Bill regarding tax exemption for enterprise shares

Date 24 nov. 2010

 

As part of the budget negotiations 2010, the Government has presented a bill which implies that certain enterprise shares become exempted from tax. According to present rules, shareholdings consisting of less than 10% of the company’s total share capital are subject to taxation on both dividends and proceeds at a sale or exchange. Consequently, entrepreneurs and risk-taking private investors might decline ownership of less than 10% which again might inhibit innovation, production and the enterprise industry in general.

 

Therefore, it is suggested that special regulation is enacted for the socalled enterprise shares. According to the proposed legislation, the tax exemption is conditional upon the shareholder not selling or otherwise transferring the shares during the first five years of ownership. Any loss on the shares will be deductable. If the shareholder subsequently participates in a capital increase, the shares acquired through the capital increase will be subject to the regular rules on taxation of proceeds and dividends on shares.

 

The proposed legislation constitutes government aid, and the rules herefore must be complied with. Thus, companies must either be small[1] as defined by the EU and be in the commencement, start-up or expansion phase or mid-sized[2] as defined by the EU, and be in the commencement or start-up phase. For mid-sized companies this means that, at the time of the investment, the company may not be offering its goods or services for commercial sale. Additionally, the company may not be generating any profits at the time of investment. For both types of companies it is also required that the investment constitutes an issue of new shares, so that, an investment in already issued and outstanding shares will not qualify as enterprise shares.

 

The legislation is expected to be passed in February 2011 and will apply to investments taking place after July 2011.

 

The initiative should be applauded, however, in its current form it will not solve the problem that have arisen as a result of the portfolio share taxation.

 

 

If you have questions or require additional information, please contact Partner, Adjunct Professor, Jakob Bundgaard, (jbu@mwblaw.dk) or Junior Associate Kim David Lexner (kdl@mwblaw.dk).

 

The above does not constitute legal counselling, and Moalem Weitemeyer Bendtsen does not warrant the accuracy of the information. With the above text, Moalem Weitemeyer Bendtsen has not assumed responsibility of any kind as a consequence of a reader’s use of the above as a basis of decisions and considerations.


[1] Small companies are defined as companies with less than 50 employees, and whose yearly turnover or yearly balance is below 10 million EUR. 

[2] Medium-sized companies are defined as companies with less than 250 employees and whose yearly turnover is not above 50 million EUR or whose yearly total balance is below 43 million EUR.