A Comprehensive Guide to Doing Business in the Land of the Vikings

Denmark is known for its strong economy, innovative business climate, and high standard of living. As a member of the European Union, Denmark provides a stable and transparent business environment with a well-developed infrastructure and skilled workforce. Doing business in Denmark offers a wealth of opportunities for entrepreneurs, investors, and companies looking to expand their operations in Northern Europe. This article will provide an overview of the key aspects of doing business in Denmark, including regulatory environment, taxation system, and business culture.

Accounting Standards and Regulations in Denmark

The tax year in Denmark is either the calendar year or a 12-month period chosen by the taxpayer. Due to the close link between history and culture, accounting regulations in the Nordic countries are similar. The Danish Financial Statements Act (DFSA) covers all business enterprises in Denmark.

Financial Reporting in Denmark

To prepare financial statements, companies must follow "good accounting methods" as required by law, and they must submit an annual report that includes a balance sheet and a profit and loss statement to the relevant authorities. Companies in Denmark have the option to book intangible assets in the balance sheet or as expenses in the profit and loss account. Fixed assets should be valued based on the original or production cost, while current assets should be reported at the lower cost or market value. The valuation of inventory can be done using the weighted average cost or the FIFO method.

In Denmark, FSR serves as a professional organization representing auditors, accountants, tax professionals, and corporate finance experts. The country's legislation mandates that all companies must undergo an audit following generally accepted auditing practices.

Danish Taxation Rates

Denmark is known for its high taxation rates, which are among the highest in the world. While this may deter some investors, it is important to understand the tax system in Denmark and how it affects businesses. In this section, we will discuss the various taxes that companies must pay in Denmark. We will also cover tax incentives and exemptions that are available for businesses operating in Denmark. By understanding the taxation system in Denmark, businesses can make informed decisions when considering investment opportunities in the country.

Corporate Taxation in Denmark

Corporate taxes are an essential aspect of doing business in Denmark. Like many other countries, Denmark levies taxes on the income of corporations. However, the Danish corporate tax system has some unique features that businesses operating in the country should be aware of. We will examine what companies should keep in mind when filing their taxes. What entrepreneurs can expect when doing business in the country?

The company tax rate is 22%. Companies that are not legally tax resident in this country only pay this tax on profits earned in Denmark. Denmark adheres to the principle of territoriality, which means that resident companies are only subject to taxation on their income derived from within Denmark, and not based on worldwide income.

Gains from the sale of group shares, subsidiary shares, and unlisted portfolio shares (with shareholdings less than 10% in unlisted companies) by a Danish corporate shareholder are exempt from tax, while losses are not deductible. Capital gains on listed portfolio shares are taxed at a rate of 22%. Foreign shareholders are typically not subject to Danish capital gains tax when disposing of shares in Danish companies.

Non-residential property owners are taxed based on the value of the land, with rates set between 1.6% and 3.4% by municipalities. Some non-residential properties are also subject to a special coverage charge, capped at 1% of the property value minus the value of the land and a DKK 50,000 threshold. Transferring shares incurs no stamp duty, but a transfer deed for real estate is subject to a duty of DKK 1,750 plus 0.6% of the transfer sum.

Companies must pay environmental taxes to energy providers, who in turn pay the taxes to the authorities. Environmental tax rates are usually adjusted annually and may be partially reimbursed. Employers are liable for social security contributions of around DKK 12,000-15,000 per employee annually, depending on the industry.

Shipping firms may opt for tonnage tax instead of standard corporate income tax for up to 10 years. A hydrocarbon tax of 52% applies to hydrocarbon income, and some VAT-exempt companies are subject to a payroll tax. Denmark does not impose capital duty, transfer tax, or wealth tax.

VAT and other taxes

One of the main taxes that entrepreneurs pay in Denmark is VAT, the rate of which for most goods and services is 25%. Denmark does not offer reduced tax rates, although certain supplies are exempt as mentioned earlier. Additionally, supplies such as newspapers, and supplies of gold to the Danish National Bank are zero-rated.

Denmark levies excise taxes on goods from non-EU jurisdictions, such as:

  • tobacco,
  • alcoholic beverages,
  • sugary foodstuffs,
  • energy products,
  • vehicles.

