Bookkeeping in Denmark
In Denmark, bookkeeping encompasses all legal business structures, ranging from sole proprietorships to various company types. The complexity, documentation requirements, deadlines, taxes, and legal regulations associated with bookkeeping differ significantly among these businesses. If you are planning to establish your own enterprise in Denmark, it’s advisable to explore your bookkeeping options beforehand.
You have the option to manage your company's bookkeeping in Denmark on your own, or you might choose to outsource these responsibilities to certified accountants. These professionals will expertly manage your company’s financial affairs while ensuring adherence to the regulations that govern bookkeeping in Denmark. They will also handle the Danish chart of accounts, reporting, and inform you about your rights and obligations.
How does Danish accounting work?
The field of Danish bookkeeping is intricate and heavily regulated, demanding meticulous attention to detail. Overlooking or disregarding any significant elements can result in legal repercussions, financial penalties, and disrupt your business operations in Denmark. To ensure compliance and achieve success in your business pursuits in the country, it is essential to understand the complexities of Danish bookkeeping.
Danish bookkeeping is applicable to any entrepreneur operating their business within the Kingdom of Denmark and encompasses a broad range of issues. Failure to understand and comply with these regulations can lead to significant fines. Key aspects related to accounting services in Denmark include:
- Regulations governing Danish bookkeeping.
- Rules specific to Danish bookkeeping.
- Classification of reporting requirements.
- Bookkeeping for sole proprietorships in Denmark.
- Bookkeeping practices for Danish companies.
- The Danish chart of accounts.
- Auditing processes for Danish companies.
- Obligations of employers in Denmark.
- Business registration in Denmark.
- Required registrations and permits.
- Deadlines, documentation, costs, and rates for various business types.
- Taxes, insurance, and benefits.
- Account management and adjustments concerning SKAT.
- Systems such as Nemkonto, Tastselv, Pension, CPR, A-kasse, and health cards in Denmark.
Understanding Danish accounting laws
Denmark is characterized by a strong emphasis on pro-social policy interventions, a flexible labor market, robust social welfare systems, and high tax rates. Familiarity with Danish financial and bookkeeping regulations is essential for successfully operating a business in the country.
Two institutions have been assigned by the Danish Parliament to oversee financial reporting, auditing, and bookkeeping standards in Denmark: the Danish Financial Supervisory Authority (DFSA) and the Danish Business Authority (DBA). Previously known as the Danish Trade and Companies Agency under the Ministry of Economic Affairs and Development, the DBA is responsible for supervising financial reporting for unfunded business entities. Additionally, the Danish Accounting Standards Committee (DASC), which operates under FSR - danske revisorer, sets standards for companies in Classes B and C. While DASC guidelines are not legally binding, they are highly respected and significantly influence Danish bookkeeping practices.
Key legal acts that are essential for understanding Danish bookkeeping include the following:
I. Accounting Act 1998: This legislation addresses the organization of bookkeeping and the maintenance of accounting and economic records. A crucial element of Danish bookkeeping is the chart of accounts, which organizes both the profit and loss account-encompassing sales revenue and six cost categories-and the balance sheet account, which includes assets, capital, and liabilities.
II. Financial Reporting Act 2001 (amended in 2015): This act outlines the rules for preparing financial statements and classifies companies into several categories:
- Class A: Individually-owned Danish companies, where bookkeeping is based on tax accounts and financial statements are not required.
- Class B: Public companies, private limited liability companies, and limited partnerships with fewer than 50 employees and total assets below DKK 36 million.
- Class C: Companies employing over 50 individuals and possessing total assets of at least DKK 36 million.
- Class D: Public limited companies, which have the most complex bookkeeping requirements, including the preparation of balance sheets, management reports, profit and loss accounts, and cash flow statements.
Furthermore, Danish income statement templates do not account for net profit deductions, with the act differentiating between comparative and calculation profit and loss statements.
III. The Danish Financial Statements Act 2002 (amended in 2014) requires that listed companies in Denmark adhere to IFRS (International Financial Reporting Standards) for both consolidated and individual financial statements, in accordance with EU regulations. Although IFRS is optional for non-listed companies, those that do not prepare consolidated financial statements may still choose to adopt these standards.
In addition to this act, several other relevant laws include:
- Public and Private Limited Liability Companies Act 2009.
- Approved Auditors and Audit Firms Act 2008.
- Financial Activities Act 2011.
- Securities Trading Act 2012.
The requirements for financial reporting in Denmark are derived from European Union regulations, including the EU Accounting Directive 2015, which is implemented into Danish law through the Financial Reporting Act.
The ultimate responsibility for ensuring auditor qualifications rests with the Danish Financial Supervisory Authority, which establishes educational standards and mandates continuous professional development in the field of auditing.
The auditing profession in Denmark is regulated by the Danish Act on Approved Auditors and Audit Firms (Consolidated Act No. 1287 of November 20, 2018). Auditors are overseen by the Ministry of Industry, Business, and Financial Affairs, and state-certified auditors must fulfill strict professional development criteria outlined in Act No. 617 of June 12, 2013. These requirements include obtaining a master's degree, completing three years of practical training, and passing a final examination, which are managed collaboratively by FSR and the DBA. Additionally, auditors must complete a minimum of 120 hours of apprenticeship over three years, with compliance monitored by state authorities.
For those with concerns about the legal aspects of running a business in Denmark, consulting a trusted lawyer for guidance is highly recommended. This ensures that you receive accurate advice tailored to your specific situation and helps navigate the complexities of Danish business law.
Structure of the Danish chart of accounts
A bookkeeping chart of accounts in Denmark serves as a specialized framework that business entities adopt to promote transparent economic record-keeping. This chart defines the order of individual accounts in the ledger through a comprehensive list, which is organized into the structure of the profit and loss account as well as the balance sheet.
The Danish chart of accounts is organized into distinct account groups, particularly related to the structure of the profit and loss account. Below are the key account groups:
- Account Group: Net Revenue from Sale of Goods
- Account Number: 1100
- Account Name: Sales of Goods
- Account Group: Production Costs
- Account Number: 2100
- Account Name: Sales
- Account Group: Other External Costs
- Account Number: 3100
- Account Name: Advertising Costs
- Account Number: 3200
- Account Name: Housing Stock Maintenance Costs
- Account Number: 3300
- Account Name: Cash Shortage
- Account Number: 3400
- Account Name: Costs of Exported Vehicles
- Account Number: 3900
- Account Name: Other Costs
- Account Group: Employer’s Costs
- Account Number: 4100
- Account Name: Wages
- Account Number: 4200
- Account Name: Pension Allowance
- Account Group: Depreciation
- Account Number: 5100
- Account Name: Depreciation of Means of Transport
- Account Number: 5200
- Account Name: Depreciation of Equipment
- Account Group: Interest
- Account Number: 6100
- Account Name: Interest (Income)
- Account Number: 7100
- Account Name: Interest (Expenses)
- Account Group: Extraordinary Items
- Account Number: 8100
- Account Name: Extraordinary Gains
- Account Number: 8200
- Account Name: Extraordinary Losses
- Account Group: Taxes
- Account Number: 9000
- Account Name: Corporate Income Tax
The account classes related to the balance sheet are as follows:
- Account Group: Fixed Assets
- Account Number: 112
- Account Name: Tangible Assets
- Account Number: 11120
- Account Name: Cars
- Account Number: 11121
- Account Name: Write-Offs on Cars
- Account Number: 11130
- Account Name: Furniture
- Account Number: 11131
- Account Name: Depreciation Allowances for Furniture
- Account Group: Current Assets
- Account Number: 121
- Account Name: Inventories
- Account Number: 12110
- Account Name: Composition
- Account Number: 122
- Account Name: Accounts Receivable
- Account Number: 12210
- Account Name: Receivables from Recipients
- Account Number: 12220
- Account Name: Accruals
- Account Number: 123
- Account Name: Cash
- Account Number: 12310
- Account Name: Cash
- Account Number: 12320
- Account Name: Bank Account
- Account Number: 1230
- Account Name: Savings Account
- Account Group: Capitals
- Account Number: 121
- Account Name: Share Capital
- Account Number: 134
- Account Name: Reserve Capital
- Account Number: 135
- Account Name: Financial Result
- Account Group: Liabilities
- Account Number: 141
- Account Name: Long-Term Liabilities
- Account Number: 14110
- Account Name: Mortgages
- Account Number: 142
- Account Name: Current Liabilities
- Account Number: 14210
- Account Name: Revolving Credit
- Account Number: 14220
- Account Name: Receivables
- Account Number: 14230
- Account Name: Pension Supplement
- Account Number: 14240
- Account Name: From Labour Market Contributions
- Account Number: 14250
- Account Name: From Taxes
- Account Number: 14250
- Account Name: Tax Settlements
- Account Number: 14290
- Account Name: Other Liabilities
Deductions
- Account Number: 21000
- Account Name: Profit and Loss Account
- Account Number: 22000
- Account Name: Balance Sheet
Categorizing reporting obligations
Regulating bookkeeping for companies in Denmark, the Financial Reporting Act categorizes business activities into four classes (A, B, C, and D) based on factors such as company size, number of employees, total assets, legal form, and annual net turnover.
