A trust differs from ordinary ownership in that the property right is divided in two: the trustee has the formal (legal) property right, while the beneficiaries have the right to the yield or the benefits of the wealth (economic ownership).

Trusts are often used abroad as part of estate planning, wealth management or charitable purposes, but the construction is not directly known in Danish law. In Denmark, trusts are therefore assessed for tax purposes according to their real content, i.e. how they function in practice.

For tax purposes, it can be of great importance how the trust is structured. If the settlor still has control over the funds, the trust's income can be taxed with the settlor in Denmark. If the funds, on the other hand, have in fact been transferred to the trustee, the trust can in certain cases be regarded as an independent tax subject.

The taxation depends on who in fact has the right of disposal over the wealth. If the settlor retains control or influence on the management or the payments, the trust is regarded as transparent, and the income is taxed with the settlor, as if the wealth were still his or her own.

If the trust, on the other hand, is irrevocable, and the settlor has definitively given up control, it can be regarded as non-transparent (independent entity). In that case, it is not taxed in Denmark, unless there are Danish recipients of the funds.

Danish recipients of payments from foreign trusts are as a general rule taxed on the amount as personal income, unless the payment can be qualified as inheritance or gift, which is instead taxed according to the gift tax rules.

Danish persons who function as settlor, trustee or beneficiary in a foreign trust must report information to the Danish Tax Agency via the Register of foreign trusts and foundations, which has been established under the EU's anti-money laundering and transparency directives. The purpose is to identify the real owners and controlling persons.

In addition, Danish taxpayers who receive payments from a foreign trust must report the amounts on the annual tax return.

If a Danish person establishes a foreign trust or deposits funds in an existing trust, this must likewise be reported to the Danish Tax Agency.

If the trust is regarded as transparent under Danish rules, it means that the trust's income is taxed with the beneficiary already at the time the income is earned, not first when it is paid out. This means that the dividend may already have been taxed continuously, and the recipient must include it in his or her annual tax return as personal income.

If the trust, on the other hand, is non-transparent (independent legal entity), the dividend is only taxed when it is actually paid out to the beneficiary. In that case, the dividend may be subject to withholding tax abroad, and Denmark will subsequently tax it in accordance with the Danish rules, but with the possibility of credit for paid foreign tax under the rules on double taxation.

For trusts that have been established or provided with funds on 1 July 2015 or later, the special rules in the Danish Tax Assessment Act § 16 K apply.

The rule means that if a person who is fully tax liable to Denmark establishes or deposits funds in a foreign trust, the person is taxed on the return on the deposited assets, regardless of whether the funds remain in the trust or are paid out.

The provision is intended to prevent persons from being able to avoid Danish taxation by transferring wealth to a foreign trust to which they still have an economic connection.

The taxation can, however, be avoided if the settlor can document that the wealth has been transferred definitively and irrevocably, and that the settlor no longer has right of disposal or control over the funds.

A trust is regarded as independent and irrevocable when the wealth has been definitively separated from the settlor's disposal, and the trustee acts independently without influence from the settlor. This presupposes that:

• the trust is irrevocable, and the settlor cannot change or cancel it,
• the trustee is a professional, independent manager (e.g. bank or trust company),
• the settlor does not have instruction, advisory or veto right,
• the circle of recipients is determined in advance, and
• the trust has its own accounts and financial statements.

When these conditions are met, control is regarded as eliminated, and the trust can qualify as an independent tax subject.

A trust is regarded as being under the settlor's control when the settlor directly or indirectly can influence the trust's decisions or dispose of the wealth. This applies among other things if:

• the settlor can appoint or dismiss the trustee,
• the trustee must follow the settlor's instructions or "letters of wishes",
• the settlor has veto right in investment or distribution questions,
• the settlor can still receive economic benefits from the trust, or
• the beneficiaries are exclusively the settlor's close family.

In these cases, the settlor is regarded as having economic control, and the trust becomes transparent under Danish law. This means that the settlor is taxed continuously on the trust's return under the Danish Tax Assessment Act § 16 K.