Bookkeeping in Denmark covers all legal forms of business, from a sole proprietorship to all types of companies. The bookkeeping of the different companies varies considerably in terms of difficulty, documentation, deadlines, taxes and legal provisions. If you have decided to set up your own business in Denmark, it is worth considering your Danish business bookkeeping options in advance. Bookkeeping for a company in Denmark can be handled by yourself or you can decide on outsourcing these tasks to certified accountants who will professionally handle your company’s affairs and take care of such matters as compliance with the regulations governing bookkeeping in Denmark, the Danish chart of accounts, reporting and also point out your rights and obligations.
What does Danish accounting do?
Danish bookkeeping applies to any businessman doing their own business in the Kingdom of Denmark and covers a wide range of issues, which, if not known and complied with, will result in severe fines. The most important matters concerning accounting services in the country of Denmark include:
- the laws governing Danish bookkeeping;
- the classification of reporting obligations;
- bookkeeping for Danish sole proprietorships;
- bookkeeping for Danish companies;
- chart of Danish accounts;
- auditing in Danish companies;
- deadlines, documentation, costs and rates for different types of business;
- registering your own business in Denmark;
- taxes, insurance, benefits;
- registration and permits;
- accounts and adjustments – SKAT;
- Danish bookkeeping rules;
- Danish employer obligations;
- Nemkonto, Tastselv, Pension, CPR, A-kasse, health card – DK.
Danish bookkeeping is a complex and highly regulated field that requires careful attention to detail. Ignoring or neglecting any of these important aspects could lead to legal consequences, financial penalties, and hinder the smooth operation of your business in Denmark. It’s crucial to familiarize yourself with the intricacies of Danish bookkeeping to ensure compliance and success in our business endeavors within the country.
Laws governing Danish accounting
Denmark is one of the most caring Scandinavian countries, characterized by a high degree of pro-social policy intervention, a free and flexible labour market, good social welfare and high taxes.
The following are the legal acts relating to Danish bookkeeping:
- 1. Accounting Act 1998 – in which you will find information that talks about the organization of bookkeeping, the keeping of accounting records and economic records. Danish bookkeeping is largely based on the bookkeeping chart of accounts, which deals firstly with the structure of the profit and loss account (the first group of accounts is sales revenue and the 6 cost groups), and secondly with the structure of the balance sheet account (assets, capitals, liabilities);
- 2. The Financial Reporting Act 2001 (DFSA, amended in 2015) – in which you will find information talking about all the provisions relating to the preparation of financial statements. This act talks about two types of profit and loss – comparative and calculation – and the Danish income statement templates do not include templates for net profit deductions. These statements refer to the classes into which Danish companies are divided:
- Class A, which includes Danish companies owned by individuals; such companies are not required to keep financial statements and their bookkeeping is mainly based on tax accounts;
- Class B, consisting of all Danish public companies, private limited liability companies and limited partnerships (with no more than 50 employees and a maximum of DKK 36 million in total assets);
- Class C, consisting of all Danish public companies, private limited liability companies and limited partnerships (with more than 50 employees and total assets of at least DKK 36 million);
- Class D, which includes all Danish public limited companies. The bookkeeping of such companies is the most complex, as it deals with the preparation of balance sheets, reports on the company’s management, profit and loss accounts and financial flows, as well as any statements on changes in equity and complementary information.
- The Danish Financial Statements Act 2002 (amended in 2014) – which aligns with EU regulations, it is mandatory for listed corporations in Denmark to implement EU-endorsed IFRS (International Financial Reporting Standards) for both their consolidated financial statements and the distinct financial reports of non-group listed companies that abstain from preparing consolidated statements. It is noteworthy that as of 2009, Denmark has dispensed with the necessity for listed businesses to employ IFRS in their individual financial statements. Conversely, non-listed entities also possess the privilege to adopt IFRS if they so choose.
- The Danish Financial Statements Act, which gives non-listed enterprises the option to adopt either IFRS or the Danish Accounting Standards created by the Danish Accounting Standards Committee (DASC), a branch of FSR – danske revisorer. These Danish bookkeeping standards, along with IFRS, can be employed at their discretion, serving the purpose of enhancing transparency and meeting the informational requirements of stakeholders. It’s essential to note that while Danish bookkeeping standards share a foundation with IFRS, they exhibit variations in specific aspects.
All financial reporting requirements for Danish companies are set out in European Union regulations and directives and then transposed into Danish law, as in the case of the EU Accounting Directive 2015, which was transposed into the Danish Financial Reporting Act.
Oversight of the areas of Danish financial reporting, Danish audit and Danish bookkeeping standards have been entrusted by the Danish Parliament to two governmental institutions:
- DFSA, or the Danish Financial Supervisory Authority;
- The DBA, or Danish Business Authority (until 2012 the Danish Trade and Companies Agency) operating under the aegis of the Ministry of Economic Affairs and Development and overseeing the financial reporting of unfunded business entities. However, in practice, since 2007, the power to set Danish accounting standards has been delegated to the Danish Accounting Standards Committee – DASC(owned by the FSR, the Danish Auditors’ Committee). The DASC does not have a legal mandate, but its recommendations and technical manuals represent a high level of Danish bookkeeping; the Committee sets guidelines for small, medium and large Danish companies (belonging to Class B and C).
According to current law in Denmark, auditors are regulated at the state level. The key piece of legislation that regulates the auditing profession in Denmark is The Danish Act on Approved Auditors and Audit Firms (the Audit Act) Consolidated Act No. 1287 of November 20, 2018. The Act makes it clear that responsibility for public oversight of auditors lies with the Ministry of Industry, Business and Financial Affairs. This ministry is consecutively under the permanent supervision of the Parliament in Denmark. Obtaining the official title of State Certified Public Accountant (SPA) is exactly what the Act No. 617 of June 12, 2013 refers to. The establishment and management of initial professional development (IPD) for SPAs are the joint responsibilities of the Danish Financial Supervisory Authority (DSFA), the Danish Business Authority (DBA) and the universities operating in Denmark. The requirements for candidates are that they have a university degree at the master’s level, have successfully completed three years of training to prepare them for the bookkeeping profession, and have passed a final examination to verify their professional competence. The training along with the exam is offered by the FSR and the DBA. Individuals who are members of the FSR – danske revisorer, or organizations of professional accountants, have been required to complete an apprenticeship since 2006. The apprenticeship should last for a minimum of 120 hours and should not be completed in more than three years. The fact that apprenticeships have been completed is checked in detail by state authorities. The adopted Audit Law gives the DBA such privileges and responsibilities as conducting quality assurance reviews, protecting the CSO designation, cooperating and sharing key information on audit oversight with other government authorities, including those from other countries, registering, approving and licensing audit firms and auditors, adopting regulations and standards for reporting, ethics, auditing and education, and conducting investigations. The FSR also has the power to manage members who belong to the organization. Among other things, it is involved in establishing and enforcing ethical requirements, setting standards for bookkeeping in Denmark and auditing, working with the Danish Financial Supervisory Authority and the Danish Business Agency to set specific requirements on the initial and continuing professional development of accountants, and working with the DBA through which investigations are conducted and disciplining individual FSR members. The body that oversees the financial sector and has the authority to establish new educational requirements for Danish auditors is the Danish Financial Supervisory Authority. According to Executive Order No. 1406 of December 11, 2013 for the SPA, auditors responsible for conducting statutory audits for financial institutions must absolutely obtain a minimum of 180 hours of professional practice, and this should include 60 hours of additional professional preparation through which candidates will acquire specialized knowledge of performing bookkeeping and auditing services. If you have any legal concerns about running your business in Denmark, please turn to a trusted lawyer for support.