The excise duty rates vary depending on the type and category of goods. In addition, a motor vehicle tax applies in Denmark based on the value of the vehicle. Environmental taxes, such as carbon dioxide emission and wastewater taxes, are also imposed in the country. The motor vehicle tax is set to gradually increase between 2022 and 2026.

Tax relief for companies

Can Danish entrepreneurs count on any relief? The answer is yes. Ordinary business expenses are generally eligible for deduction, as are tax incentives such as R&D expenses, patents and know-how acquisition, and depreciation on assets procured for R&D purposes. Companies may claim annual depreciation allowances of up to 25% on machinery and equipment through the diminishing-balance method. A Danish corporation can claim a deduction for royalties, management fees, and similar payments made to foreign affiliates, provided that they are made on an arm’s-length basis and accurately reflect the services received. Additionally, a small amount of gifts to specific organizations mentioned in the Danish tax authorities' guidelines may be deducted, with a maximum of DKK 17,000 for the 2022 tax year. Bad debts are generally deductible, except for inter-company debts. Capital gains are typically subject to the standard corporate tax rate of 22%, while some types of capital gains are exempt from tax, such as gains from the sale of group shares, subsidiary shares, and unlisted portfolio shares with less than a 10% stake. However, losses from these types of gains are not deductible. Foreign shareholders selling shares in Danish companies are usually not subject to Danish capital gains tax.

Danish law

When starting a business, it is important for entrepreneurs to have legal protection of their rights. Denmark is known for being a business-friendly country with a strong legal system that supports entrepreneurship. This section will provide an overview of the protection of entrepreneurs' rights in Denmark.

Business Legislation in Denmark

Denmark's official language is Danish, but English is also widely spoken. The primary source of law is the constitution of 1849, which was updated significantly in 1953. The legal system is based on the civil law system, with judicial review of various legislative acts. Denmark accepts compulsory International Court of Justice (ICJ) jurisdiction, but with reservations. As a member of the European Union (EU), Denmark's national law must comply with Community legislation.
The independence of the judiciary is guaranteed, and Denmark is governed by the rule of law. Foreign nationals can expect a fair trial from the country's judicial system, which is known for its impartiality. Denmark has a reputation as one of the world's least corrupt countries.

Protection of Ideas and Creations

The Danish Patent and Trademark Office is the entity responsible for safeguarding intellectual property rights in Denmark. The European Patent Office (EPO) is responsible for patent protection, while the European Union Intellectual Property Office (EUIPO) oversees the protection of trademarks, designs, and models.

Denmark has several laws in place to protect the intellectual property of individuals and businesses. The Consolidate Patents Act is a key piece of legislation, with the Publication of the Patents Act being a recent update. The Patent Cooperation Treaty (PCT) is another relevant law in Denmark, along with the Trademark Law Treaty and the Protocol Relating to the Madrid Agreement Concerning the International Registration of Marks.

In addition, Denmark has the Danish Designs Act, which offers protection to designers and their intellectual property. Copyright protection is also available in Denmark, with Consolidated Act No. 763 of June 30, 2006 being the relevant law in this area.

Denmark is also a signatory to various international conventions aimed at protecting intellectual property. These include:

  • the Berne Convention For the Protection of Literary and Artistic Works;
  • the Convention for the Protection of Producers of Phonograms Against Unauthorized Duplication of Their Phonograms;
  • the Rome Convention For the Protection of Performers, Producers of Phonograms and Broadcasting Organizations;
  • the WIPO Copyright Treaty, and the WIPO Performances and Phonograms Treaty.

Overall, Denmark has a strong legal framework in place to safeguard intellectual property, providing individuals and businesses with important rights and protections.

Denmark's Industrial and Commercial Norms

In Denmark, industrial and commercial standards are managed and published by the Danish Standards Association. A complete list of standards can be found on their website. Denmark is a member of several international organizations, including:

  • the International Standard Organization;
  • the International Electrotechnichal Commission;
  • the European Committee for Standardization;
  • the Asia-Europe Meeting.

Any new EU standards are required to be approved as Danish standards and are given the title DS/EN. If a standard is initially international and later becomes an EU and Danish standard, it is given the title DS/EN ISO. The Danish Standards Association also provides certification of standards to ensure compliance with national and international standards.

