LLC vs C-Corp for Danish Founders: The Honest Breakdown
Denmark has a comprehensive tax treaty with the United States and a tax authority (Skattestyrelsen) that takes a clear — and unfavorable — position on U.S. LLCs. The treaty is one of the best available for Danish founders, but only if you use the right entity.
The U.S.–Denmark Tax Treaty
The U.S.–Denmark treaty reduces withholding tax on dividends to 5% for corporate shareholders holding at least 10% of the paying company, and 15% for other shareholders.
| Treaty detail | Rate |
|---|---|
| Dividends (corporate shareholder ≥10%) | 5% |
| Dividends (other) | 15% |
| Interest | 0% |
| Royalties | 0% |
The Hybrid Mismatch Problem
Denmark's Skattestyrelsen treats U.S. LLCs as opaque entities for Danish tax purposes. This means a Danish founder owning a U.S. LLC is taxed in Denmark on LLC distributions as if they were dividends from a foreign corporation — not on the underlying income as it is earned.
The U.S. treats the same LLC as a pass-through (transparent), taxing the owner on income as earned. The result is a classic hybrid mismatch: Denmark taxes distributions; the U.S. taxes income. Without careful structuring, you pay tax twice on the same economic profit.
The Danish participation exemption (skattefritagelse for datterselskabsudbytter) may shelter C-Corp dividends from Danish corporate tax if you hold shares through a Danish holding company (ApS or A/S), but this exemption does not apply to LLC pass-through income.
C-Corp vs LLC: The Decision Table
| Factor | LLC | C-Corp |
|---|---|---|
| U.S.–Denmark WHT | Pass-through; no WHT at entity level | 5–15% WHT on dividends |
| Danish tax treatment | Opaque — distributions taxed as dividends | Dividends may qualify for participation exemption via Danish holdco |
| Hybrid mismatch risk | High — Skattestyrelsen position is well-documented | Low — treaty treatment is clear |
| VC fundraising | Not compatible with U.S. VC | Required for U.S. VC and accelerators |
| Compliance complexity | Simpler U.S. filing; Danish reporting required | More complex; Form 5472 if foreign-owned |
| Best for | Services, consulting, bootstrapped products | Venture-scale, VC-backed, Nasdaq-track |
Practical Recommendation
Choose a C-Corp if you are raising venture capital, plan to hire U.S. employees, or want a clean structure that Danish advisors and the Skattestyrelsen can handle without ambiguity. The 5% treaty rate makes the C-Corp the right default for most Danish founders.
Choose an LLC only if you are running a service business or consulting practice with no near-term plans for U.S. institutional funding, and you have confirmed with a Danish cross-border tax advisor that the hybrid mismatch is manageable in your specific situation.
For the broader picture on this topic, see our guide on choosing the best US state for a non-resident LLC.