Classification of reporting obligations
Danish company bookkeeping is largely based on the preparation of financial statements, the principles of which are contained in the Financial Reporting Act showing the division of all Danish business activities into 4 classes (A, B, C and D) according to the following criteria:
- legal form,
- company size,
- number of employees,
- total assets,
- annual net turnover.
Class A – includes all private, small and large Danish companies with up to 10 employees (full-time), total assets of up to DKK 7 million and annual net turnover of up to DKK 14 million. Danish law does not mandate companies in this class to prepare financial statements (this depends on established paragraphs in the company’s articles of association), apart from statements for tax purposes.
Class B – includes all private and public limited liability companies, limited partnerships, commercial foundations and other companies that:
- employ up to 10 employees (full-time), have total assets of up to DKK 2.7 million and a net turnover of no more than DKK 5.4 million,
- have up to 50 employees (full-time), their total assets are up to DKK 44 million and their net turnover does not exceed DKK 89 million.
The reports of the above Danish companies should include:
- a summary of the company’s management activities,
- an annual balance sheet,
- profit and loss account,
- a statement of changes in equity,
- additional information.
Danish companies in Class B are entitled to use the over-plan directives that were issued by the DASC in 2013 or IFRS, and some recommendations, relating to measurement, disclosure and recognition, are optional for companies in this class and necessary for companies in Class C.
Class C – includes all medium and large companies, private and public limited liability companies, limited partnerships, commercial foundations and other companies that:
- have up to 250 employees (full-time), their total assets are up to DKK 156 million and their net turnover does not exceed DKK 313 million,
- have more than 250 employees (full-time), their total assets are more than DKK 156 million and their net turnover exceeds DKK 313 million.
Class D – includes all state-owned joint stock companies that are required to prepare consolidated financial statements according to the rules given by IFRS (the obligation expires on 1 May, after 4 or 6 years), and listed companies that prepare separate financial statements.
The report of such companies should include:
- a summary of the activities of the company’s management,
- an annual balance sheet,
- profit and loss account,
- cash flow statement,
- statement of changes in equity,
- additional information.
Accounting for a one-person company (ENKELTMANDSVIRKSOMHED)
The bookkeeping of Danish sole proprietorships is not complicated, and these companies have been assigned to Class A according to the Danish Financial Reporting Act.
Bookkeeping for such a Danish business also takes care of drawing up a Forretningsplan, i.e. a detailed description of the company the entrepreneur intends to set up and run in Denmark. Such a plan should include the entrepreneur’s vision and idea for running his or her own business, as well as the scope of activities, duties and financial possibilities.
A sole proprietorship must be registered with the Danish Erhvervsstyrelsen (via the Danish website www.virk.dk) and entrepreneurs who choose to operate such a legal form should use a personal registration number CPR. Bookkeeping for a sole proprietorship is fairly straightforward to manage; the company does not require share capital to be raised, the minimum start-up costs are estimated at DKK 10,000 (PLN 5,000), tax on this type of business is declared only on one tax return (income is taxed only once), the business owner has the right to grant a power of attorney to other persons to act on behalf of the business, which does not need to be registered for VAT if its annual income does not exceed DKK 50,000.
Owners of a sole proprietorship who pay taxes and contributions are entitled to pension and health benefits the same as those who are employed in Denmark. Once a quarter or once every six months, you have to submit a tax return (income tax and VAT) via the Danish tax authority’s website (SKAT, via the LetLøn system). Advance income tax payments are due on 20 March and 20 November.
Accounting for companies
Much more complicated is the bookkeeping of Danish companies in class B, C and D, such as:
- General partnership (Interessentskab – I/S);
- Limited liability company (Anpartsselskab – ApS);
- Limited partnership (Kommanditselskab – K/S);
- Public limited company (Aktieselskab – A/S).
All Danish companies whose securities are traded on a regulated market are required to apply IFRS standards, as adopted by the European Union, in their consolidated financial statements.
Below, you will find more information on bookkeeping in Danish companies:
- If you set up and run a company in Denmark, there is a corporation tax, CIT, which is 22%, but if a Danish company’s annual turnover exceeds DKK 20,000, it becomes liable for VAT, which is 25%;
- The Danish Enterprise Authority is responsible for all changes that take place in company law and accounting law;
- The Danish Accounting Standards Committee (DASC) was established by the FSR to issue non-mandatory technical standards and guidelines for the preparation of financial statements (Regnskabsvejledninger) for unlisted entities. Since 2004, the DASC’s main technical role has been to analyse and prepare exposure draft comments, discussion papers and draft comment letters from EFRAG and the IASB Board, provide technical information on current bookkeeping issues and conduct outreach activities;
- International Financial Reporting Standards (IFRSs) are standards, interpretations and frameworks adopted by the International Accounting Standards Board (IASB);
- IFRS are considered to be a principles-based set of standards because they establish broad principles as well as dictate specific treatment;
- The recommendations enable individual companies to organize their management optimally according to the 'comply or explain’ principle. Non-compliance is therefore not incompatible with the spirit of the recommendations, but merely due to the fact that the company has chosen a different approach.
Taxes in Denmark
Types of tax
The tax structure in Denmark is comprised of both direct and indirect taxes, encompassing various prevalent forms of taxation in this category.
– Property tax (land tax)
– Property value tax based on the public property assessment
– ATP contributions
– 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)
If you own a house, an apartment or a plot, you must also pay property tax to the municipality based on the actual property value. The property tax is assessed and collected directly by each municipality and will differ from municipality to municipality.
If you own a house or apartment in Denmark, you are obligated to pay property value tax determined by the public property assessment. The Danish Tax Agency assesses the property value every two years. Residents in Denmark are required to pay property value tax not only on domestic properties but also on any foreign properties they own. Conversely, individuals residing abroad must pay property value tax on properties they own in Denmark.
All individuals employed in Denmark are required to make contributions to the Danish labor market supplementary pension fund, known as ATP. These contributions are deducted from your salary prior to the calculation of income tax. Typically, you contribute one-third of the total amount, while your employer covers the remaining two-thirds.
Labor market contributions, known as AM-bidrag, are mandatory payments for all employed individuals. These contributions are deducted directly from your salary by your employer. The funds collected through labor market contributions are allocated to cover various government labor market expenses, including but not limited to unemployment benefits, supplementary training programs, and maternity-related costs. It is important to recognize that these contributions essentially function as a tax, being subtracted from employees’ gross pay or the income derived from self-employment for individuals who are self-employed.
