• Professional News
  • 24 May 2012

Foreign Pension Providers Target Denmark

The Danish market for pension providers is generally considered lucrative. In 2010, an estimated USD 18.6 billion or an app. average of USD 3,440 per Dane was set aside in pension schemes, an amount which is expected to increase in future years. Only a few foreign pension providers are currently operating in Denmark but they have paved the way and others are expected to follow in the near future.

Until 2008, favourable tax treatment of Danish pension schemes effectively excluded foreign pension providers from the Danish market. As the result of a judgment from the EU Court of Justice (C-150/04), Danish legislation was amended in order to facilitate the access of EU/EEC-based pension providers to the Danish market.

Access to the Danish market under the favourable tax treatment procedure however still requires prior approval from the Danish Tax Authorities.

For decades, Danish pension providers received a favourable tax treatment denied to foreign pension providers. Payments made to Danish pension providers were deductible if made by an individual and was not considered taxable income if made by an employer on behalf of an individual.

On 30 January 2007, the EU Court of Justice declared the preferential treatment of Danish pension providers to be a violation of articles 39, 43 and 49 EC.

As a result, amendments were made to the Danish rules, granting approved foreign pension schemes the same favourable tax treatment available to Danish pension schemes. Only pension providers based in EU/EEC jurisdictions are eligible for approval.

In order to qualify for the favourable tax treatment, the foreign pension provider or an individual wishing to create a pension scheme with a foreign provider must submit an application to the Danish tax authorities, including:

  • a statement confirming that the foreign pension provider operates according to the legislation in its jurisdiction;
  • a statement committing the foreign pension provider to report to the Danish Tax Authorities and to withhold taxes and duties imposed under Danish law; and
  • documentation concerning the terms of the pension scheme(s) in question.

Furthermore, the individual must accept that future payments from the pension scheme are taxed in Denmark even if the individual is not a Danish tax resident at the time of the payout.

Foreign taxes paid on payments and proceeds from an approved pension scheme will generally be deductible on the taxes payable in Denmark.

As a result of the amendments made, the Danish market for pension providers has been open to foreign pension providers since 2008. As of 2010, payments to various pension schemes amounted to app. USD 18.6 billion. It is generally expected that the market for pension products will increase in the years to come due to widespread uncertainty concerning the longevity of state-funded pension schemes.

During the past year, a few foreign pension providers have entered the growing market for pension products in Denmark. Despite this development, the Danish market for pension products largely remains in the hands of Danish pension providers with only a handful of foreign pension providers represented in Denmark.

The involvement of Bech-Bruun in a majority of the products currently approved by the Danish Tax Authorities has provided the pension tax team with significant hands-on experience in relation to foreign pension providers' entry into the Danish market.

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