it can hire staff, make local decisions, and run daily operations. If you desire more freedom in Denmark, this arrangement is perfect.

Branch

A branch has less autonomy because it is directly under the parent company’s authority. The headquarters is in charge of all significant choices, including those pertaining to finances and operations. Local responsiveness may be slowed down, even as more centralised control is made possible.

Depending on how much control and autonomy your company needs, you may decide to form a subsidiary in Denmark rather than a branch.

Compliance and Regulatory Requirements

When you decide to open subsidiary vs branch in Denmark, the compliance and regulatory requirements differ:

Subsidiary

A subsidiary is required by the Danish Business Authority to register as a distinct legal entity. It must submit independent yearly financial reports, abide by labour rules, and follow Danish corporate laws. Furthermore, subsidiaries could need a local board and adhere to particular governance guidelines.

Branches

Although they are easier to establish, branches still need to be registered with the Danish Central Business Register (CVR). It complies with Danish employment and tax rules while adhering to the internal control of the parent firm. Financial reporting does not include the entire worldwide firm; it only covers Danish activities.

The decision to form a subsidiary in Denmark as opposed to a branch depends on how prepared your company is to comply with local laws.

Cost Implications and Long-term Strategy

When weighing the decision to open a subsidiary vs branch in Denmark, consider the cost implications and long-term strategy:

Subsidiary 

Establishing a subsidiary entails greater upfront expenses, such as compliance requirements and legal expenditures. It does, however, provide greater flexibility for tax planning, local market integration, and long-term growth.

Branch

Establishing a branch is less expensive due to its simpler reporting and reduced startup costs. However, it puts the parent firm at greater risk and can restrict its possibilities for future growth.

Your decision to build a subsidiary rather than a branch in Denmark should be in line with your long-term business objectives and available funds.

Conclusion

Your company’s needs and objectives will determine if you decide to build a subsidiary or branch in Denmark. A subsidiary might be a preferable choice if you value long-term growth potential, minimal liability, and operational independence. 

A branch, on the other hand, can be more appropriate if you’re searching for a simpler, more affordable configuration that allows you to have direct management from the parent firm. It’s crucial to thoroughly consider the advantages and disadvantages of each structure because they each have unique tax, legal, and compliance obligations. In the end, your choice should be in line with your business’s risk appetite and Danish expansion plan.