Class A comprises private companies, both small and large, with up to 10 full-time employees, total assets of no more than DKK 7 million, and an annual net turnover of up to DKK 14 million. These companies are not legally required to prepare financial statements unless specified in their articles of association. If financial reporting is mandated by the company's articles, the report must include the following elements:
- profit and loss account,
- management statement of the Danish company,
- annual balance sheet,
- additional information.
Class B encompasses various entities, including private and public limited liability companies, limited partnerships, and commercial foundations. These companies fall into one of two categories based on their size and financial metrics:
- They may have up to 10 full-time employees, total assets not exceeding DKK 2.7 million, and a net turnover of no more than DKK 5.4 million.
- Alternatively, they can employ up to 50 full-time staff members, possess total assets of up to DKK 44 million, and have a net turnover not exceeding DKK 89 million.
Financial reports for Class B entities should encompass the following components:
- profit and loss account,
- summary of management activities,
- annual balance sheet,
- statement of changes in equity,
- additional information.
These companies have the flexibility to choose between the over-plan directives introduced by DASC in 2013 or adopting IFRS. It's important to note that while some recommendations on measurement, recognition, and disclosure are optional for Class B, they are mandatory for Class C companies.
Medium and large companies, including private and public limited liability companies, commercial foundations, and limited partnerships, are classified as Class C. These companies can be categorized into two groups:
- They may have up to 250 full-time employees, total assets of up to DKK 156 million, and a net turnover of up to DKK 313 million.
- Alternatively, they can employ more than 250 full-time employees, possess total assets greater than DKK 156 million, and achieve net turnover exceeding DKK 313 million.
Financial reports for Class C entities must include the following components:
- cash flow statement,
- profit and loss account,
- statement of changes in equity,
- annual balance sheet,
- summary of the company's management activities,
- additional information.
State-owned joint stock companies, which must prepare consolidated financial statements according to IFRS regulations, are categorized as Class D. This requirement lasts for 4 or 6 years from May 1. Additionally, listed companies that create individual financial statements are also included in this class.
Reports for these companies must comprise the following elements:
- profit and loss account,
- summary of management activities,
- cash flow statement,
- annual balance sheet,
- statement of changes in equity,
- additional information.
Accounting practices for companies (B, C, D)
Changes in accounting and corporate law in Denmark are overseen by the Danish Enterprise Authority, ensuring adherence to the latest bookkeeping standards. Companies in Denmark with an annual turnover exceeding DKK 20,000 must register for VAT, which is set at 25%, while the corporate income tax rate is 22%. The Danish Accounting Standards Committee (DASC), created by the FSR, issues non-binding technical standards and guidelines (Regnskabsvejledninger) for unlisted entities. Since 2004, DASC has primarily focused on reviewing exposure drafts, providing input on discussions from the EFRAG and IASB Board, and offering technical guidance on bookkeeping issues.
Principles-based standards for financial reporting, known as the International Financial Reporting Standards (IFRS), are developed by the International Accounting Standards Board (IASB). These standards provide both broad principles and specific guidelines for managing financial reports. Additionally, Danish companies can follow the "comply or explain" principle, which allows them to deviate from recommendations as long as they provide a valid explanation. This flexibility means non-compliance is not necessarily an issue, as alternative approaches are permissible with proper justification.
For Danish companies classified under categories B, C, and D, specific bookkeeping requirements apply to various business structures, including:
- Limited liability companies (Anpartsselskab - ApS)
- General partnerships (Interessentskab - I/S)
- Public limited companies (Aktieselskab - A/S)
- Limited partnerships (Kommanditselskab - K/S)
The bookkeeping requirements for these companies are more complex than for other types of businesses. Under the Danish Financial Reporting Act, they must prepare detailed reports, including management’s activity descriptions, a profit and loss account, a balance sheet, a statement of changes in equity, a cash flow statement, and other relevant information. Given the level of detail and complexity, it is often advisable to entrust this work to an accounting firm to ensure proper management.
In Denmark, companies listed on regulated markets are required to apply IFRS standards, as adopted by the European Union, in their consolidated financial statements. The use of these standards is mandatory to ensure compliance with international financial reporting regulations.
Managing finances for a one-person business
Under the Danish Financial Reporting Act, sole proprietorships (Enkeltmandsvirksomhed) are classified as Class A, making their bookkeeping simpler. These businesses primarily interact with the Danish Tax Authority (SKAT, www.skat.dk) through tax settlements.
Although it is not mandatory, generating 12-monthly reports-including profit and loss accounts, balance sheets, and summaries of management activities-can offer valuable insights to entrepreneurs. To establish a sole proprietorship, registration with the Danish Erhvervsstyrelsen through the website www.virk.dk is required, along with a personal registration number (CPR).
Estimated at DKK 10,000 (approximately PLN 5,000), the initial expenses for establishing a sole proprietorship in Denmark are relatively low, and there is no requirement for share capital, which simplifies the process. When a business's annual income does not exceed DKK 50,000, VAT registration is not mandatory. However, for entrepreneurs who do need to register for VAT, employing a fiscal VAT representative in Denmark can greatly facilitate VAT-related obligations.
In an Enkeltmandsvirksomhed, personal liability for any debts incurred falls on the owner, which means their assets are at risk. For taxation purposes, three options are available:
1. Taxation according to the Capital Act (Kapitalafkastordning), allowing part of the profit to be categorized as personal income and the remainder as capital income.
2. Taxation of profit as personal income, similar to employed individuals.
3. Taxation under the Corporations Act (Virksomhesordning), which enables the deduction of credit interest costs while allowing profits to be retained in bank savings.
Sole proprietors are entitled to the same pension and health benefits as employees in Denmark. They are required to submit tax returns for income tax and VAT either quarterly or biannually through the Danish Tax Authority's website (SKAT, using the LetLøn system). Advance income tax payments are due on 20 March and 20 November. Furthermore, bookkeeping for a sole proprietorship involves creating a Forretningsplan, which is a detailed business plan that outlines the entrepreneur's vision, activities, responsibilities, and financial possibilities for running their company in Denmark.
Breakdown of expenses in Danish companies
Bookkeeping for Danish companies involves managing costs, accounts, balance sheets, and assets. The following template outlines the structure of a Danish balance sheet, designed to present a company's financial position clearly.
Fixed assets:
- Intangible assets:
- Completed development projects, including concessions, patents, trademarks, and similar rights arising from development projects.
- Goodwill.
- Acquired concessions, patents, licenses, trademarks, and similar rights.
- Development projects in progress and advances for Intangible Property and Equipment (IPE).
- Tangible fixed assets:
- Other equipment, fixtures, and fittings.
- Land and buildings.
- Plant and machinery.
- Property, plant, and equipment in progress, along with advances for fixed assets.
- Financial assets:
- Shares in related parties.
- Receivables from related parties.
- Receivables from associates.
- Investments in associates.
- Other investments.
- Other receivables.
- Shares.
- Receivables from owners and management.
Current assets:
- Inventories:
- Raw materials and consumables.
- Work in progress.
- Finished goods and merchandise.
- Advances for goods.
- Cash.
