VAT Representation Services in Denmark

It is a standard practice for overseas companies doing business in Denmark, especially those without a tangible presence or sufficient familiarity with local VAT rules, to delegate VAT responsibilities to a tax representative.

Assigning VAT-related tasks to a tax representative in Denmark is essential for protecting the company’s operations, minimizing administrative burdens, and effectively managing tax risks in the country.

VAT rules in both the European Union and Denmark are intricate and often undergo changes. The frequency of VAT filing requirements varies, and failure to comply, delay payments, or make mistakes in cash flow assessments can result in significant financial penalties.

For companies based outside the EU that sell goods or services in Denmark, appointing a Danish tax representative is mandatory. This representative will manage VAT-related issues in Denmark and take on responsibility for tax obligations in Denmark resulting from these activities.

The obligation to appoint a VAT representative in Denmark is based on the country of registration of the company. If a company is required to register for VAT in another country due to its business activities, it may be necessary to designate a local tax representative.

In Denmark, a tax representative typically shares responsibility for the company's VAT obligations. Many European countries require non-EU companies that need VAT registration to appoint a local representative.

What is the meaning of tax representation?

Value Added Tax (VAT) is a type of tax applied in EU countries. As per EU regulations, businesses must have a presence within the EU to handle VAT procedures with customs authorities.

Tax representation refers to a service in which one company represents another that intends to import goods into the European Union. This includes managing VAT declarations, remitting the correct VAT amounts to tax authorities, and submitting Intrastat declarations for sales within the EU, if required. With Danish tax representation, we help businesses enter the EU market efficiently and enhance their competitiveness.

The scope of tax representation services includes:

• Assisting foreign companies with the VAT registration process in Denmark.
• Ensuring compliance with Danish VAT laws.
• Preparing and filing regular VAT returns with the Danish revenue authority (SKAT).
• Managing VAT payments that the foreign company must remit to the Danish revenue authority.
• Ensuring adherence to local regulations related to invoicing, VAT handling, accounting procedures, reporting, and VAT payments.
• Acting as an intermediary between the foreign company and the Danish revenue authority.
• Helping recover Danish VAT paid on local purchases, including preparing and submitting VAT refund claims for non-Danish companies.
• Providing necessary reports and documentation required by the Danish revenue authority, such as annual returns and other reporting obligations.
• Handling audits and tax inspections conducted by national VAT authorities.

To minimize risks and reduce stress, it is advisable to delegate VAT-related tasks to specialists.

In which cases is VAT registration in Denmark necessary?

As a result of the alignment due to the harmonization of VAT rules within the European Union, the criteria for VAT registration in Denmark are largely consistent with companies from other member states. VAT registration in Denmark is required in the following circumstances:

• Shipping goods through Denmark to other EU member states.
• Engaging in the sale or purchase of goods within Denmark or exporting goods from Denmark to other countries.
• Providing services that are subject to VAT.
• Storing goods within Denmark.
• Organizing and hosting live events.
• Receiving reverse-charge services when the company is not listed in the VAT register.

Additionally, foreign businesses must register for VAT in Denmark if they conduct Business-to-Consumer (B2C) transactions that exceed the intra-community sales threshold and do not use the VAT One-Stop Shop (OSS) system for reporting.

Foreign companies can sign up for VAT in Denmark by filling out a form provided on the virk.dk website. Once registered, they will receive a Danish VAT identification number, referred to as a DK-nummer, which will be sent to the mailing address provided during the process.

Non-resident companies may also need to register for VAT if they are based outside Denmark but supply goods or services that are taxable within the country. This requirement arises from the EU VAT directive, which mandates foreign companies to register in specific circumstances to report taxable activities and account for any VAT owed.

Companies with a turnover of less than 50 000 DKK in those who have not reached the VAT registration threshold in the past 12 months are not required to register for VAT in Denmark, but they have the option to do so register voluntarily.

However, if turnover exceeds 50 000 DKK and the business has not yet registered for VAT, it must do so promptly. Additionally, businesses anticipating that their revenue will reach this threshold are required to register as VAT payers at least 8 days before commencing operations.

Businesses or individuals involved in activities exempt from VAT under Danish law are not required to register. Examples of these exempt activities include:

• Education
• Healthcare
• Financial services
• Cultural activities, such as certain forms of art and entertainment
• Charitable organizations providing specific social services

Furthermore, certain small farms may choose a flat-rate VAT system instead of standard registration, simplifying their VAT-related tax responsibilities.

It is important to note that while these entities are not obligated to register for VAT, they may choose to register voluntarily if it benefits their business.

We provide a local address, handle all procedures in Danish, and manage communication with the relevant authorities. This service is more affordable for EU-based companies, as they are not subject to joint liability.

Types of Tax Representatives in Denmark

There are two primary types of tax representation: general and limited.

Limited tax representation enables the importing goods into the EU without having to pay import VAT upfront, improving financial liquidity. This type of representation is specifically designated to act for a non-resident company exclusively to handle the import of goods and utilizing those goods afterward.

Through limited tax representation, we can serve as tax agents for companies engaged in importing goods into the EU.

A limited tax representative's authority is confined to representing a non-resident company solely for importing goods without immediate VAT payment and facilitating their subsequent sale. This type of representation is advantageous across various industries. Additionally, limited tax representation operates under a single license, making it easy to add new clients to the existing license.

