Accounting in Denmark - introduction
Accounting in Denmark
applies to all legal forms of business. However, it should be borne in mind that the accounting of a sole proprietorship may differ from the accounting of a company or other enterprise, e.g. in terms of the level of difficulty, deadlines to be observed, required documentation, applicable taxes and laws. Therefore, an entrepreneur who wants to set up a business in Denmark should familiarize himself/herself reliably with all issues. However, it is worth noting that there are two possible solutions: to do the accounting yourself and to use the help of accountants.
Danish bookkeeping covers a wide range of issues, including reporting obligations, company accounts, the Danish bookkeeping chart of accounts, company audits, deadlines, documentation, costs and rates applicable to different types of business, registration of business in Denmark, taxes, insurance, benefits, registration and permits, settlements and corrections of documents submitted to SKAT, obligations of a Danish employer, as well as Nemkonto, Tastselv, Pension, CPR, A-kasse, health card. Importantly, their ignorance and consequent failure to comply with their obligations can result in heavy fines. Therefore, as already mentioned, it is advisable to familiarize yourself with all the issues even before setting up your own business in Denmark.
On this page, you will find a lot of relevant information regarding accounting in Denmark
. However, if you need to expand your knowledge, you may wish to consult the legislation listed below.
1. An entrepreneur who wishes to set up his/her own business in Denmark should familiarize himself/herself with the laws on Danish accounting:
- Accounting Act of 1998's - you will find information about the organization of accounting, record keeping and business records;
- the Financial Reporting Act of 2001's (DFSA, amendments 2015) - you will find information about the regulations on the preparation of financial statements, as well as the division of companies into classes (A, B, C and D).
2. From the entrepreneur's viewpoint, the following acts are also important:
- Contact Law - a law that deals with the conclusion of contracts;
- UN Convention - which talks about contacts for the International Sale of Goods;
- Agreement on Industrial, Scientific and Technological Cooperation (1974);
- Agreement on the Prevention of Double Taxation (1976, amendments - 1992);
- Agreement on the Development of Economic Cooperation (1976);
- Agreement on the Promotion and Reciprocal Protection of Investments (1990);
- Agreement on cooperation in the field of energy (1990);
- Agreement on cooperation in the field of environmental protection (1990);
- Agreement on mutual assistance in customs matters (1992);
- 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 (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 (1999).
3. Employers who wish to post their employees to work
in Denmark must comply with the rules contained in the following documents:
- EU Directive 96/71 of 16 December 1996 on the posting of workers abroad (you will find: 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 Act Concerning Posting of Workers, No 993.
Act on Financial Reporting
It is crucial for every entrepreneur, regardless of whether they are establishing a business in Denmark or not, to be knowledgeable about the Financial Reporting Act 2001 (Amendments - 2015), which is a legislation that governs financial reporting. This act provides essential information on the preparation of financial statements, the classification of companies into categories (A, B, C, and D), and the auditing of Danish companies.
According to the Financial Reporting Act, the basis of company accounting in Denmark is the preparation of financial statements. In this document, one can also find the applicable Danish division of companies into four classes.
- private Danish companies (small and large) with up to 10 full-time employees;
- total assets: less than SEK 7 million;
- annual net turnover: less than DKK 14 million;
- no obligation to keep accounts (instead, an obligation to prepare reports for tax purposes).
- All private and public limited liability companies, limited partnerships, commercial foundations and other companies with up to 50 full-time employees;
- total assets: less than 36 million kroner;
- annual net turnover: less than 72 million kroner;
- obligation to prepare reports, which must include: summary of management activities, annual balance sheet, statement of changes in capital, profit and loss account, notes.
- Medium and large companies, limited partnerships, private and public limited liability companies, commercial foundations and all companies with more than 50 full-time employees;
- total assets: less than DKK 143 million;
- annual net turnover: more than DKK 286 million;
- obligation to prepare financial statements.
- State-owned joint stock companies that are obliged to prepare consolidated financial statements in accordance with the rules given by IFRS;
- listed companies that are only obliged to prepare separate financial statements;
- reports should include a summary of the activities of the company's management, a profit, and loss account, an annual balance sheet, a statement of changes in equity, a cash flow statement, additional information.
Audit of Danish companies
The Financial Reporting Act also contains information on the audit of financial statements. It talks about internal auditing, which must be a mandatory part of the planning and modification of Danish companies' accounting systems, but also about auditing, which is carried out by independent auditors.
It is worth noting that the audit of Danish Class A and B companies is not mandatory and depends on their annual turnover.
Accounting for a sole proprietorship (Enkeltmandszirksmhed)
According to the classification outlined above, this type of business belongs to Class A, and this means that it is not affected by the obligation to prepare annual accounts, only reports for tax purposes. In other words, the accounting of the sole proprietorship is based solely on accounts with SKAT, the Danish Tax Authority.
Accounting for a sole proprietorship is straightforward. Tax is only declared on one tax return (income is only taxed once). This applies to both income tax and VAT (a business only becomes payer of this tax, if its annual income exceeds DKK 50,000). This tax return must be filed once every three or six months. It is also worth remembering that sole proprietors who pay taxes and contributions are entitled to the same pension and health benefits as workers in Denmark.
Accounting for companies
While accounting for sole proprietorships is straightforward, accounting for Danish companies is much more complex. We are referring to Class B, C and D companies, which are required to prepare financial statements containing a profit and loss account, a description of management's activities, a flow statement, a statement of changes in equity, a balance sheet and notes.