- Receivables:
- Trade receivables.
- Contracts for work in progress.
- Receivables from related parties.
- Receivables from associates.
- Receivables from owners and management.
- Settlements.
- Other receivables.
- Investments:
- Investments in associates.
- Equities.
- Other investments.
Liabilities:
- Provisions (including provisions for pensions and similar obligations, provision for annual tax, and other provisions).
- Capital (comprising paid-in capital, agio, revaluation reserve, other reserves, and profit/loss).
- Current and non-current liabilities (such as mortgage debt, debts from issuing bonds, loans, profit shares of debt instruments, advances received from customers, trade payables, payables to related parties, payables to associates, income tax, and other liabilities).
- Accruals.
The structure of the Danish balance sheet arranges assets according to the principle of increasing liquidity, progressing from the least liquid (Intangible Assets) to the most liquid (cash).
Important documents in Danish company operations
Key documents in Denmark include:
1. Årsopgørelsen: This document is issued by SKAT on 15 March and contains the preliminary tax decision, indicating whether there will be a refund or surcharge. If any information is incorrect or the taxpayer qualifies for additional allowances, corrections can be made electronically via TastSelv
and submitted as a completed annual return by 1 May. For entrepreneurs, this document is prepared later based on the completed oplysningsskema. Taxes calculated in the final årsopgørelse must be paid by 1 July, with amounts exceeding DKK 21,798 divided into three instalments due in August, September, and October.
2. Oplysningsskema: Issued by the Danish Tax Authority (SKAT), this tax return form is sent to the taxpayer's provided address and their electronic mailbox. Intended for self-employed individuals, it must be completed by 1 September of the following tax year. The office prepares the årsopgørelse based on the information submitted on this form.
3. Oplysningsseddel: This document summarizes an employee's earnings and must be issued by every Danish employer upon the conclusion of the employee's work.
Furthermore, Danish employers are obligated to retain records of their employees for a period of five years after the termination of their contracts.
For crucial information regarding Danish companies, you can visit https://www.virk.dk, where you will find the following data:
- CVR (company registration number),
- company name,
- company address,
- date of establishment and liquidation,
- type of business activity,
- details of owners, partners, and management,
- number of employees,
- contact details,
- information on loans,
- information on bookkeeping, balance sheet, financial reporting, and personal and company data (for limited liability companies and joint stock companies),
- sectors and sub-sectors,
- related companies,
- bookkeeping rules,
- documents required to set up the business.
For comprehensive information regarding the registration, bookkeeping, and operation of companies in Denmark, visit the website of Erhvervsstyrelsen, the Danish Business Authority (www.erhvervsstyrelsen.dk).
Should you lack a Danish address for your business and prefer not to maintain a physical office in Denmark, considering a virtual office service could be a practical solution. The website of Erhvervsstyrelsen, the Danish Business Authority (www.erhvervsstyrelsen.dk), provides comprehensive information on the registration, bookkeeping, and operation of companies in Denmark.
New requirements for Danish digital bookkeeping systems
An official system has been developed by Danish authorities that complies with strict requirements, and this is the only system that companies registered in Denmark should use. Under the new Danish law, companies are required to digitize their bookkeeping records, which simplifies the process of obtaining current financial information and supports more accurate decision-making and long-term strategic planning.
To ensure data protection, secure access management, and automatic backup of any added attachments, text, or records to prevent loss, established IT security standards must be adhered to by the system. Under the new law, any digital bookkeeping system-whether it is custom-developed software or a standard solution-must meet fundamental requirements.
The e-invoicing process in Denmark
Formatted in Peppol BIS 3.0, the e-Invoice should be created using the Peppol network to facilitate connections between registered public entities via the national SMP NemHandel. In 2005, legislation was implemented in Denmark mandating the
use of e-Invoices for government authorities and their suppliers. Currently, while companies engaged in B2B transactions can use e-invoicing, it is not a formal requirement, and both parties must mutually agree to adopt this method.
Changes on the horizon in Denmark will introduce cataloging for specific categories of goods and enable electronic order placement, thereby encouraging public sector institutions to expand their use of e-commerce.
Auditing practices for Danish companies
Consolidated Act No. 1287, which pertains to Approved Auditors and Audit Firms, was issued on November 20, 2018. This Act incorporated the EU audit reform from the 2014 regulation and directive as part of the amendments made in June 2016.
Under Article 16 of the Danish Audit Act (No. 468 of June 17, 2008) and Executive Order No. 968 (2016) concerning Quality Assurance Reviews, audits are mandated to comply with the principles of “widely recognized audit procedures.” However, the Danish Business Authority (DBA) has not explicitly defined what constitutes “widely recognized audit procedures.” In practice, auditing standards published by the FSR (Financial Statements Authority) are consistently applied.
Since 2010, Danish auditing standards have been aligned with the International Standards on Auditing (ISA), which were initially established by the IAASB (International Auditing and Assurance Standards Board) and later translated by the FSR. The FSR confirms that these translated standards have the same effective dates in Denmark as those originally set forth by the IAASB.
For Danish companies classified as Class A and B, audits are optional and depend on their annual turnover thresholds. These companies have the flexibility to choose their preferred audit type and can negotiate with auditors regarding the most beneficial service among the available attestation options, such as accounting assistance, financial statement audits, or full audits.
Registered (or authorized) public auditors, who must maintain independence and externality, are responsible for auditing accounts in Denmark. The Danish Financial Reporting Act provides information regarding the audit of financial statements prepared by Danish companies.
The following types of audits are distinguished:
- Compliance audit: This type evaluates whether the financial systems and operations of companies adhere to legal requirements.
- Management audit: This assessment focuses on the efficiency and economy of financial management practices among Danish companies.
- Quality assurance (QA): Refers to the Danish quality control system, which encompasses various aspects, including financial statements.
- Financial audit: Conducted by a certified auditor, this comprehensive audit examines the financial statements to verify the accuracy of the financial and asset information provided by the company owner, ensuring compliance with either Danish or international accounting principles.
Danish B-class companies have two options: they can either opt for a full audit of their financial statements or choose an "audit-light," which is a streamlined version of the audit that has covered financial statements since January 1, 2013.
- Compliance audit: This audit verifies whether companies’ financial systems and operations are in accordance with legal requirements.
- Management audit: It evaluates the efficiency and economy of financial management practices within Danish companies.
- Quality Assurance (QA): This pertains to the Danish quality control system, which includes aspects related to financial statements.
- Financial audit: Conducted by a certified auditor, this thorough examination of financial statements aims to confirm the accuracy of the financial and asset information provided by the company's owner, ensuring adherence to Danish or international accounting principles.
The right to specify which subject areas within a company will be examined in detail rests with the Danish Ministry of Finance. Furthermore, the Auditor General Act
outlines good audit practices, stating that the internal audit function should operate independently of the entity's head in terms of planning, execution, and organization. Internal auditors are also entitled to access necessary information.
Every six years, Danish auditors, state-authorized public accountants (SPA), and audit firms undergo audits conducted by the Audit Supervisory Authority (DSAA), which was established by the Danish Business Authority (DBA). In 2011, the merger of three Danish organizations-FSR (Danish Statutory Auditors), FRR (Danish Institute of Certified Public Accountants), and REVIFORA (association for young accountants and trainees)-resulted in the creation of FSR, the professional organization responsible for auditing, financial statement audits, bookkeeping, and taxation in Danish companies.
Overview of transfer pricing regulations in Denmark
In Denmark, larger companies are required to submit Transfer Pricing documentation annually if they meet certain thresholds. According to current regulations, this documentation must be provided within 60 days following the deadline for filing the Corporate Income Tax return, as long as those thresholds are surpassed.
Recent years have seen numerous revisions to Transfer Pricing regulations in Denmark, particularly due to the Danish Tax Agency's heightened standards for controlled transactions. All Danish companies classified as tax residents and involved in controlled transactions with foreign entities or majority shareholders who are not tax residents of Denmark must prepare Transfer Pricing documentation for those transactions.