Approximately 74% of the Danish population are affiliated with the Danish National Evangelical Lutheran Church (Folkekirken), and members of this church are subject to paying a church tax. The funds collected through this tax are utilized for the upkeep and operation of churches within the municipality. The specific amount of church tax varies from one municipality to another and is collected alongside other direct taxes. In cases where individuals are members of alternative churches or religious associations and make contributions, those contributions may be eligible for tax deductions.
Municipal tax is an additional obligation for all citizens, requiring them to contribute a percentage of their income to their respective municipality. The specific tax percentage is determined independently by each municipality, resulting in variations across different regions. Consequently, the total amount of tax paid by an individual is contingent upon the municipality in which they reside, as each sets its own tax rate.
State tax is a portion of the total tax you pay from your income, and it is allocated to the state government. The rates for state tax are uniform across the country, regardless of your location, but they are determined based on your income. This type of tax follows a progressive structure and is categorized into two segments:
1. Bottom-bracket tax: This refers to the tax rate applied to the lower range of incomes. As your income increases, you move through different tax brackets, each with its corresponding rate.
2. Top-bracket tax: This pertains to the tax rate applied to the highest range of incomes. Individuals with higher incomes are subject to this top-bracket tax rate, which is typically higher than the rates in the bottom brackets.
A-tax, or tax deducted from income at the source, is a form of direct taxation where a portion of your income is withheld by your employer or pension provider throughout the year. This withholding is done before your salary or pension is paid to you. Additionally, property value tax, based on public property assessment, is included in this deduction. The withheld amount is submitted to the Danish Tax Agency (Skattestyrelsen) as provisional tax. At the year’s end, a reconciliation is conducted to ascertain whether the amount paid aligns with the total tax liability for the entire year.
B-tax, in contrast to A-tax, is a type of tax that is not deducted directly from your income at the source. Individuals subject to B-tax include those who need to pay taxes on earnings like interest income and business profits. Unlike A-tax, which is collected throughout the year by deducting a portion of the income before payment, B-tax requires individuals to manage and settle their tax obligations on specific types of income separately.
– Customs duties
– Excise duties
– Green taxes
Indirect taxes refer to levies and duties incurred through the purchase of goods and services. Each time you buy a product or, for example, use your water supply, you are contributing indirect taxes to the state. These taxes are integrated into the overall price of the goods or services. It is the seller’s responsibility to remit these indirect taxes, such as VAT, customs duties, and excise duties, to the state.
Customs duties are taxes paid to the state, typically applicable when bringing goods into Denmark from a non-EU country. The requirement to pay customs duties is contingent upon the overall value of the goods purchased. Specific rules exist for spirits and tobacco, where customs duties may be imposed based on the volume purchased. Upon returning to Denmark, individuals are obligated to declare the goods they have bought and pay any applicable customs duties. This declaration and payment process often occur at designated points such as the airport or border crossing.
Excise duties are taxes imposed on the import, manufacture, and sale of specific goods. When you make a purchase at a store, the excise duty has already been paid, alleviating ordinary customers from direct concerns about this tax. Goods subject to excise duty include items like wine and beer, batteries, chocolate, sweets, and soft drinks. Additionally, if you acquire a car or a motorcycle, you may be required to pay an extra registration tax.
Green taxes are charges imposed on individuals for the utilization of society’s resources. The principle behind these taxes is to encourage citizens to reduce their consumption and conserve natural resources. The more resources one consumes, the higher the green taxes they are required to pay. Examples of items subjected to green taxes include petrol, oil, electricity, water, and waste. The purpose of these taxes is to raise the prices of these resources intentionally. For instance, when the price of petrol increases, people are incentivized to reduce their driving, thereby limiting environmental impact. Vehicles that are environmentally friendly, emitting fewer pollutants and being more fuel-efficient, often incur lower green taxes.
In Denmark, Value Added Tax (VAT) is incorporated into the price of almost all goods and is also applied to various services. This includes services such as bicycle or car repairs, visits to the hairdresser, and similar transactions. The VAT is a consumption tax that customers pay when purchasing goods or services, and it is typically included in the total price of the item or service.
Personal income tax categories
In Denmark, individuals may be taxed based on their residency status, with distinctions made for full tax liability, limited tax liability, or special expatriate and work force hire rules.
1. Full tax liability
Individuals considered residents in Denmark are subject to full tax liability, meaning they are taxed on their worldwide income unless they are considered tax residents in another country based on a double taxation treaty (DTT). As of 2023, a fully tax-resident individual is generally taxed up to 52.07% (55.90% including AM tax, also considered income tax for DTT purposes). Various deductions are applicable, leading to a lower effective tax rate in most cases.
2. Limited tax liability
Individuals with limited tax liability to Denmark are subject to taxation only on income derived from Danish sources. This includes:
– salary for work performed in Denmark under certain conditions,
– certain other types of personal income, such as directors’ fees, pension distributions, and social security benefits,
– remuneration covered by special rules on hiring out personnel (Work force hire scheme),
– income from a business enterprise with a permanent establishment (PE),
– income from property located in Denmark,
– dividends from Danish companies,
– royalty income from Denmark,
– remuneration for advisory assistance, under specific circumstances.
As a general rule, individuals with limited tax liability to Denmark will be taxed up to 52.07% (55.90% including AM tax) on income from sources within Denmark in 2023.
It’s important to note that tax rates and regulations may be subject to changes, and individual circumstances can vary, so seeking advice from tax professionals or authorities is advisable for accurate and up-to-date information.
Personal income tax bracket levels
When evaluating taxes under the standard system, various income categories are considered:
1. Personal income (e.g., salary, benefits in kind, self-employment income, pension income, etc.).
2. Capital income (e.g., interest income, interest expenses, net taxable capital gain, etc.).
3. Taxable income (the sum of personal income and capital income, adjusted for specific itemized deductions).
4. Share income (including dividends and capital gains on shares).
5. Property value (referring to the value of properties located in Denmark or abroad).
These diverse income types are subject to distinct taxes and, consequently, taxed at different rates. This disparity in tax rates implies that the value of a deduction varies depending on the specific income category to which the deduction is applicable.
The applicable tax rates are outlined as follows:
– State taxes:
– Bottom tax – 12.09%
– Top tax – 15.00%
– Local taxes:
– Municipal tax (average) – 25.018%
– Labour market tax – 8.00%
– Share tax:
– DKK 0 to 58,900 – 27.00%
– More than DKK 58,900 – 42.00
It’s important to note that tax brackets and local taxes may undergo annual adjustments.
In total, the marginal tax rate is capped at 52.07% in 2023. However, certain taxes such as the labor market tax, share tax, property value tax, and church tax are exempt from this limitation.
For net capital income, the applicable tax rate is up to 42% in 2023. Deductions are allowed for negative net capital income and other allowances, although not with full effect.
Corporate income taxation
Companies in Denmark are liable for taxation on all income, and deductions are permissible solely for expenses directly associated with the company’s operations.
In adherence to Danish tax legislation, a territoriality principle is upheld concerning Permanent Establishments (PEs) and foreign real estate. Consequently, a Danish company is not taxed on its global income. Instead, income generated from a PE located outside Denmark or from real estate situated abroad is not considered taxable income. Non-resident companies, on the other hand, are subject to taxation solely on profits derived from sources within Denmark. The Corporate Income Tax (CIT) rate applicable is 22%.