Business Customs in Denmark

Working hours may vary across Denmark. Generally, offices are open from around 8:00 to 10:00 in the morning and close between 3:30 and 5:30 in the afternoon. Most businesses operate on a five-day workweek, and are closed on weekends, i.e., Saturday and Sunday.

In Danish business culture, there is an emphasis on values such as trust, respect, equality, and openness towards different cultures. Displaying wealth, whether in speech or appearance, is not encouraged in Denmark, which values education and personal character over material possessions. Hierarchy is relatively flat in Danish workplaces, and decision-making involves consulting everyone involved. This informality is reflected in the use of first names even when addressing bosses. Discussions are encouraged, and decisions are made carefully and methodically.

Although initially reserved, Danes are generally informal and value personal relationships. Maintaining a separation between business and personal relationships, greetings cards, gifts, and shared meals are used to cultivate and maintain business relationships.
In Denmark, business interactions tend to be straightforward and concise, with a focus on factual information rather than small talk. It is recommended to send an agenda before a meeting and stick to it, avoiding hyperbole and expecting direct questions. Avoid discussing tax avoidance, as it is considered unethical. Communication is typically direct and avoiding loudness is appreciated. Eye contact is important, and speaking a bit of Danish can help break the ice. Danish humor can be confusing, especially when it involves self-mockery or the "law of Jante" (a social concept that emphasizes modesty and equality). Business meetings are usually scheduled during lunch in a restaurant, and tipping 10% for good service is acceptable. When arranging a meeting, it is best to contact the company directly, schedule before 4 pm on weekdays, and confirm appointments in writing. In Denmark, hierarchy tends to be flat, and decision-making involves consulting with everyone involved. Danish employees typically address their bosses by their first name, and discussions are welcome.

Punctuality is highly valued in Denmark, and any delay exceeding five minutes must be notified. It is recommended to avoid scheduling meetings between mid-June and mid-August because many Danes are on vacation during this period. Business cards should display the physical address of the company rather than a post office box. It is customary to shake hands with everyone present at the beginning and end of a meeting, starting with women. Danes use their professional titles and surnames, and it is appropriate to do the same. If someone does not have a professional title, the terms “Herr” (Mister), “Fru” (Misses), or “Frøken” (Miss) are used. Danes quickly transition to using first names, but it is best to wait for an invitation to do so. The dress code is conservative, and ostentation is frowned upon. Men typically wear suits and ties, while women wear conservative dresses, skirts, or pants paired with simple accessories. Offering a gift at a first meeting is not encouraged in Danish etiquette. However, a small gift is appropriate when good relations have been established. If invited to a Danish home for dinner, it is customary to bring flowers, good chocolates, or quality wine.

Negotiation

When conducting business negotiations in Denmark, it is important to keep in mind the Danish approach to such meetings. Sending an agenda before the meeting is essential as Danes are highly organized and prefer to work from it without deviation. When making decisions, Danes consult with everyone involved, so do not expect an immediate decision during the meeting. Presentations should be factual and well-organized, backed up by figures and charts. Avoid speculation and hyperbole, and maintain eye contact while speaking. Danes prefer to get down to business quickly, so pre-meeting small talk will be limited. Danes are direct, so expect pointed questions and respond directly without dodging the questions.

Public holidays

Denmark has a number of public holidays throughout the year, which include:

  • New Year's Day on January 1st;
  • Maundy Thursday and Good Friday in March or April;
  • Easter Monday;
  • Common Prayer Day in May;
  • Ascension Day in May or June;
  • Whit-Monday in May or June;
  • Constitution Day on June 5th;
  • Christmas Eve, Christmas Day, and Boxing Day in December.

There are also periods when companies usually close, such as New Year's Day on January 1st, Maundy Thursday, which is the Thursday before Easter Sunday, Good Friday, which is the Friday before Easter Sunday, Easter on the last Sunday of March or the first Sunday of April depending on the year, Constitution Day on June 5th, Christmas Eve on December 24th, Christmas Day on December 25th, and the second day of Christmas on December 26th.
It is important to note that during these periods, companies may be closed and business may be disrupted. It is advisable to plan accordingly and to check with companies ahead of time to ensure they are open during these periods.

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