Two primary components must be included in the Transfer Pricing documentation: the Local file, which centers on the local entity's operations, and the Master file, which encompasses information about the entire organization. Typically, this analysis entails comparing the least complex entity engaged in controlled transactions with other comparable, non-controlled companies, utilizing methodologies like the
Transactional Net Margin Method (TNMM) and/or data obtained from Comparable Uncontrolled Pricing (CUP).
Additionally, it's important to note that preparing Transfer Pricing documentation is no longer required for transactions occurring between two Danish companies or between a majority shareholder, who is a tax resident of Denmark, and a controlled Danish company. Previously, while the preparation of Transfer Pricing documentation was mandatory, submission was only necessary within 60 days upon request from the Danish Tax Agency.
Filing the Corporate Income Tax return requires companies to disclose information about controlled transactions conducted during the fiscal year. If you need to submit Transfer Pricing documentation, a new Transfer Pricing menu will be available on the left-hand side of the Danish Tax Agency’s website following your Corporate Income Tax return submission. Through this menu, you can upload your Master file and Local file, along with any associated documents.
Understanding the Transfer Pricing regulations in Denmark for 2024 highlights a fundamental objective: to prevent the strategic manipulation of profits across different tax jurisdictions. This rationale is essential for ensuring compliance and fostering fair taxation practices among multinational corporations operating within the country.
Understanding taxes in Denmark
In Denmark, the taxation system encompasses both direct and indirect taxes, which include various commonly applied forms of taxation.
Indirect taxes are levies and duties incurred when purchasing goods and services. Whenever you buy a product or utilize services like water supply, you contribute to indirect taxes. These taxes are incorporated into the overall price of the goods or services. Sellers are responsible for remitting these indirect taxes, including value-added tax (VAT), customs duties, and excise duties, to the state.
- Customs duties
Taxes known as customs duties are paid to the state, primarily when importing goods into Denmark from non-EU countries. The obligation to pay these duties depends on the overall value of the goods purchased. There are specific regulations for spirits and tobacco, where customs duties may be calculated based on the volume of items acquired. Upon returning to Denmark, individuals must declare the goods they have purchased and pay any applicable customs duties. This declaration and payment typically occur at designated locations, such as airports or border crossings.
- Excise duties
These taxes are imposed on the import, manufacture, and sale of specific goods. When you purchase items at a store, the excise duty is usually incorporated into the price, meaning ordinary customers typically do not have to deal with this tax directly. Common goods subject to excise duties include wine, beer, batteries, chocolate, sweets, and soft drinks. Additionally, when acquiring a car or motorcycle, an extra registration tax may apply.
- Green taxes
Charges are levied on individuals for utilizing society's resources, with the aim of encouraging citizens to reduce consumption and conserve natural resources. The principle behind these taxes is straightforward: the more resources one consumes, the higher the green taxes owed. Common examples include petrol, oil, electricity, water, and waste. By intentionally raising the prices of these resources, the government aims to motivate individuals to limit their consumption; for instance, an increase in petrol prices can lead people to drive less, thus reducing their environmental impact. Additionally, vehicles that are more environmentally friendly-those that emit fewer pollutants and demonstrate greater fuel efficiency-often benefit from lower green taxes.
- VAT
Value Added Tax (VAT) is included in the price of nearly all goods and a wide range of services in Denmark. This encompasses services such as bicycle or car repairs, hairdressing, and other similar transactions. As a consumption tax, VAT is paid by
customers at the point of purchase, and it is generally reflected in the total price of the item or service.
Direct taxes
Direct taxes in Denmark generally include the following:
- Property Tax (Land Tax)
- Property Value Tax based on public property assessments
- ATP Contributions (Alderspensjonskasse)
- Labour Market Contributions
- Church Tax
- Municipal Tax
- State Tax
- A-Tax (tax deducted from income at source)
- B-Tax (tax not deducted from income at source)
Property tax (Land tax)
Ownership of a house, apartment, or plot in Denmark necessitates the payment of property tax to the municipality, calculated based on the property's actual value. Each municipality is responsible for assessing and collecting this tax, resulting in variations in property tax rates across different areas.
Owning a house or apartment in Denmark incurs the obligation to pay property value tax, which is determined by the public property assessment. The Danish Tax Agency conducts these assessments every two years. Residents are required to pay property value tax not only on their domestic properties but also on any foreign properties they own. Conversely, individuals living abroad must pay property value tax on properties they hold in Denmark.
Employees in Denmark are required to contribute to the Danish labor market supplementary pension fund, known as ATP. These contributions are deducted from salaries before income tax is calculated. Typically, the employee covers one-third of the total contribution, while the employer takes care of the remaining two-thirds of the amount.
Mandatory payments for all employed individuals, referred to as AM-bidrag, are known as labor market contributions. Employers directly deduct these contributions from employees' salaries. The collected funds are used to finance a range of government labor market expenses, which include unemployment benefits, additional training programs, and costs associated with maternity. It's crucial to understand that these contributions essentially act as a tax, as they are taken from the gross income of employees or the earnings of self-employed individuals.
About 74% of Denmark's population is associated with the Danish National Evangelical Lutheran Church, known as Folkekirken, and members are required to pay a church tax. This tax is collected alongside other direct taxes and the amount varies depending on the municipality. The revenue generated from this tax is used for the maintenance and functioning of local churches. Additionally, individuals who belong to different churches or religious organizations may qualify for tax deductions on their contributions.
An additional obligation for all citizens is municipal tax, which mandates that a percentage of their income be contributed to their local municipality. Each municipality independently determines its specific tax rate, leading to differences across various regions. As a result, the total tax amount an individual pays depends on the municipality of residence, as each one establishes its own rate.
A portion of the total tax deducted from your income is known as state tax, and this revenue is directed to the state government. Regardless of your location, the tax rates remain uniform across the country, but they are determined by your income level. This tax system operates on a progressive basis and is divided into two main categories:
1. Bottom-bracket tax: This category applies to lower income ranges, with specific rates assigned to different income brackets as you earn more.
2. Top-bracket tax: This pertains to individuals with higher incomes, who are subjected to a higher rate that exceeds those of the lower brackets.
Known as A-tax, this form of direct taxation involves the withholding of a portion of your income at the source by your employer or pension provider throughout the year.
This deduction occurs before you receive your salary or pension payments. Included in this withholding is property value tax, which is based on public assessments of property. The amount withheld is then submitted to the Danish Tax Agency (Skattestyrelsen) as provisional tax. At the end of the year, a reconciliation is performed to determine whether the withheld amount matches your total tax liability for the entire year.
In contrast to A-tax, B-tax refers to a tax that is not directly withheld from your income at the source. This type of tax applies to individuals who are liable for taxes on earnings such as interest income and business profits. Unlike A-tax, which is collected throughout the year through deductions made before payment, B-tax necessitates that individuals handle and settle their tax responsibilities separately for specific types of income.
Categories of personal income tax
Taxation in Denmark varies according to individuals' residency status, which encompasses classifications for full tax liability, limited tax liability, and specific rules for expatriates and workforce hires.
1. Full tax liability
Residents of Denmark are subject to full tax liability, meaning they are taxed on their global income unless they qualify as tax residents in another country under a double taxation treaty (DTT). As of 2023, individuals who are fully tax-resident typically face a tax rate of up to 52.07% (or 55.90% when including AM tax, which is also regarded as income tax for DTT purposes). Numerous deductions can be applied, resulting in a lower effective tax rate in most situations.
2. Limited tax liability
Those subject to limited tax liability in Denmark are taxed exclusively on income derived from Danish sources. This includes:
- Salary for work performed in Denmark, subject to specific conditions,
- Certain types of personal income, such as directors’ fees, pension distributions, and social security benefits,
- Remuneration governed by special regulations on personnel hiring (Work Force Hire scheme),
- Income from a business enterprise with a permanent establishment (PE),
- Earnings from property located in Denmark,
- Dividends received from Danish companies,
- Royalty income sourced from Denmark,
- Remuneration for advisory services, under certain circumstances.
Individuals with limited tax liability in Denmark are typically taxed at a rate of up to 52.07% (or 55.90% including AM tax) on income derived from Danish sources in 2023.
It is essential to keep in mind that tax rates and regulations may change, and personal circumstances can vary. For accurate and up-to-date information, consulting with tax professionals or authorities is advisable.