Hydrocarbon income tax
In the context of Danish oil and gas upstream activities, the standard Corporate Income Tax (CIT) rate of 22% does not apply. Instead, two ring-fenced taxes are imposed on these activities:
1. Ring-fenced CIT at 25%:
This tax is similar to ordinary CIT but carries a higher rate of 25%. Importantly, the income is ring-fenced, meaning that no tax losses from other sources of income can be offset against income from Danish oil and gas upstream activities.
2. Hydrocarbon tax at 52%:
A special income tax known as 'hydrocarbon tax’ is levied at a rate of 52% on profits arising from the exploration and extraction of oil and gas on the Danish continental shelf. The 25% ring-fenced CIT is deductible when computing the hydrocarbon tax, resulting in an effective tax rate of 64%.
– Annual tax depreciation is allowed for platforms, wells, and inter-platform installations at a rate of up to 15% on a declining balance.
– Pipelines and other infrastructure assets can be depreciated with up to 7%.
– Exploration costs can be either expensed or capitalized for tax purposes.
– If capitalized, the costs are amortized over five years at a rate of 20% annually from the year of first oil.
Uplift for special hydrocarbon tax (52%)
– Certain assets subject to the special hydrocarbon tax qualify for a 5% uplift in six years (30% in total).
– These assets include exploration costs (if capitalized and incurred before the declaration of commerciality on a specific field), and fixed assets such as platforms, wells, inter-platform installations, pipelines, etc. However, the uplift applies only if the company owns these fixed assets, not on leased or rented assets.
– No uplift is granted under Chapter 2 (25%).
It’s crucial to note that tax regulations may change, and specific circumstances can influence taxation, so consulting with tax professionals for the latest and tailored advice is recommended.
Temporary tax incentive regime
A voluntary and temporary tax incentive regime has been introduced for oil and gas companies under Chapter 3B. This regime offers the following incentives for production assets subject to hydrocarbon tax:
1. Increased depreciation:
– The depreciation of production assets is raised to 20%.
– An uplift of 6.5% in six years is introduced, resulting in a total uplift of 39%.
– Both depreciation and uplift are advanced to the time of payment.
3. Time frame:
– Chapter 3B is applicable to investments submitted for approval during the 'investment window’ from January 1, 2017, until December 31, 2025.
– Investments must be approved by the Danish Energy Agency and completed no later than December 31, 2026.
– Companies need to decide to enter the 3B regime when filing the tax return for the first year the regime applies.
4. Surtax trigger:
– If the average annual oil price rises to between $75 and $85 per barrel from 2022 onward, a surtax of 5% to 10% will be imposed on income from upstream oil and gas production (Chapter 2).
– The surtax is capped at 20.1% of capital expenditure investments made during the investment window.
– The surtax is deductible in the hydrocarbon tax.
– Any repayment obligation expires in 2037.
It’s important to note that the application of tax regimes is subject to specific conditions, and changes in oil prices can trigger additional surtaxes. Companies considering entry into this regime should carefully assess their eligibility and consult with tax professionals to ensure compliance and optimize their tax position.
Activities related to the prospecting, exploration, or exploitation of oil and gas are subject to a tax rate of 22%. However, it’s important to note that such activities fall under a more assertive tax regime compared to non-oil/gas activities. Any activity connected to oil and gas, such as drilling, seismic surveying, and oilfield services, is taxable, irrespective of the presence of a Permanent Establishment (PE). It’s worth considering that provisions in applicable Double Taxation Treaties (DTTs) may influence or mitigate the tax implications of these activities.
Tonnage tax scheme
The Tonnage Tax Scheme in Denmark underwent amendments to expand its coverage in December 2015. The Danish Parliament passed these changes, which were subsequently approved by the European Commission on October 12, 2018. The amendments were retroactively effective from the fiscal year 2017.
To align with EU law, the Danish Parliament passed the Tonnage Tax Scheme on December 20, 2019. This adjustment applies to income years commencing on January 1, 2020, or later.
It’s important to note that the Tonnage Tax Scheme is set to last for a period of ten years, starting from January 1, 2017, and concluding on December 31, 2026. After this period, the continuation of the Tonnage Tax Scheme will be subject to re-approval by the European Commission.
Utilization of the Tonnage Tax Scheme
In accordance with Danish tax legislation, a distinctive tax framework is established for maritime entities.
The core concept of the Tonnage Tax Scheme revolves around the notion that eligible shipping entities are not subjected to taxation based on their actual business-derived income. Instead, they are taxed on a hypothetical income calculated from the net tons (NT) carrying capacity of their fleet, as outlined in the Tonnage Tax Act.
The tonnage tax scheme is applicable to:
1. Danish shipping entities structured as limited liability companies (Aktieselskab [A/S] or Anpartsselskab [ApS])
2. Foreign shipping companies with the place of management and control in Denmark
3. EU shipping companies with a Permanent Establishment (PE) in Denmark
The decision to opt for the scheme must be made during the initial income year in which the entity qualifies for it, and this decision remains binding for a duration of ten years.
Typically, affiliated shipping companies in Denmark must make a unified decision regarding the Tonnage Tax Scheme. However, exemptions from this joint decision provision may be granted to shipping companies lacking the same management or operational structure and those not engaged in related fields.
The scope of the Tonnage Tax Scheme is limited to specific business activities. The entity must operate at least one vessel with a minimum of 20 Gross Tons (GT) used for the commercial transport of passengers or cargo between different destinations, or lease out such vessels under time charter contracts for the same purpose. Certain conditions apply to the ownership or chartering of ships, such as 'bareboat’ terms and time-charter contracts with specific features.
As of January 1, 2020, any income from gross tonnage leased out on a bareboat basis exceeding 50% of the total gross tonnage is subject to taxation under the general rules of Danish tax legislation. Ancillary income, derived from activities closely linked to the business, must constitute less than 50% of the total turnover from business to be included in the Tonnage Tax Scheme.
Various restrictions exist for ships chartered on a time-charter basis without a call/buy option, including the strategic and commercial management requirement from Denmark. Ship management companies, engaged in crew and technical management, may also benefit from the Tonnage Tax Scheme, provided they fulfill specific criteria, including adherence to the International Safety Management codex.
The assessable income for the segment of the enterprise eligible for the Tonnage Tax Scheme is calculated for each ship at a fixed rate in Danish kroner per 100 Net Tons (NT) per day, as follows:
– 0 to 1,000 (Ship net ton (NT) – 10.93 (fixed amount per day (DKK per 100 NT)
– 1,001 to 10,000 – 7.85
– 10,001 to 25,000 – 4.69
– Over 25,000 – 3.09
The revenue is subject to taxation at the standard Corporate Income Tax (CIT) rate of 22% when it pertains to the Tonnage Tax Scheme. No allowances for expenditures associated with income falling under tonnage taxation are permitted.
For income not meeting the criteria for the Tonnage Tax Scheme, general tax regulations in Denmark apply, allowing for the deduction of relevant expenses. Consequently, losses incurred from other income sources can be offset against the income calculated under the Tonnage Tax Scheme.