General tax representation, on the other hand, is an essential solution for companies importing goods into Denmark, particularly when limited tax representation is not suitable. This typically applies to transactions involving other EU countries or the import of goods from outside the EU. The Danish revenue authority issued a permit under Article 23, allowing companies to use the reverse charge mechanism for VAT on imports. This enables companies to defer VAT payments until the VAT return is filed, rather than paying it at the time of import. However, this option is available only to companies that have appointed a general tax representative.

A general tax representative is tasked with handling all VAT-related transactions on behalf of a foreign business operating in Denmark. These representatives are often customs brokers, logistics providers, or accountants, as their role involves managing both logistical operations and ensuring adherence to Danish VAT rules.

The general tax representative is required to furnish a guarantee to the Danish revenue authority authorities, typically equal to the amount of VAT the foreign business is expected to pay for a given quarter. However, the liability of the representative is not limited to the guarantee amount. The tax authorities can reassess VAT payments for up to five years, potentially increasing the liability to as much as five times the initial guarantee.

To mitigate this risk, general tax representatives often require their foreign clients to provide an appropriate guarantee.

Designation of a Tax Representative in Denmark

Companies located in the EU, as well as in Norway, Greenland, the Faroe Islands, and Iceland, can register directly with the local VAT authorities and are not obligated to appoint a tax representative in Denmark. However, companies outside these regions may opt to assign a local representative to manage the often complex and time-consuming formalities.

Non-EU companies are required to appoint a tax representative in Denmark. Since the representative shares liability with the non-resident company, the company may be required to provide a security deposit or bank guarantee in favor of the representative.

All businesses operating in Denmark should thoroughly evaluate their compliance requirements and, if necessary, complete registration before engaging in any taxable activities.

Any company involved in taxable transactions in Denmark must register for VAT, report these transactions, and remit the applicable VAT. Companies based in the European Union can handle these tasks on their own or enlist the help of a tax agent. However, companies from outside the European Union are required to appoint a tax representative to fulfill the administrative obligations.

The tax representative in Denmark will handle the company's VAT responsibilities, including:

• Filing VAT returns
• Making VAT payments
• Applying for VAT refunds
• Conducting tax audits

All companies outside the European Union involved in taxable transactions in Denmark must appoint a VAT representative if the transactions include:

• Importing goods from non-EU countries into Denmark
• Exporting goods from Denmark to non-EU countries
• Purchasing goods from EU member states that are delivered in Denmark
• Supplying goods between businesses (B2B) from Denmark to EU countries
• Supplying the supply of goods and services from businesses to consumers (B2C) in Denmark, including through online sales platforms

Failing to appoint a VAT representative in Denmark may result in substantial penalties from the tax administration in Denmark and prevent companies from obtaining VAT refunds.

Additionally, it is crucial to acknowledge that European partners (such as suppliers, customers, sales platforms, etc.) often refuse to do business with companies outside Europe that have not appointed a VAT representative in Denmark, considering it too risky for their business activities.

Benefits of Appointing a Danish Tax Representative

Tax representation services in Denmark provide several advantages beyond simply registering a foreign supplier. They primarily help ease the burden of VAT management on imports and reduce administrative costs for foreign suppliers.

As companies outside Europe cannot directly register for VAT in Denmark, they are required to use a Danish VAT representative. This is typically a local business that acts on behalf of the foreign company, working with local VAT authorities. The representative is responsible for ensuring compliance with all tax obligations, even those that may not have been anticipated. As a result, the representative may request a deposit (such as a bank guarantee) before agreeing to represent the foreign company.

Tax representation not only meets legal requirements but also offers a simple and economical substitute for setting up a physical presence, such as opening a branch or subsidiary.

A Danish tax representative serves as an authorized agent, ensuring that the foreign supplier meets its rights and obligations. Furthermore, the representative takes on responsibility for some VAT-related duties concerning the flow of goods. Working with a VAT agent can help lower costs, accelerate deliveries to customers in Europe, and provide numerous additional advantages.

The key benefits of tax representation include:

• Easing the burden of VAT management on imports and reducing associated costs.
• The tax representative acting on behalf of the foreign supplier.
• The representative assumes responsibility for certain VAT-related duties.
• Potentially lowering costs and speeding up deliveries to customers in Europe.

By appointing a tax representative in Denmark, a foreign company can take advantage of the reverse charge mechanism on imports. Nevertheless, the foreign company continues to be accountable for its tax obligations. The tax representative can help fulfill these responsibilities on the company's behalf.

Tax representation in Denmark allows foreign companies to enter the Danish market without the expenses and complexities associated with establishing a business, such as creating a corporate structure and managing separate accounting systems.

A foreign company that appoints a tax representative in Denmark will not be required to pay corporate income tax in the country.

All VAT-related responsibilities are handled remotely from abroad by the tax representative. Their tasks include acquiring a VAT number, filing regular VAT returns, and making payments.

European companies are not obligated to appoint a Danish VAT representative, but they can choose to designate an agent to manage tax formalities with local authorities, which simplifies their interactions. In such instances, a bank guarantee is not required, as the company retains full responsibility for fulfilling its VAT obligations.