Personal income tax bracket levels
In assessing taxes under the standard system, several income categories are taken into account:
1. Personal income, which includes salary, benefits in kind, self-employment income, pension income, and more.
2. Capital income, such as interest income, interest expenses, and net taxable capital gains.
3. Taxable income, defined as the total of personal income and capital income, adjusted for specific itemized deductions.
4. Share income, encompassing dividends and capital gains on shares.
5. Property value, referring to the worth of properties located both in Denmark and abroad.
Different types of income are subject to separate taxes and are taxed at varying rates. This variation in tax rates means that the value of a deduction can differ based on the specific income category to which it applies.
The applicable tax rates are as follows:
- State taxes:
- Bottom tax: 12.09%
- Top tax: 15.00%
- Local taxes: 25.00%
- Labor market contributions (AM contribution): 8.00%
- Capital tax: 27.00% and 42.00%
It is important to note that personal income tax is calculated on the basis of total gross income and is subject to the aforementioned tax rates.
Dividends and the process of paying dividend taxes
Companies and associations distributing dividends are not required to withhold dividend tax if shareholders present a valid dividend tax-exemption card or are listed in the Tax Agency's database. Shareholders have the option to apply for this card through the Tax Agency, which remains valid for up to 10 years. If the shares are registered with VP Securities (Værdipapircentralen) via a custody account in a Danish bank, the card should be provided to the custodian bank. Conversely, if the shares are not managed by VP Securities, the dividend tax-exemption card must be presented directly to the distributing company or association. In case of any changes to a shareholder's circumstances, the dividend tax-exemption card needs to be returned.
Eligible applicants for a dividend tax-exemption card include:
1. Danish associations, cooperation units, foundations, institutions, and self-governing institutions that are taxed under section 1(1), paragraph 6 of the Corporation Tax Act (Selskabsskatteloven).
2. Danish tax-exempt institutions as defined in section 3(1) of the Corporation Tax Act, excluding those specified in section 3(1), paragraph 19.
3. Danish tax-exempt institutions listed in section 3(1), paragraphs 8, 9, 13, and 18 of the Corporation Tax Act that are instead covered by the Danish Pension Investment Return Tax Act (Pensionsafkastbeskatningsloven (PAL)).
4. International organizations entitled to tax immunity and exempt from Danish income tax, excluding non-Danish pension funds and similar entities.
5. Non-Danish members of the royal family residing in Denmark who are exempt from Danish income tax.
6. Non-Danish associations, cooperation units, foundations, institutions, and self-governing institutions created solely for non-profit purposes or other objectives serving the common good.
Reporting dividend tax
In the process of reporting dividends or dividend tax through E-tax for businesses (TastSelv Erhverv), it is crucial to identify whether the securities are managed by VP Securities (Værdipapircentralen). For securities under the management of VP Securities, the required procedure involves submitting a dividend statement in E-tax for businesses, which includes the total distributed dividends and any withheld dividend tax. Recipient information will be reported through one of E-capital’s online solutions, with the responsibility for calculating the total dividends and any withheld tax resting with the company.
When dealing with securities not managed by VP Securities, it is necessary to declare the following:
- Danish and non-Danish dividend recipients
- Distributed dividends received
- Any withheld dividend tax
- A dividend statement in E-tax for businesses (this requirement is applicable only if the company or association owns shares; see below).
Please note that you should avoid submitting a dividend statement in E-tax for businesses unless the company or association owns shares. In these cases, the statement should only include the portion of distributed dividends associated with the company’s own shares. The distributed dividends and any withheld dividend tax will then be automatically aggregated for each recipient. You can confirm the accuracy of this information in the 'Overview of Dividend Tax' section. Any withheld dividend tax must be remitted to the Tax Agency (Skattestyrelsen).
General reporting and corrections
All withheld dividend tax must be remitted to the Tax Agency (Skattestyrelsen) by the specified deadlines. You can make changes to your reporting until 4 p.m. on the reporting day. Dividends and their associated tax agreed upon in year 1 must be reported in E-tax for businesses by November 1st of year 2. If you cannot report through E-tax for businesses, you must complete Form 06.033 (available only in Danish). In exceptional cases where the adoption date of dividends extends beyond 6 months after the end of the accounting period, E-tax reporting is not permitted. In such situations, Form 06.033 must be completed. To correct any existing company reporting, you should also complete Form 06.033 titled 'Correction of Dividend Tax' (available only in Danish). Additionally, the reported gross dividend (pre-tax dividend) must be entered in field 37 of the company tax return in E-tax for companies for the relevant income year.
General rules on withholding tax rates for dividend recipients
- For individuals residing in Denmark, the applicable rate for distributions is as follows:
- A 27% dividend tax is withheld by the distributing company. This rate does not apply to pension schemes that are exempt from dividend tax.
For individuals residing outside Denmark, the rates for distributions are:
- A 27% dividend tax is withheld if the recipient is an individual, unless there is an approved net withholding arrangement in place with the Danish Tax Agency (Skattestyrelsen).
- A 44% dividend tax is withheld if the recipient holds principal shares, subsidiary shares, or group company shares in the distributing company and is considered a tax resident or registered in specific countries outlined in section 5H(2) of the Danish Tax Assessment Act (Ligningsloven).
- For companies domiciled in Denmark, the applicable dividend tax rates for different types of companies are as follows:
- A 0% dividend tax is withheld if the recipient is a parent company, a group company, or holds a dividend tax exemption card.
- A 15% dividend tax is withheld if the recipient is an investment company, investment undertaking, association, cooperation unit,
foundation, institution, or self-governing institution that is subject to tax under specific sections of the Corporation Tax Act.
- A 22% dividend tax is withheld if the recipient is a company, foundation, or association liable for tax under the Danish Corporation Tax Act or the Danish Foundation Tax Act, unless they qualify for a 0% or 15% dividend tax withholding.
- A 15.4% dividend tax is withheld on dividends from portfolio shares not subject to tax under section 13(2) of the Danish Corporation Tax Act.
- A 27% dividend tax is withheld for all other companies.
- For companies domiciled outside Denmark, the following rates apply:
- A 0% dividend tax is withheld if the recipient is a parent company or group company that is subject to EU directives or a double taxation agreement with Denmark.
- A 27% dividend tax is withheld for all other companies.
Entities responsible for distributing dividends are obligated to report information about dividend recipients, the amount of distributed dividends, and any relevant withheld dividend taxes through the E-tax for Business platform (TastSelv Erhverv).
Benefits of tax exemption for non-resident charitable organizations
Beginning January 1, 2023, Denmark introduced a withholding tax exemption that positively impacts non-resident charitable organizations investing in Danish equities. This exemption allows eligible investors with a purely charitable purpose to request a full refund of taxes withheld on dividend events with a record date of April 18, 2018, and thereafter.
For eligibility for this exemption, the following conditions must be met:
1. The beneficial owner must be a resident of a foreign country.
2. The beneficial owner should be comparable to a Danish association.
3. The beneficial owner must pursue a purely charitable purpose as defined by Danish tax law.
Assessing whether a non-resident charity has a purely charitable purpose necessitates evaluation according to Danish legislation. This assessment should encompass a definition of potential beneficiaries based on objective criteria, ensuring a wide range of individuals are included. Furthermore, distributions must be aimed at recipients facing financial difficulties, or the funds should be used in ways considered beneficial to society, such as supporting social, artistic, scientific, or humanitarian initiatives.
Charities that are non-resident and meet the qualifying criteria, having paid Danish dividend withholding tax, are entitled to receive a full refund from the Danish government. According to the Danish tax authorities, the statute of limitations for refund claims related to this exemption extends to three years before April 14, 2021. Therefore, refund claims can be filed for dividends declared from April 14, 2018, onward.
Ensuring payroll compliance in Danish companies
Social security contributions in Denmark are relatively low compared to other European nations. This is primarily attributed to the Danish social security system's reliance on regular tax revenues for funding. Rather than being calculated as a percentage of the employee's salary or wages, contributions are fixed amounts that both the employer and employee must pay quarterly. Invoices for these contributions are sent to registered employers via the e-Boks system for separate payment.