Moreover, losses from tax consolidation with affiliated companies and, to a certain extent, financial expenses are eligible for deduction under the Tonnage Tax Scheme. Nevertheless, the deductibility of financial expenses is contingent upon specific capping regulations and requires that gains or losses do not arise from financial instruments established to secure shipping income.
Shipping entities opting for the Tonnage Tax Scheme from their inception are ineligible for deducting depreciation for tax purposes. Specific regulations govern depreciation for shipping entities that were already operational when choosing to be under the scheme and for entities electing to incorporate additional assets at a later stage that were not previously covered by the scheme.
Gains on ship sales
Profits from the sale of ships that were not utilized in the Tonnage Tax Scheme before January 1, 2007, are exempt from taxation. The same exemption applies to gains from the sale of contracts for ship delivery, provided the ship was intended for delivery after January 1, 2007. Conversely, gains from the sale of ships previously used in the scheme in preceding years are subject to taxation. The taxable gain is calculated by subtracting the purchase price and improvements from the sale price. Any losses incurred on ships acquired and sold within the same income year as the year in which a gain is realized may be offset against that gain. Starting in 2020, gains on vessels are also subject to the new 50% threshold for ancillary income from closely related business activities, measured on a turnover basis.
Inclusion of new activities
The expansion of the Tonnage Tax Scheme encompasses various new activities, including:
1. Guard, supply and construction vessels
The amendment incorporates revenue generated from guard services, such as those related to cable laying and non-fixed installations, along with all activities associated with supply services. This encompasses the transportation of provisions or bunker fuel oil.
2. Ice management vessels
The amendment includes all forms of ice handling at sea, encompassing escorting vessels through icy waters, protecting drilling units from floating icebergs in arctic regions, and actual ice breaking.
3. Offshore installation vessels
The amendment covers construction at sea, involving the building, repair, and dismantling of wind farms at sea, typically undertaken by wind farm service vessels. Additionally, it includes the construction, repair, and dismantling of other offshore installations, such as oil installations, wave-breaking installations, and coast protection measures. Notably, activities related to oil installations are covered only when conducted outside the Danish sea territory or continental shelf. The laying, inspection, and repair of pipelines and cables on the seabed by specialized vessels are also included.
4. Accommodation and support vessels (ASVs)
The amendment encompasses income derived from housing employees, spare parts, or workshop facilities in connection with offshore operations. Specialized ASVs, often integral to comprehensive and prolonged offshore works, typically engage in these activities.
Additionally, to qualify for the Tonnage Tax Scheme, shipping companies must annually provide a management declaration confirming compliance with all conditions stipulated under the scheme.
Danish chart of accounts
In Denmark, a bookkeeping chart of accounts is a special arrangement of accounts that has been adopted by a business entity in order to keep the economic records of companies transparently.
The most important account groups in the Danish chart of accounts relating to the profit and loss account structure are shown below:
- 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 cost,
- account no: 3200; account name: housing stock maintenance costs,
- account number: 3300; account name: cash shortage,
- account no: 3400; account name: costs of exported vehicle,
- account no: 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 group: interest; account no: 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.
Layout of account classes relating to the balance sheet:
- Account group: fixed assets:
- account number: 112; account name: tangible assets,
- account number: 11120; account name: cars,
- account no: 11121; account name: write-offs on cars,
- account no: 11130; account name: furniture,
- account no: 11131; account name: depreciation allowances for furniture.
- Account group: current assets:
- account no: 121; account name: inventories,
- account number: 12110; account name: composition,
- account no: 122; account name: accounts receivable,
- account no: 12210; account name: receivables from recipients,
- account no: 12220; accruals.
- account no: 123; account name: cash,
- account no: 12310; account name: cash,
- account no: 12320; account name: bank account,
- account number: 1230; account name: savings account.
- Account group: capitals:
- account number: 121; account name: share capital,
- account no: 134; account name: reserve capital,
- account no: 135; account name: financial result.
- Account group: liabilities:
- account number: 141; account name: long-term liabilities,
- account number: 14110; account name: mortgages,
- account no: 142; account name: current liabilities,
- account no: 14210; account name: revolving credit,
- account no: 14220; account name: receivables,
- account no: 14230; account name: pension supplement,
- account no: 14240; account name: from labour market contributions,
- account no: 14250; account name: from taxes,
- account number: 14250; account name: tax settlements,
- account number: 14290; account name: other liabilities.
- account number: 21000; account name: profit and loss account,
- account number: 22000; account name: balance sheet.
Audit of Danish companies
The Danish Financial Reporting Act also contains information on the audit of financial statements prepared by Danish companies. In Denmark, the accounts are audited by registered (or authorized) public auditors, who should be independent and external.
We distinguish between the following types of audit:
- financial audit – i.e. a comprehensive audit of the financial statements, conducted by a certified auditor. Such a financial audit is supposed to show whether all the financial and asset information presented by the owner of the company in question is true; whether the financial statements comply with Danish or international accounting principles;
- compliance audit – examines whether the companies’ financial systems and operations comply with the law;
- management audit – assesses the efficiency and economy of financial management by Danish companies;
- QA – which is the Danish quality control system for, among other things, financial statements.
More important information on the audit of Danish companies is presented below:
- internal audit must be included in the planning and modification of Danish companies’ accounting systems;
- good audit practice is set out in the Auditor General Act, which states that the internal audit function should not be dependent on the head of the entity for its planning, execution and organization, and that internal auditors should have access to the necessary information;
- the Danish Ministry of Finance has the right to indicate which subject areas within the company will be examined in detail;
- RSB – the Danish Financial Supervisory Authority adheres to ISAs, i.e. International Standards on Auditing;
- in 2011, from the merger of 3 Danish organizations: FSR (Danish Statutory Auditors), FRR (Danish Institute of Certified Public Accountants) and REVIFORA (association for young accountants and trainees), FSR, the proffessional Danish bookkeeping organization that deals with auditing, auditing of financial statements, bookkeeping and taxation in Danish companies;
- Danish auditors, state authorized public accountants (SPA, or State Authorized Public Accountant) appointed as auditors and audit firms are audited, every six years, by the DSAA, or the Audit Supervisory Authority (established by the DBA).
Audit framework overview:
- In June 2016, the Act on Approved Auditors and Audit Firms incorporated the EU audit reform, which originated from the 2014 regulation and directive. The most recent consolidated Act on Approved Auditors and Audit Firms, known as Consolidated Act No. 1287, was issued on November 20, 2018.
- According to Article 16 of the Danish Audit Act (No. 468 of June 17, 2008) and Executive Order No. 968 (2016) concerning Quality Assurance Reviews, it is stipulated that audits must adhere to the principles of „widely recognized audit procedures.” However, the Danish Business Authority (DBA) has refrained from explicitly defining the term „widely recognized audit procedures.” In practice, the auditing standards disseminated by the FSR (Financial Statements Authority) are universally applied.
- As of 2010, Danish auditing standards align with the International Standards on Auditing (ISA) originally promulgated by the IAASB (International Auditing and Assurance Standards Board) and subsequently translated by the FSR. The FSR affirms that these translated standards hold the same effective dates in Denmark as initially promulgated by the IAASB.
