Denmark, situated in the Scandinavian Peninsula, offers a wide range of business opportunities for companies looking to expand their operations, including within the energy and transportation sectors.
If you’re considering entering into the Danish market, here’s what you need to know about the business environment, with a particular focus on accounting and tax requirements.
Special Expatriate Tax Breaks
Setting up a business to service customers or clients in Denmark usually involves the transfer of personnel to Denmark. For that personnel, tax rates are an important consideration as they alter the real level of income that the individual can keep (after taxes). The top tax rates that apply in Denmark are higher than those in other countries, reaching as high as approximately 60% at the very top levels.
Another key issue to explore for expats is the availability of the Danish Expatriate Tax Regime. This regime is available provided certain conditions are met and reduces the income tax rate to a flat 27% for up to 7 years. This can be a really strong incentive to attract resources and talent into Denmark and should not be overlooked by employers.
Danish Accounting Requirements
In Denmark, the board of directors and the managing director are responsible for the maintenance of accounting records and for the preparation of annual reports, covering each financial reference period.
- The management report prepared by the board of directors and the auditors’ report are integrated parts of the annual report.
- The annual report must be approved by the shareholders at the company’s annual general meeting, and must be filed with the Danish Business Authority without undue delay after the approval at the general meeting and no later than five months after the end of the financial year.
- Governmental and listed companies must file the report no later than four months after the end of the financial year.
According to the Act, a listed company must prepare an annual report consisting, as a minimum, of:
- A statement by the board of directors and the management on the annual report.
- A balance sheet.
- A profit and loss account.
- A cash-flow statement.
- Disclosures, including disclosure of accounting policies.
- A statement of changes in equity as well as a management report.
- An auditors’ report.
Small and medium-sized companies may be exempt from some disclosures.
Corporation Tax in Denmark
Taxable income – including capital gains – is subject to a corporate tax of 22%. The tax rate is identical for public limited companies, private limited companies and branches.
Generally, a company resident in Denmark is subject to corporate tax on its income and gains from Danish territory. A company is resident in Denmark for tax purposes if it is incorporated in Denmark and its effective management is situated within the country, or if it is incorporated abroad and it’s effective management is in Denmark. Effective management is determined on the basis of the place of the day-to-day business decision making.
As of 1 January 2020 the Danish anti-avoidance tax rules on reclassification of an incorporated group company into a permanent establishment of a foreign company – if considered a transparent entity under foreign tax rules - were abolished. Instead, new anti-avoidance tax rules apply similar to the rules on hybrid mismatch in the OECD Multilateral Convention of 24 November 2016 (Multilateral Instrument/MLI).
Expenses are deductible if incurred in order to “obtain, secure and maintain” the income. Generally, capital expenditure is not deductible, except for minor acquisitions at a purchase price of less than DKK 13,800 (2019).
Alternatively, this expenditure can be capitalised and depreciated using the general rules.
Research and development costs within most areas are either tax-deductible or tax-depreciable if a few requirements are met. The tax-deduction/tax-depreciation % for costs paid by the company is:
- In 2019: 101.5 %
- In 2020: 103 %
- In 2021 and 2022: 105 %
- In 2023-2025: 108 %
- In 2026 and onwards: 110 %
Further, an annual tax refund – a maximum of DKK 5,500,000 – equivalent to the tax value of R & D losses up to DKK 25 million – may be granted by the Danish tax authorities (on request). If so, the corresponding tax loss cannot be carried forward to subsequent years. The Danish tax authorities has limited the above annual tax refund maximum to equal the R & D costs paid by the company.
Only 25% of entertainment expenses are tax-deductible. The definition of entertainment expenses is very broad and includes gifts to customers and others. The rules do not apply to expenses related to the employees of the company. Such expenses are fully tax deductible. Advertising costs are also fully tax-deductible.
Machinery and equipment may include aircrafts, motor vehicles, passenger cars, office machines, and office equipment. Most machinery and equipment is included in one single depreciation balance and are depreciated as a single asset pool up to 25 % a year (declining balance method).
However, new machinery (except passenger cars and ships) bought in the period 30 May 2012 – 31 December
Tax associated with your premises in Denmark
Buildings can be depreciated on an individual basis using a straight line method with an annual depreciation rate of 4%.
In general, buildings used for commercial purposes (except office buildings and residential property) are tax-depreciable. In certain cases an office building attached to a depreciable building may be depreciated.
Under certain conditions artistic adornment may be depreciated according to the same rules as apply to the adorned building.
Expenses for rebuilding and improvement are deductible, if the annual expenses for rebuilding, improvement and maintenance do not exceed 5% of the depreciation basis at the beginning of the year. Losses on depreciable buildings are deductible, yet losses reduce the taxable purchase price of the building when calculating the capital gain.
NES & Global Mobility
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