Companies based outside Denmark can fulfill all payroll-related employer obligations without requiring a permanent establishment in the country. Establishing a local legal entity is not necessary for managing employee hiring and payroll processing.
However, there are several registration procedures that both resident and non-resident employers must complete before initiating payroll operations.
The taxation of employment income in Denmark encompasses four distinct levies:
state tax, municipal tax, labor market tax, and optionally, church tax. Furthermore,
social security contributions, which are applicable to both employees and employers, are comparatively low.
In Denmark, employees are entitled to various benefits, which include the following:
1. Annual leave and public holidays: Employees are granted five weeks of annual leave, along with a holiday allowance of 12.5%. There are also 11 public holidays observed.
2. Maternity leave: Mothers are entitled to 18 weeks of paid maternity leave, receiving 50% of their normal wages during this period.
3. Paternity leave: Fathers are allowed to take two weeks of paternity leave.
4. Parental leave: Both parents can take a combined total of 32 weeks of parental leave, with the option to extend this by an additional 8 or 14 weeks.
5. Sick leave: The length of sick leave is determined either by a collective bargaining agreement (CBA) or an individual employment agreement. If no specific terms are set, employees are entitled to a minimum of 30 days of fully paid sick leave, after which they can receive sickness benefits for up to 22 weeks.
It is essential for employers to register with ATP (Arbejdsmarkedets Tillægspension), which serves as the mandatory pension fund for all employees in Denmark. Additionally, employers must implement an industrial insurance scheme, which is also required for all employers. Another crucial obligation is obtaining a NemID, a specialized online signature and identification certificate needed to access official online portals related to tax reporting and other services. NemID is necessary for accessing the digital mailbox (e-Boks), which is mandated for communication with authorities, as well as for utilizing the tax filing e-service.
Obtaining a commercial registration number, known as a CVR number, from the Danish Business Authority (DBA) is crucial for businesses. This number uniquely identifies the business and must be referenced in all dealings with local authorities. After securing the CVR number, companies are required to register as employers for income tax using a dedicated online portal administered by the Danish Customs and Tax Administration (SKAT), which is available only in Danish.
Although establishing a local bank account is not a legal requirement, it is recommended to facilitate payments to authorities. A local account is especially beneficial because it is necessary for accessing the Nets direct debit service, which is commonly used by Danish employers. Regardless of whether employers opt for a local or foreign account for payroll transactions, they must designate one bank account as their official Nem Konto. This account will be utilized for all tax and social security payments.
The annual contribution from the employee amounts to DKK 1,135.80, which includes payments to the mandatory ATP pension fund. In contrast, the employer's share of social security contributions covers various funds, such as the ATP pension fund, maternity leave fund, state pension financing scheme, vocational training fund, and work-related diseases fund. Additionally, employers are required to contribute to compulsory occupational accident insurance, with rates varying based on the sector and the employee's position. Due to the differences in contribution levels across these funds, the total employer contribution is generally estimated to fall between DKK 10,000 and DKK 12,000 annually, though it can reach up to DKK 15,000 in some cases.
In Denmark, three primary responsibilities fall on employers regarding tax withholding from employee wages: deducting income tax at the source, reporting the withheld amounts to the authorities, and settling outstanding dues. Known as A-tax, this income tax must be remitted to the authorities by the 10th of the following month for small and medium-sized enterprises, or by the end of the month for larger entities. Monthly tax reports are required to be submitted through the SKAT e-filing system on the same day. Detailed information on payment deadlines and tax declarations is available on SKAT’s website. While employers are not obligated to submit an annual A-tax withholding declaration, employees are required to file their individual tax returns by May 1 of the following year, with an extended deadline until July 1. The tax year aligns with the calendar year.
Although Denmark does not impose a specific frequency for payroll processing, most employers choose to process payroll on a monthly basis. Payments to employees must be made in the local currency, the Danish Krone (DKK), and it is illegal to pay
Danish employees' salaries into foreign bank accounts. After each payroll cycle, employees must receive a payslip that includes several key details, such as:
- the pay period covered, working hours, and pay date,
- gross and net salary figures,
- deductions for A-tax and labor market contributions,
- total pension contributions,
- withholding rates and relevant data from the employee’s tax card,
- holiday pay and any additional employee benefits,
- employee particulars, including name, address, and civil registration (CPR) number,
- employer information, including name, address, and CVR number.
Legally, employers can use both digital and paper payslips, but the digital format has become the more common option. The E-boks system serves as the main platform for delivering electronic payslips. Additionally, it is mandatory for employers to keep payroll documentation for at least five years.
The Danish labor market does not enforce a national minimum wage, as there are no legal stipulations for such a standard. Instead, minimum pay rates are determined through collective bargaining agreements within specific sectors. Similarly, there are no universal regulations regarding overtime pay; this is usually defined in individual employment contracts unless specified in a collective agreement. Compensation for overtime typically includes either extra pay or compensatory time off. Additionally, offering a 13th-month salary is not legally required.
Danish trade: Imports and exports
To comply with EU trade regulations, Denmark utilizes the Intrastat system to gather statistics on the movement of goods among EU member countries. This system is vital for monitoring and reporting trade flows, which are critical for economic analysis and the formulation of policies.
Regarding contract law, the Contact Law governs the formation of contracts. Denmark adheres to the UN Convention on Contracts for the International Sale of Goods.
Additional significant agreements include:
- The Agreement on the Development of Economic Cooperation, established in May 1976.
- The 1990 Agreement on Cooperation in the Field of Energy.
- The 1990 Agreement on Cooperation in Environmental Protection.
The differentiated excise duty applies to a range of goods, including:
- ice cream,
- coffee,
- video cassettes,
- tobacco products,
- spirits,
- chocolate products,
- light bulbs,
- beer,
- wine,
- tea,
- cars,
- fuels,
- disposable packaging.
Food products are required to have their ingredients labeled in Danish and must comply with standards that define the use of preservatives. Furthermore, packaging for items that present health or life risks, such as chemicals or medicines, must include appropriate warning labels.
The responsibility for issuing permits and licenses to entrepreneurs intending to import food lies with the Danish Veterinary and Food Inspectorate (Fødevarestyrelsen). A value-added tax (VAT), known as MOMS, set at 25 percent, applies to agricultural and industrial products as well as nearly all services.
In contrast, entrepreneurs looking to introduce cosmetics, cleaning products, and detergents into the Danish market are supervised by the Ministry of the Environment, specifically the Department of Chemical Products. This department requires a report on the activities of such companies to be submitted by February 1 each year. Danish business owners intending to import chemicals or products containing hazardous substances should verify whether these substances are listed on the EINECS list of hazardous substances; any chemical not on this list must be reported to the Ministry of the Environment. Additionally, before chemicals can be sold in Denmark, they must be classified into the appropriate category for either commercial or private use.
The following industrial products are required to bear the CE mark in accordance with the New Approach Directives:
- toys,
- machinery,
- gas appliances,
- lifts,
- low-voltage electrical products,
- construction products,
- personal protective equipment,
- simple pressure vessels,
- electromagnetic compatibility,
- non-automatic weighing instruments,
- energy efficiency of freezers and refrigerators,
- diagnostic equipment (in vitro),
- active medical implants,
- telecommunications terminal equipment,
- recreational boats and yachts,
- explosives for civilian use,
- cable systems for the transport of people,
- efficiency of water power boilers,
- equipment used in potentially explosive atmospheres.
The EU countries, particularly Germany, Sweden, the UK, and the Netherlands, serve as Denmark's primary trading partners. Denmark's main exports include foodstuffs, live animals, chemicals, and chemical products, while its primary imports consist of machinery, equipment, processed goods, and chemicals. Trade with foreign markets is a crucial component of the Danish economy.
Cross-border payment reporting requirements
Fresh regulations regarding the reporting of cross-border payments have been introduced by the European Union (EU), and these will be incorporated into Danish VAT legislation, taking effect on January 1, 2024. The updates to the Danish VAT Act can be found in Act no. 755, dated June 13, 2023. Furthermore, the pertinent EU directives and regulations include:
- EU Directive 2020/284,
- EU Regulations 2020/283.
