Denmark M&A and Startup Tax Guide

Convertible Loans (Konvertible Lån)

Convertible loan notes are a common bridge-round instrument in Danish startups. Tax treatment differs sharply between genuine convertibles and agreement-based convertibles.

Genuine Convertibles (Konvertible Obligationer)

• Company perspective: No tax consequences for the company upon issuance, conversion, or repayment. Interest paid is deductible.
• Investor (company) perspective: No taxation upon issuance. Upon conversion, the instrument changes from a taxable portfolio share to a tax-exempt subsidiary/group share. If a valuation cap or discount applies, the difference may be immediately taxable. Interest received is taxable as ordinary interest income.
• Repayment: Taxation depends on whether repayment occurs before or at maturity. Repayment at par has no gain/loss; early repayment may trigger capital gain taxation.

Agreement-Based Convertibles

• No corporate law implementation: These are contractual rights to convert at a future event, not implemented in the articles of association.
• Higher tax risk: SKAT may treat the conversion right as a separate financial instrument, potentially triggering taxation at conversion differently from genuine convertibles.
• Recommendation: Always implement conversion rights in the articles of association to qualify as genuine convertibles.

Warrants (Tegningsoptioner)

Warrants grant the holder the right to subscribe for new shares at a predetermined price within a specified period. They are widely used for employee incentive programs.

Employee Warrants — Taxation at Grant

• Grant: If the warrant is granted at market value (the exercise price equals the fair market value of the underlying share), there is generally no taxable benefit at grant.
• Discount: If the exercise price is below market value, the difference is taxable as salary income (A-income) at grant. SKAT requires the warrant value to be calculated using an option pricing model (typically Black-Scholes or the model from TfS1995.197).
• Exercise: No taxation at exercise (the shares are already taxed at grant). The shares are then subject to normal capital gains tax on subsequent disposal.
• Reporting: Employer must report warrant grants through eIndkomst. The warrant program must be documented with a formal agreement.

Investor Warrants

• Financial contract treatment: SKAT may classify pre-warrant agreements (options on warrants) as financial contracts under KGL §29 rather than warrants under ABL. This distinction affects whether gains are taxed as capital gains (ABL) or as financial contract income (KGL).
• Warrant pool: Typical startup warrant pools are ~10% of outstanding share capital. Warrants are usually granted free of charge to key employees and board members.

Carried Interest (LL §16 I)

Denmark taxes carried interest as salary income under Ligningsloven §16 I, with effective rates up to ~56% (personal) or ~22% (corporate).

• Trigger conditions: (a) excess return on investments, (b) earned by a person fully taxable in Denmark, (c) the person has a preferential position in the fund, (d) the fund is a private equity, venture capital, or infrastructure fund.
• 2025 expansion: Two new binding rulings (SKM2025.46.SR and SKM2025.47.SR) expanded the scope. Investments made outside the fund directly in an underlying portfolio company may now also be covered if the investment is made "through the fund" and the investor has a preferential position. This affects co-investment structures and incentive programs.
• Loan funds excluded: In SKM2025.447.SR, the Tax Board confirmed that loan funds providing loans with associated warrants are not PE/VC funds under §16 I — therefore carried interest from such funds is not taxed as salary income.
• Definition of participant capital: SKAT's expanded view means that ordinary debt instruments are not included in participant capital, and reinvesment in portfolio companies can be treated as investment "through the fund."

Venture Capital Fund Structures

• Danish VC funds: Typically structured as limited partnerships (kommanditselskaber, K/S) which are tax-transparent. Investors are taxed directly on their share of income.
• Cross-border VC: Non-Danish fund managers must be aware of Danish PE/VC fund classification rules, including whether their fund falls under §16 I.
• Withholding tax on exits: Danish withholding tax (27%) applies to share sales by non-resident investors unless a treaty exemption applies. For qualifying EU investors, the sale of shares may be tax-free in Denmark under the Parent-Subsidiary Directive.
• Due diligence: Tax due diligence is standard in Danish M&A. Focus areas: historical tax compliance, loss carryforwards (with change-of-ownership limitations), transfer pricing, hidden tax liabilities on asset deals.

Startup Tax Incentives

• Employee shares (7P/16/28): Startups can grant shares to employees at a discount under the section 7P scheme (tax at sale, not grant). See Employee Shares Guide →.
• Iværksætterkonto: Entrepreneurs can save up to 60% of net salary (max ~188,000 DKK/year) in a special account with deferred taxation. See Iværksætterkonto Guide →.
• VSO for startups: The Virksomhedsordning allows sole proprietors to retain profits at 22% corporate rate. See Starting a Business Guide →.
• R&D tax credit: Enhanced R&D deduction of 108–120% (cash payout of up to 25M DKK). See Business Expenses Guide →.

Cross-Border M&A Considerations

• Share deal vs asset deal: Share deals are generally preferred for tax reasons (participation exemption on gains, no step-up). Asset deals may be preferred by buyers seeking a tax basis step-up.
• Withholding tax on interest: No WHT on arm's length interest to unrelated parties. 25% WHT on interest to related parties unless treaty relief applies. Zero-coupon convertible bonds are exempt.
• Hybrid instruments: Since 2006, the Danish qualification of hybrid instruments must follow the foreign qualification. If treated as equity abroad but debt in Denmark, payments are recharacterised as dividends.
• Loss carryforwards: Change of ownership may restrict loss utilisation. Danish loss succession rules (SEL §31) apply in group restructurings.

For corporate restructuring rules, see our Business Tax Return Guide → (fusion, spaltning, tilførsel af aktiver). For holding company structures, see Holding Companies Guide →. For a comprehensive deep dive into cross-border M&A — including outbound/inbound mergers, demergers, asset contributions, exit taxation, and hybrid mismatch rules — see our Cross-Border M&A Tax Guide →.

Related Guides

• Employee Shares Guide → — section 7P, 16, 28 stock compensation
• Holding Companies Guide → — participation exemption, sambeskatning
• Business Tax Return Guide → — corporate restructuring rules
• Iværksætterkonto Guide → — establishment saving account
• Starting a Business Guide → — VSO, business registration
• Tax Treaties Guide → — treaty rates, relief procedures, MAP