Denmark has published a consolidated version of its Act on Tax-Free Business Conversion, setting out the conditions under which personally owned businesses may be transformed into corporate entities without immediate tax consequences.
The Danish Official Gazette published Executive Order No. 24/2026 on 13 January, proclaiming the consolidated text of the Act on Tax-Free Business Conversion. The consolidation incorporates amendments introduced by Act No. 1576 of 27 December 2019, which entered into force on that date.
The Act allows owners of personally owned businesses to elect for a tax-free conversion into a Danish public limited company (A/S), private limited company (ApS), or certain qualifying EU or EEA companies subject to corporate taxation and covered by information-exchange arrangements. The rules apply as an alternative to the general tax regime, provided that all statutory conditions are met.
To qualify, the owner must be fully tax-liable in Denmark at the time of conversion. As a general rule, all assets and liabilities of the business must be transferred to the receiving company, although the owner may opt to retain real estate used in the business and certain reserves held under the Danish “business scheme”. The entire consideration for the transfer must consist of shares or units in the company, and the owner must hold the entire share capital immediately after the conversion. The acquisition cost of the shares must not be negative, subject to limited statutory exceptions.
The conversion date is defined as the day following the status date of the last annual report of the personally owned business. The conversion must be completed within six months of that date, and the owner must submit prescribed documentation to the tax authorities within one month, including the opening balance sheet, calculations of the share acquisition cost, and proof of registration. Where a business has multiple owners, all owners must apply the rules jointly, use the same accounting period, and receive shares in proportion to their previous ownership interests. Certain categories of businesses defined in the Personal Tax Act are excluded from the scope of the regime.
The consolidated Act also details the tax and accounting treatment of qualifying conversions. Gains and losses on the transferred assets and liabilities are excluded from the owner’s taxable income at the time of conversion, ensuring tax neutrality. The receiving company succeeds to the tax position of the former owner, meaning that assets are treated as acquired by the company at the same time and at the same tax values as under the personally owned business, and prior tax depreciations are carried forward.
The tax value of the shares received by the owner is calculated on the basis of the tax value of the transferred net assets at the conversion date, taking into account any deferred tax provisions included in the opening balance sheet. Any deficit or unused tax losses in the personally owned business at the time of the last annual report cannot be carried forward to the company. In addition, assets and liabilities connected with a permanent establishment or property located abroad, including in the Faroe Islands or Greenland, are generally treated as disposed of at market value at the time of conversion.
Where an existing company is used as the receiving entity, it must have been established by the conversion date, must not have carried on business prior to the transfer, and must have equity consisting solely of unencumbered cash. The consolidated Act confirms the continued application of a detailed tax-neutral framework for business conversions, subject to strict eligibility, timing, and reporting requirements.