Payment service providers (PSPs) are required to report two main categories of cross-border payments to CESOP:
1. Payments made from EU countries to private individuals or businesses (payees) in Denmark.
2. Payments made from Denmark to private individuals or businesses (payees) in non-EU countries.
Reporting is necessary only if a payment service provider (PSP) makes more than 25 payments to the same payee within a quarter. If none of the payees linked to the registered PSP receive over 25 cross-border payments, it is recommended that the PSP submit a file indicating "no payment data to report." This information must be reported in the month following the end of the quarter, with the first reporting deadline scheduled for April 2024.
Beginning January 1, 2024, payment service providers (PSPs) must register and report information on specific cross-border payments. The payment details are to be submitted to the Danish Tax Agency (Skattestyrelsen), which will then relay the information to the Central Electronic System of Payment Information (CESOP) within the EU. The main aim of this new EU system is to identify cross-border VAT fraud in the e-commerce sector.
Key milestones and the timetable for reporting cross-border payments are outlined as follows:
- 2022
- Initiation of the Danish legislative process.
- Publication of skat.dk/cesop during the winter of 2022-2023.
- 2023
- Completion of the Danish-language guide is anticipated by mid-2023.
- Testing phase begins in the summer of 2023, allowing invited payment service providers to test the system.
- Access to the system is granted to payment service providers in the autumn of 2023.
- 2024
- CESOP-DK reporting opens in January 2024.
- The final reporting deadline is set for April 30, 2024.
- After this deadline, payment service providers will be required to report to CESOP on a quarterly basis.
Active collaboration with industry stakeholders is a priority for the Tax Agency as it establishes a timetable and provides technical guidelines for the reporting process. This continuous engagement offers industry associations a platform to share their insights at various development stages. During the development phase, they can communicate their requirements and preferences for more user-friendly solutions.
Responsibilities of a Danish employer
Business owners in Denmark who employ staff have several responsibilities, including:
- Providing personal protective equipment for employees.
- Insuring employees against accidents and occupational diseases.
- Ensuring that discrimination does not occur among employees.
- Offering fair and decent wages.
- Making sure employees comply with safety regulations while performing their duties.
- Creating a suitable working environment.
- Taking steps to prevent workplace injuries.
- Instructing workers on health and safety practices.
- Providing health and safety training at least once a year.
- Maintaining ongoing cooperation with Danish Health and Safety at Work.
Before hiring employees, Danish entrepreneurs should familiarize themselves with the Employment Document Act (Ansættelsesbevisloven). This act requires that individuals employed by a Danish company receive a document detailing the key working conditions.
Before hiring employees, Danish entrepreneurs should review the Employment Document Act (Ansættelsesbevisloven). This legislation stipulates that individuals employed by a Danish company are entitled to a document that outlines the essential working conditions.
Compliance with Danish labor laws and health and safety regulations, as outlined on the website of the Danish Labour Inspection Authority (UIP), is mandatory for employers in Denmark. Ensuring that working conditions meet legal standards is of utmost importance.
It is mandatory for companies in Denmark to register with the Danish Commerce and Companies Agency (www.erhvervsstyrelsen.dk), which provides a Central Company Register number (CVR, www.datacvr.virk.dk). Furthermore, they must also register with the Register of Foreign Service Providers (RUT), and any changes to a Danish company must be reported accordingly.
In Denmark, employees are often protected by collective agreements, which are contracts regarding working conditions negotiated between employers and employees, usually through trade unions or employee associations.
Companies based in the European Union that plan to assign their employees to work in Denmark must follow specific posting regulations detailed in various important documents. These regulations include the EU Directive 96/71 from December 16, 1996, concerning the posting of workers abroad, along with the Danish Posting of Workers Act No. 993, which was enacted on December 15, 1999.
Financial advice for individuals in Denmark
The complex Danish tax system presents numerous potential deductions. The value of each deduction depends on the specific type of income or tax base it relates to. Deductions that were not taken into account in the preliminary tax return, and therefore did not lead to a decrease in the monthly withheld tax, could lead to a tax refund during the final assessment for a given income year.
In the context of taxation, personal income deductions carry a higher tax value than those from taxable income, since only church tax and municipality tax are based on taxable income. On the other hand, personal income is subject to top tax calculations, which significantly limit the available deductions. Additionally, local tax rates further influence the overall effectiveness of a deduction.
It is essential to understand that deductions apply only to income derived from sources taxable in Denmark, and expenses exceeding the income cannot be deducted.
I. Deductions for Individuals
1. Interest expenses
When it comes to capital income, interest expenses are deductible and are usually accounted for in the year they become due. It’s important to note that penalty interest resulting from late tax payments cannot be deducted. For interest expenses that span more than six months and are due more than six months before the end of that period, the deduction must be attributed to the relevant time frame to which the expenses apply.
2. Costs of association
Taxpayers are permitted to deduct expenses related to membership fees for employer associations, unions (up to a maximum of DKK 6,000 per year), and other professional organizations that advocate for the economic interests of their professional group in 2023. Additionally, contributions made to unemployment insurance schemes and pre-retirement programs are also eligible for deduction. These deductions are applied when determining taxable income. It is noteworthy that associations must report the payments received from each member to the tax authorities annually. This reporting fosters transparency and compliance with tax regulations, providing a clear record of the deductible expenses claimed by taxpayers in relation to their memberships in these associations.
3. Donations to charity
Contributions made to specific approved charities, foundations, institutions, and similar organizations are deductible when calculating taxable income. For the year 2023, the maximum deductible amount is set at DKK 17,700. This limit remains the same regardless of whether the donations are spread across multiple foundations. It is important to highlight that each foundation is required to report the donations received to the tax authorities annually. Such a framework not only motivates individuals to contribute to charitable causes but also offers them financial incentives through tax benefits.
4. Debt write-off
Typically, losses incurred from debt are not eligible for deduction or refund.
5. Fiscal charges and fines
Private individuals typically cannot deduct fines or penalties from their taxable income. However, if an employer pays fines imposed on employees during their work, those amounts may be deductible as a business expense. It is crucial to understand that while the employer can write off the fines, the payment is regarded as taxable income for the employee. This means that even though the employer incurs the cost of the fines, the amount is classified as additional income for the employee, who cannot deduct the fine from their personal taxable income. Taxation rules concerning fines and penalties can differ by jurisdiction, so it is advisable to review local tax regulations or consult a tax professional for tailored guidance.
6. Support programs for kids
For the year 2023, custodial parents receive a tax-free child benefit determined by the age of their children. Parents fully liable for taxes in Denmark and not covered by their home country's social security system can expect an annual benefit of DKK 18,984 for children aged 0 to 2. For children between the ages of 3 and 6, the benefit amounts to DKK 15,024 per year, while those aged 7 to 14 receive DKK 11,820, distributed quarterly. Children aged 15 to 17 also receive DKK 11,820 annually. Furthermore, individuals paying child support due to divorce are eligible for an annual deduction per child. This system is designed to provide financial assistance to parents raising children, acknowledging the associated costs and adjusting the benefit amount according to the child's age.
II. Employment-related expenses
Individuals who are actively employed generally qualify for an employment allowance, which is set at 10.65% of their employment income, with a maximum cap of DKK 45,600 for the year 2023. Employees receiving a salary can also deduct various expenses, including commuting costs from home to work, travel expenses related to different work locations, contributions to unemployment insurance, membership fees for professional trade associations, and union dues.
Additionally, employed individuals may be able to deduct certain work-related expenses, including technical literature and work attire, from their taxable income under specific conditions. However, these expenses must exceed a designated threshold of DKK 6,700 for the year 2023 to qualify for the deduction.
1. Tax write-offs for travel costs
For the year 2023, the maximum annual limit for deducting travel expenses is established at DKK 30,500. This cap applies to both standard rate deductions and actual expenses incurred. Nevertheless, it does not hinder employers
from providing tax-free allowances, reimbursing employee expenses, or offering complimentary meals and accommodations.
Typically, the regulations regarding the deduction of travel expenses allow employees on work-related trips to either receive reimbursements from their employer as a business expense or to claim deductions when determining their taxable income.
Allowances and deductions may be determined using either actual documented expenses or fixed standard rates. For the year 2023, the standard rates are DKK 555 per day for meals and miscellaneous expenses, while lodging is set at DKK 238 per day.