Costs in a Danish company
Danish company bookkeeping also deals with costs, accounts, balance sheets and assets.
Below is the Danish balance sheet template:
- Fixed assets:
- intangible assets:
- completed development projects including concessions, patents, trademarks and similar rights that originate from development projects,
- acquired concessions, patents, licences, trademarks and similar rights,
- development projects in progress, and advances for IPE;
- tangible fixed assets:
- land and buildings,
- plant and machinery,
- other (equipment, fixtures and fittings),
- property, plant and equipment in progress and advances for fixed assets;
- financial assets:
- shares in related parties,
- receivables from related parties,
- investments in associates,
- receivables from associates,
- other investments,
- other receivables,
- receivables from owners and management.
- intangible assets:
- Current assets:
- raw materials and consumables,
- work in progress,
- finished goods and merchandise,
- advances for goods;
- trade receivables,
- contracts for work in progress,
- receivables from related parties,
- receivables from associates,
- other receivables,
- receivables from owners and management,
- investments in associates,
- other investments;
- capital (paid-in capital, agio, revaluation reserve, other reserves, profit/loss),
- provisions (provision for pensions and similar obligations, provision for annual tax, other provisions);
- current and non-current liabilities (mortgage debt, other debts incurred by issuing bonds, loans, profit shares of debt instruments,
- advances received from customers, trade payables, payables to related parties, payables to associates, income tax, other liabilities),
Documents in Danish business operations
The website of Erhvervsstyrelsen, or the Danish Business Authority (www.erhvervsstyrelsen.dk), contains all issues concerning the registration, bookkeeping and operation of companies in Denmark.
Relevant information on Danish companies can be found at https://www.virk.dk. The following data can be found there:
- CVR, or company registration number;
- company name;
- the company’s address;
- date of establishment and liquidation of the company in question;
- type of business activity;
- details of owners, partners, management;
- number of employees;
- contact details;
- information on loans;
- information on bookkeeping, balance sheet, financial reporting, and personal and company data (limited liability companies, joint stock companies);
- sectors and sub-sectors;
- related companies;
- bookkeeping rules;
- documents needed to set up the business in question.
Some Danish documents are:
- Oplysningsskema (formerly selvangivelse), which is a tax return form that is issued by the Danish Tax Authority (SKAT) and then sent to the address (Danish or Polish) provided at registration and to the taxpayer’s electronic mailbox. The document is intended, among other things, for self-employed persons and must be completed by 1 September of the following tax year. On the basis of the returned form, the office will prepare årsopgørelse.
- Årsopgørelsen, a document issued and sent on 15 March by SKAT, contains the preliminary tax decision (the amount of the refund or surcharge). If any part of the information in the årsopgørelse is incorrect, or the taxpayer is entitled to additional allowances, the document can be corrected electronically through TastSelv and sent back to the office as a completed annual return, by 1 May. For entrepreneurs, the document is prepared later, based on the completed oplysningsskema. The tax, in the amount calculated in finalårsopgørelsen, must be paid to the office by 1 July. For tax above DKK 21,798, the amount is divided into three instalments to be paid in August, September and October.
- Oplysningsseddel, which is a document that summarizes the employee’s earnings. Every Danish employer is obliged to issue such a document to its employees after the end of their work.
Danish imports vs. Danish exports
For Denmark, the most important trading partners are the EU countries (primarily Germany, Sweden, the UK and the Netherlands; Poland is in 13th place). Denmark exports the most foodstuffs, live animals, chemicals and chemical products, while it imports the most machinery, equipment, processed products, chemicals and chemical products. Trade with foreign markets is a very important pillar of the Danish economy.
The Europe Agreement of 16 December 1991 normalizes trade between the European Union and Poland. Thanks to this agreement, a free trade zone for industrial goods was created (since 1999). This means that preferential tariff rates apply, the same for all EU countries, which are usually 0% (except for agricultural products, processed agricultural products and foodstuffs). In order to apply the preferential rate, it is necessary to present „EUR1” (certificate of origin of products) to Danish customs officials. Customs duty is calculated on the customs value of the goods, i.e. on the invoice price, which has been increased by insurance and transport costs.
The 25 per cent MOMS, or value-added tax (VAT), applies to agricultural, industrial products and almost all services.
The differentiated excise duty covers the following goods:
- ice cream,
- video cassettes,
- tobacco products,
- chocolate products,
- light bulbs,
- disposable packaging.
The Danish Veterinary and Food Inspectorate (Fødevarestyrelsen) is responsible for issuing permits and licences to entrepreneurs who plan to start importing food.
On the other hand, the Ministry of the Environment (Department of Chemical Products) supervises entrepreneurs who wish to introduce all kinds of cosmetics and cleaning products and detergents into the Danish market (the Department must receive a report on the activities of such companies every 1 February).
Danish business owners who wish to deal with the import of chemicals or products containing hazardous chemicals should check whether the substances in question appear on the EINECS list of hazardous substances (the Ministry of the Environment must be informed of any chemical substance outside the list). Before chemicals are placed on the Danish market, they must be allocated to the appropriate group (for commercial or private use).
Below is a list of industrial products that should be CE marked (according to the New Approach Directives):
- gas appliances,
- 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.
Other relevant agreements are:
- Agreement on the Development of Economic Cooperation, May 1976;
- Agreement on cooperation in the field of energy, 1990;
- Agreement on cooperation in the field of environmental protection, 1990;
- Agreement between the former Ministry of Spatial Planning and Construction of the Republic of Poland and the Ministry of Environment and Energy of the Kingdom of Denmark on assistance to the energy and environment sector, 1995;
- Agreement between the Ministry of Agriculture and Food of the Republic of Poland and the Ministry of Food, Agriculture and Fisheries of the Kingdom of Denmark on technical assistance and cooperation, 25 June 1999;
- Agreement between the Ministry of Economy of the Republic of Poland and the Ministry of Trade and Industry of the Kingdom of Denmark on developing and strengthening the private sector in Poland, 18 June 1999 (extending the 1994 Memorandum until the end of 2001).
Obligations of a Danish employer
Danish entrepreneurs who decide to hire employees should read the Employment Document Act (Ansættelsesbevisloven) in advance. This act states that persons employed by a Danish company are due a document containing information about the most important working conditions. Danish employees are often protected by so-called collective agreements, i.e. an agreement on working conditions that is concluded between employers and employees, through trade unions or employee associations.
Danish business owners who employ employees should:
- provide their employees with personal protective equipment;
- insure their employees against accidents and occupational diseases;
- not discriminate against their employees;
- provide their employees with decent wages;
- ensure that employees comply with safety rules when doing their work;
- provide a suitable working environment;
- prevent injuries at work;
- instruct workers on health and safety at work;
- provide employees with health and safety training at least once a year;
- cooperate with Danish Health and Safety at Work on an ongoing basis.
Employers from the European Union who wish to post their employees to work in the Kingdom of Denmark must comply with the posting rules contained in the following documents:
- EU Directive 96/71 of 16 December 1996 on the posting of workers abroad (Working Environment Act, Equal Pay Act, Act prohibiting discrimination in the labour market, Legal Relations Act, Act on Equal Treatment of Men and Women in Employment and Parental Leave),
- Danish Posting of Workers Act No 993 of 15 December 1999,
- Polish employees who have been posted to work in Denmark should, prior to their departure, be provided with an A-1 form (confirming payment of employee social security contributions and specifying the Polish regulations for such insurance in the country), which is issued by ZUS in the form of a certificate.
Anticipated developments in Danish accounting
On May 24, 2022, the Danish parliament decided to adopt reform packages to replace the previous 1999 law. This was prompted by the state authorities’ focus on increasing the ubiquity of digitization of bookkeeping records of companies operating in Denmark and maintaining a strong position in the fight against tax evaders. This law officially came into effect on July 1, 2022. According to its contents, it is planned that:
– As of October 1, 2023, corporations registered in Denmark will have an irrevocable obligation to provide Danish authorities with financial statements for each fiscal year,
– As of January 1, 2026, all operating companies and associations that conduct their business in Denmark, which will exceed an annual net turnover of DKK 300,000 (or about EUR 40,000) for two consecutive years, will also be required to provide annual financial statements to the Danish authorities.
These changes have not yet been officially carried out, they are only planned, although the Danish authorities are actively pursuing them. This requirement has been postponed until December 13, as finally decided by the Danish Business Authority (Erhvervsstyrelsen). Details on the new timetable for the above changes are expected to be announced when the new government takes office and makes decisions on the matter. The process of confirming technical and detailed requirements is still underway. Currently, the only specifics are the sketches of the SAF-T system that have been created, which illustrate what it is likely to look like. The system is to be phased into general use from 2024. It is estimated that it will be in widespread use by 2026.
The requirements of digital bookkeeping include two primary responsibilities:
– recording all transactions that take place in the company in a special digital accounting system,
– storing and securing records and attachments that document records in the digital bookkeeping system – the minimum requirement is to keep at least backup copies of records, for which you can use, for example, a vendor’s server or any other.
Danish digital bookkeeping systems are now subject to new requirements
A new Danish law mandates that companies digitize bookkeeping records related to their operations, simplifying the process of obtaining current financial information and enabling more accurate decision-making and long-term strategic planning. The Danish authorities have developed an official system that meets strict requirements, which is the only system that companies registered in Denmark should use. The government plans to expand the available information on certifying digital providers for faster certification and verification. According to the new law, any digital bookkeeping system must meet three basic requirements, regardless of whether it is a specially developed software or standard system.
- The system must efficiently record company transactions, with attachments specified for each record, and store all attachments and records from at least the last five years.
- The system should have the capability to send and receive invoices electronically without the need for an employee to perform the task each time.
- The system must include automatic transaction settlement through a publicly available accounting system.
- Established IT security standards must be met by the system to ensure data protection, secure access management, and automatic backup of any added attachments, text or records to prevent loss.
Process e-invoicing in Denmark
In 2005, Denmark implemented legislation that mandates the use of e-Invoices for Danish government authorities and their suppliers. The modern e-Invoice should be in Peppol BIS 3.0 format and created using the Peppol network to connect registered public entities with each other via the national SMP NemHandel. Future changes in Denmark will introduce cataloging for selected categories of goods and the ability to place orders electronically, encouraging public sector institutions in Denmark to increasingly leverage e-commerce opportunities. Currently, companies working on a B2B basis may use e-invoicing, but it is not an official requirement, and both parties must agree to use this type of operation.
Accounting advice for individuals living in Denmark
The intricate Danish tax system is manifested through various potential deductions. The value of a deduction is contingent upon the type of income or tax base to which it applies. Deductions from personal income carry a higher tax value than those from taxable income, as only church tax and municipality tax are computed based on taxable income. In contrast, personal income is subject to top tax calculations, where deductions are significantly limited. The actual impact of a deduction is also influenced by the local tax rates.
Deductions not considered in the preliminary tax return, which consequently haven’t resulted in a reduction of the monthly withheld tax, may result in a tax refund during the final assessment for an income year.
It’s crucial to note that deductions are applicable solely to income from sources taxable in Denmark, and it’s not feasible to deduct expenses surpassing the income.
I. Employment-related expenses
In general, individuals actively employed are eligible for an employment allowance. This allowance constitutes 10.65% of their employment income, with a maximum limit of DKK 45,600 in 2023.
Those receiving a salary can make deductions for commuting expenses from home to work, travel expenses incurred due to different work locations, contributions to unemployment insurance, membership fees for professional trade associations, and union subscriptions.
Moreover, under specific conditions, employed individuals may be able to deduct work-related expenses, such as technical literature and work attire, from their taxable income, provided these expenses surpass a set threshold (DKK 6,700 in 2023).
1. Commute expenses
A deduction is provided for daily commuting to and from work, but only if employees do not have a company car and their employer does not cover transportation costs. The round-trip distance between home and the workplace must exceed 24 kilometers. In 2023, the deduction is DKK 2.19 for distances ranging from 25 to 120 kilometers, and DKK 1.10 for each additional kilometer beyond 120. For individuals residing in specific outskirts, the allowance is DKK 2.19 per kilometer beyond 120.
Additionally, individuals using the Øresund connection (the bridge and tunnel connecting Denmark and Sweden) or the Storebælts connection (the bridge and tunnel linking the Island of Funen and Sealand) are eligible for an extra mileage allowance, the amount of which depends on the mode of transport.
2. Tax write-offs for travel costs
The maximum annual limit for deducting travel expenses has been set at DKK 30,500 in 2023. This maximum applies to both the deduction of standard rates and actual expenses. However, it does not impact the employer’s ability to provide tax-free allowances, reimburse employee expenses, or offer complimentary food and lodging.
Generally, the regulations concerning the deduction of travel expenses mean that employees, in the context of a work-related trip, can either receive reimbursement from the employer as a business expense or opt for deductions when calculating taxable income.
Allowances and deductions can be based on either actual documented expenses or standard rates. In 2023, the standard rates are DKK 555 per day for meals and miscellaneous expenses, and DKK 238 per day for lodging.
3. Contribution to retirement savings
Contributions to a lifelong annuity pension plan established with a Danish pension fund, insurance company, or financial institution enjoy tax exemption when made by the employer. When made by the individual, they are tax-deductible within specific limits.
Aside from the tax benefits related to the exemption or deduction of contributions, these contributions also trigger an additional tax deduction in the overall tax calculation, subject to a particular limit. The deduction rate varies based on the age of the taxpayer, with a higher rate for those closer to retirement age.
As a general guideline, deductible contributions to a pension plan should not exceed DKK 60,900 in 2023 if paid by the individual into a private pension plan. The same ceiling applies to contributions made by the employer, unless it is a lifelong annuity plan. However, special regulations apply to contributions paid by or for an expatriate to a Danish pension plan, especially in connection with later repatriation.
It’s important to note that contributions to a foreign pension scheme may be tax-exempt or tax-deductible under certain circumstances or in accordance with specific Double Taxation Treaties (DTTs).
4. Relocation expenses
Costs associated with a work assignment may be eligible for deduction from regular taxable income, as long as the expatriate remains employed by the same employer. In certain situations, if an employer reimburses business-related moving expenses and the reimbursement is supported by vouchers, it may not be subject to taxation.