2. Relocation expenses
Expenses related to relocation might qualify for a deduction from standard taxable income, provided the expatriate continues to work for the same employer. Additionally, in specific circumstances, if moving costs for business purposes are reimbursed by an employer and are validated with receipts, those reimbursements may not be taxed.
3. Commute expenses
Employees can claim a deduction for their daily travel to and from work, provided they do not have access to a company vehicle and their employer does not reimburse transportation expenses. The total distance for the round trip between home and the workplace must be greater than 24 kilometers. In 2023, the deduction rate is DKK 2.19 for distances between 25 and 120 kilometers, while an additional DKK 1.10 is available for each kilometer over 120. For those living in certain suburban areas, the allowance is DKK 2.19 for each kilometer beyond the 120-kilometer mark.
Furthermore, individuals traveling via the Øresund connection, which includes the bridge and tunnel linking Denmark and Sweden, or the Storebælts connection, connecting the Island of Funen to Sealand, can receive an
additional mileage allowance. The amount of this allowance varies based on the type of transportation used.
4. Service-related costs
In 2023, specific approved expenses associated with household services can be deducted, with a maximum limit of DKK 6,600 per person. The deductible amount for utilizing household services is around 25% for this year.
5. Contribution to retirement savings
Employer contributions to a lifelong annuity pension plan set up with a Danish pension fund, insurance company, or financial institution are tax-exempt. Conversely, when individuals make contributions, these amounts are tax-deductible up to certain limits.
In addition to the tax advantages from exempting or deducting contributions, these contributions also result in an extra tax deduction in the overall tax calculation, which is subject to specific limits. The rate for this deduction differs depending on the taxpayer's age, offering a higher rate for those nearing retirement.
Generally, for 2023, individual contributions to a private pension plan that are deductible should not exceed DKK 60,900. This same limit applies to employer contributions, except in the case of a lifelong annuity plan. Special regulations, however, pertain to contributions made by or for expatriates to a Danish pension plan, particularly regarding their repatriation in the future.
It is essential to recognize that, under certain conditions or specific Double Taxation Treaties (DTTs), contributions to a foreign pension scheme may either be tax-exempt or tax-deductible.
6. Costs associated with double households
Individuals who are married and have a spouse remaining in the home country may qualify for a double-household deduction under specific conditions. This deduction can be claimed at a rate of DKK 400 per week or
based on actual documented expenses, provided the necessary documentation is submitted.
Upcoming innovations in Danish accounting
A pivotal decision was made by the Danish parliament on May 24, 2022, to implement reform packages that would replace the 1999 law. This change was driven by the government's commitment to enhancing the digitization of bookkeeping records for companies operating in Denmark and strengthening their efforts to combat tax evasion. The new legislation took effect on July 1, 2022, and includes several key provisions.
Beginning October 1, 2023, all corporations registered in Denmark will have an irrevocable obligation to submit financial statements to Danish authorities for each fiscal year. Additionally, starting January 1, 2026, any operating companies and associations in Denmark that exceed an annual net turnover of DKK 300,000 (approximately EUR 40,000) for two consecutive years will also be required to provide annual financial statements to the authorities.
The planned changes have not yet been officially implemented, although the Danish authorities are actively pursuing them. As determined by the Danish Business Authority (Erhvervsstyrelsen), the requirement has been postponed until December
13. Details regarding the revised timetable for these changes are anticipated to be revealed once the new government takes office and makes decisions on the matter.
Currently, the process of finalizing the technical and detailed requirements is still ongoing. The only specifics available at this time are the drafts of the SAF-T system that have been created, which provide a glimpse of what the system is expected to look like. This system is set to be gradually introduced for general use starting in 2024, with widespread adoption estimated to occur by 2026.
Digital bookkeeping entails two main responsibilities:
- All transactions conducted by the company must be recorded in a designated digital accounting system.
- It is essential to store and secure records and attachments that document entries in the digital bookkeeping system. The minimum requirement includes maintaining at least backup copies of these records, which can be stored on a vendor's server or any other suitable option.
FAQ
1. What exactly is the Sundhedskortet health card?
Referred to as the yellow card, this health card is a requirement for anyone planning to live in Denmark for more than three months. It is issued together with a CPR number and provides entitlement to free medical care, with the exception of dental services.
2. What bookkeeping standards are applicable in Denmark?
In Denmark, bookkeeping is governed by EU Regulation 1606/2002, which pertains to the application of international accounting standards (IAS). This regulation mandates the use of IFRS standards, as adopted by the European Union, for the consolidated financial statements of European companies listed on regulated securities markets since 2005.
Additionally, the EU IAS Regulation allows member states to require or permit the use of EU-adopted IFRS standards in the statutory accounts of companies and in the financial statements of those not traded on regulated markets. In Denmark, companies that do not trade on a regulated market can choose to apply the IFRS standards adopted by the European Union for both consolidated and separate financial statements. It is important to note that the Kingdom of Denmark comprises two autonomous territories, the Faroe Islands and Greenland, where EU law does not apply.
3. What does the term “folkepension” refer to?
This is the state pension system in Denmark that grants benefits to all citizens aged 65 and above.
4. What does “NemKonto” mean?
It refers to an employee bank account designated for the transfer of SKAT tax refunds and salaries.
5. Can you settle online with the tax authorities in Denmark?
Yes, in Denmark, it is possible to settle online using a specific 8-digit code called TastSelv, which can be obtained from www.skat.dk. This code is found on the Årsopgørelsen or Forskudsopgørelsen (tax card).
6. How can I obtain a TastSelv code?
Acquiring a TastSelv code involves visiting the website of the Danish Tax Agency. To begin the process, you need to provide your CPR number.
7. What does “ATP” stand for?
This refers to the Danish occupational pension scheme, which is part of the second pension pillar and encompasses all Danish citizens aged 16 and older.
8. What is meant by a “pension”?
In Denmark, a pension refers to a private retirement plan that is built up through private pension funds, such as Danica Pension, PFA Pension, Pensiondanmark, and Industriens Pension.
9. What is Årsopgørelsen?
Årsopgørelsen refers to tax assessments available on the website of the Danish Tax Authority.
10. What is Feriekonto?
Feriekonto is a designated fund where Danish employers are required to deposit their employees' holiday contributions, which amount to 12% of the gross salary, minus 8% allocated for social purposes.
11. What does “Personfradrag” refer to?
This term denotes a personal tax allowance available to Danish residents who have been employed in Denmark for a duration of 12 months.
12. What is my annual holiday entitlement if I work in Denmark? According to the newly implemented holiday law, you are entitled to 25 vacation days each year. These days are accrued from the beginning of September until the end of August of the following year, at a rate of 2.08 days for every month worked.
13. What is the typical waiting period for a tax refund in Denmark?
You can expect to wait around 6 months to receive your tax refund from the Danish Tax Authority.
14. What is Feriepenge, and who is eligible for it?
This holiday benefit is available to all individuals legally working in Denmark. A Danish worker earns 2.08 days of holiday for every month worked, amounting to a total of 25 days (or 5 weeks) each year.
You can also apply for Feriepenge up to six months after completing your work in Denmark, provided you register at the Folkeregister municipal office before leaving the country. Payments are deposited into a NemKonto for up to 3 months for the previous tax year, which runs from September 1 to August 31 of the following year. The funds can only be used in the subsequent holiday year, which lasts from May 1 to April 30.
15. What does “Restskat til betaling” refer to?
This term denotes the wording found on the tax decision from the tax office, indicating the amount due for additional payment to SKAT.
16. What types of tax credits are available in Denmark?
Danish tax credits include relief for commuting expenses between your home and workplace, accommodations, and meal costs.
17. What does “Skat til udbetaling” mean?
This term refers to the wording on the tax decision from the tax office that specifies the amount of tax refund due.
18. What is meant by “a-kasse”?
An a-kasse is an unemployment insurance fund in Denmark. While unemployment insurance is not mandatory, joining an a-kasse is necessary to receive benefits if you lose your job.
19. What is the required duration for retaining documents related to my employees?
It is advised to keep these records for a period of 5 years.
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