5. Service-related costs
Certain approved expenses related to household services are eligible for deduction, with a cap of DKK 6,600 per individual in 2023. The deductible value for the use of household services is approximately 25% for the year 2023.
6. Costs associated with double households
A married assignee, whose spouse remains in the home country, may qualify for a double-household deduction under certain conditions. This deduction is valued at DKK 400 per week or the actual documented expenses, provided proper documentation is provided.
II. Deductions for individuals
1. Donations to charity
Donations to specific approved charities, foundations, institutions, etc., are deductible in the calculation of taxable income. The maximum deductible amount per year is DKK 17,700 in 2023. This limit applies regardless of whether the contributions are distributed among various foundations. It’s important to note that the respective foundation must report the donations made annually to the tax authorities. This system encourages and incentivizes individuals to support charitable causes through tax benefits.
2. Support programs for kids
In 2023, a tax-free child benefit is provided to the custodial parent based on the age of the children. The annual benefit is DKK 18,984 for children aged 0 to 2 if the parent is fully tax liable to Denmark and not covered by the social security system in their home country. For children aged 3 to 6, the benefit is DKK 15,024 per year, and for children aged 7 to 14, it is DKK 11,820, paid quarterly. Children aged 15 to 17 receive DKK 11,820 per year.
Additionally, an individual who pays child support maintenance due to divorce is entitled to an annual deduction per child. This system aims to provide financial support to parents raising children and recognizes the associated costs, with the benefit amount varying based on the child’s age.
3. Interest expenses
Interest expenses are deductible from capital income and are generally deducted in the year in which they fall due. Penalty interest paid in connection with late payment of taxes is non-deductible. Deduction of interest expenses covering a period of more than six months and falling due more than six months before the end of that period must be allocated to the period to which the expenses relate.
4. Debt write-off
In general, losses on debt may not be deductible or refundable.
5. Costs of association
In 2023, a taxpayer is allowed to deduct expenses related to membership quotas for employer associations, unions (up to a maximum of DKK 6,000 per year), and other professional associations that work to defend the economic interests of the professional group to which the taxpayer belongs. Additionally, contributions made to unemployment insurance schemes and pre-retirement schemes are deductible. These deductions are applied in the determination of taxable income.
It’s noteworthy that the associations must annually report the payments received from each member to the tax authorities. This reporting ensures transparency and compliance with tax regulations, providing a clear record of the deductible expenses claimed by taxpayers related to their memberships in these associations.
6. Fiscal charges and fines
In general, private individuals typically cannot deduct fines or penalties from their taxable income. However, if an employer pays fines imposed on employees in the course of their work, the employer may be allowed to deduct those amounts as a business expense. It’s important to note that while the employer can deduct the fines, the payout is considered taxable income for the employee.
This means that although the employer bears the cost of the fines, the amount is treated as additional income for the employee, and the employee is unable to deduct the fine from their personal taxable income. The taxation rules regarding fines and penalties can vary by jurisdiction, so it’s advisable to consult local tax regulations or seek advice from a tax professional for specific guidance.
- What bookkeeping standards apply in Denmark?
Bookkeeping in Denmark is conditioned by the EU Regulation 1606/2002 on the application of international bookkeeping standards (IAS), which prescribes the use of IFRS standards, as adopted by the European Union, for the consolidated financial statements of European companies whose securities are traded on a regulated securities market (since 2005). The EU IAS Regulation allows members of the European Union to permit and require the use of IFRS standards adopted by the EU in the separate financial statements of companies (statutory accounts) and/or in the financial statements of companies whose securities are not traded on a regulated securities market. Within Denmark (according to the IAS assumptions), IFRS standards adopted by the European Union may optionally be used for the consolidated and separate financial statements of Danish companies that do not trade on a regulated market. The Kingdom of Denmark includes two autonomous territories, the Faroe Islands and Greenland, where EU law does not apply.
- What is a-kasse?
A-kasse is an unemployment insurance fund. Unemployment insurance is optional, but you must become a member of a-kasse in order to receive benefits when you lose your job.
- Is it possible to settle online with the tax authorities in Denmark?
In Denmark, it is possible to settle online using the special 8-digit code TastSelv (which can be ordered via www.skat.dk) found on Årsopgørelsen or Forskudsopgørelsen (tax card).
- What is Skat til udbetaling?
Skat til udbetaling – the wording on the tax decision from the office that indicates the amount of tax refund.
- What is Restskat til betaling?
Restskat til betaling – the wording placed on the tax decision of the office, specifying the amount of the additional payment for SKAT.
- What is a NemKonto?
NemKonto is an employee bank account into which SKAT tax refunds and work pay are transferred.
- What is Feriepenge and to whom is it due?
Feriepenge is a holiday benefit to which all persons legally working in Denmark are entitled. A Danish worker is entitled to 2.08 days’ holiday for every month worked, i.e. 25 days (5 weeks). You can also apply for Feriepenge up to six months after you have finished working in Denmark, but you must register at Folkeregister municipal office before you leave the country. Feriepenge is paid into a NemKonto for up to 3 months, for the previous tax year, which runs from 1 September to 31 August of the following calendar year, and can only be used in the following holiday year from 1 May to 30 April.
- What is a Feriekonto?
Feriekonto – a special fund to which Danish employers are obliged to pay their employees’ holiday contributions (12% of gross salary less 8% allocated for social purposes).
- How long do I have to wait in Denmark for my tax refund?
You have to wait approximately 6 months for your tax refund from the Danish Tax Authority.
- What is Årsopgørelsen?
Årsopgørelsen are tax decisions that can be found on the website of the Danish Tax Authority.
- What is a Personfradrag?
Personfradrag is a personal tax allowance to which Danish residents who have worked in Denmark for 12 months are entitled.
- What are the Danish tax credits?
- relief for commuting from accommodation and residence to work,
- relief on accommodation,
- relief on meals.
- What is a pension?
A pension is a Danish private pension accumulated in private pension funds (Danica Pension, PFA Pension, Pensiondanmark, Industriens Pension).
- What is folkepension?
Folkepension is the Danish state pension, to which all Danish citizens over the age of 65 are entitled.
- What is ATP?
ATP is the Danish occupational scheme, which is part of the second pension pillar and covers all Danish citizens over the age of 16.
- What is the Sundhedskortet health card?
This is a Danish health card, the so-called yellow card, which must be set up by anyone planning to stay in Denmark for more than 3 months. The insurance card is issued together with a CPR number and guarantees free medical care (except dental treatment).
- How can I acquire a TastSelv code?
To obtain a TastSelv code, you should visit the Danish Tax Agency’s website. To initiate the process, you must provide your CPR number, which is akin to the Polish PESEL number.
- I have a job in Denmark and I’m curious about my annual holiday entitlement. How many days of leave do I get each year?
Under the recently enacted holiday law, you are granted a total of 25 annual vacation days. The accumulation of these days spans from the start of September to the conclusion of August the following year, at a rate of 2.08 days for each month worked.
- What’s the required duration for retaining documents concerning my employees?
It is recommended to hold onto these records for a period of 5 years.