All companies in Denmark whose securities are traded on a regulated market are required to apply IFRS standards, as adopted by the European Union.
It is worth recalling that Danish companies are subject to CIT, which is 22 per cent, and if the company earns more than DKK 50,000 in a year, it must also pay 25 per cent VAT.
Chart of Danish accounting accounts
The Danish chart of accounts is a specific layout of accounts that has been adopted to make the company's business record-keeping more transparent. Such a plan, through a detailed list, shows the order of the individual accounts in the ledger.
The layout of the account classes relating to the profit and loss account structure
1. Account group: net revenue from sale of goods; account number: 1100; account name: sales of goods.
2. account group: sales; account number: 2100; account name: sales.
3. account group: external costs:
- 3100 - advertising cost,
- 3200 - local costs,
- 3300 - cash shortage,
- 3400 - cost of exported vehicle,
- 3900 - other costs.
4. Account group: process costs:
- 4100 - salaries,
- 4200 - pension allowance.
5. account group: depreciation:
- 5100 - depreciation of means of transport,
- 5200 - depreciation of equipment.
6. account group: interest; account number: 6100; account name: interest (income).
7. account group: interest; account no: 7100; account name: interest (expenses).
8. account group: extraordinary items:
- 8100 - extraordinary gains,
- 8200 - extraordinary losses.
9. account group: taxes; account number: 9000; account name: corporate income tax.
Arrangement of account classes relating to the balance sheet
1. account group: fixed assets:
112 - tangible assets,
- 11120 - cars,
- 11121 - depreciation write-offs on cars,
- 11130 - furniture,
- 11131 - depreciation write-offs on furniture.
2. account group: current assets:
121 - inventories,
- 12110 - storage,
- 122 - receivables,
- 12210 - receivables from customers,
- 12220 - accruals.
- 123 - cash,
- 12310 - cash register,
- 12320 - bank account,
- 1230 - savings account.
3. account group: capitals:
121 - share capital,
- 134 - reserve capital,
- 135 - financial result.
4. account group: liabilities:
141 - long-term liabilities,
- 14110 - mortgage loans,
- 142 - current liabilities,
- 14210 - working capital credit,
- 14220 - receivables,
- 14230 - due to pension supplement,
- 14240 - due to labour market contributions,
- 14250 - tax settlements,
- 14290 - other liabilities.
- 21000 - profit and loss account,
- 22000 - balance sheet.
Assets in a Danish company
Costs, all accounts, balance sheets and assets are among the many issues dealt with by accounting in Denmark. The Danish balance sheet formula shows a breakdown of assets grouped into debt and equity (according to principles of increasing liquidity), from least liquid to most liquid (cash).
1. non-current assets
2. current assets:
- itangible assets: completed development projects (including concessions, patents, trademarks), development projects in progress and advances for IPRs, goodwill, acquired concessions, patents licences, trademarks and similar rights;
- tangible assets: land and buildings, plant and machinery, tangible assets in progress and advances for tangible assets, other (e.g. equipment, fixtures, and fittings);
- financial assets: shares in related parties, receivables from related parties, shares, receivables from owners and management, investments in associates, receivables from associates, other investments.
- inventories: raw materials and consumables, advances on goods, work in progress, finished goods and merchandise;
- trade receivables, from owners and management, from associates and affiliates, etc., contracts for work in progress, settlements;
- investments: shares, investments in associates, other investments;
- cash: liabilities, accruals, short- and long-term liabilities (mortgage debts, other debts incurred by issuing bonds, loans, shares in profits of debt instruments, advances received from customers, trade payables, to related and associated companies, income tax, other liabilities),
- capitals (paid-in capital, agio, revaluation reserve, other reserves, profit/loss),
- provisions (for pensions and similar obligations, for annual tax, other provisions).
Denmark - imports and exports
Denmark's most frequently imported products are cars and other motor vehicles, machinery, telephones, petroleum. In contrast, the most frequently exported products are medicines, chemicals, meat, generator sets, and cheese and curd.
It is worth knowing that:
- all food products (imported and exported) must have a composition sticker (in Danish) on the packaging and meet the criteria for the use of preservatives;
- products which may pose a risk to life and health (e.g. medicines or chemicals) must have an appropriate warning on their packaging;
- entrepreneurs who wish to import chemicals or products containing hazardous ingredients must check whether the substances in question appear on the EINECS list of hazardous substances, as the Ministry of the Environment must be informed of any chemical substance outside the list in order to allocate it to the appropriate group (for commercial or private use).
- What institutions control Danish companies?
Control over Danish financial reporting, accounting and auditing is exercised by two government institutions:
- The Danish Financial Supervisory Authority (DFSA);
- or the Danish Business Authority (DBA).
- How long does an employer have to keep employee records?
Danish employers keep their employees' records for 5 years (even after termination of the contract).
- What is a Selvangivelse?
Selvangivelse is a tax return form that the Danish Tax Authority (SKAT) sends to the taxpayer's registered address (Danish or Polish).
- What is an Oplysningsseddel?
Oplysningsseddel - a document that summarizes an employee's earnings. Every Danish employer is obliged to issue such a document to their employees after they have finished working.
- What are the criteria for dividing Danish companies into classes?
Danish companies are divided into classes according to the following criteria:
- organizational and legal form,
- size of the company,
- total assets,
- annual turnover (net),
- number of employees.
- What is a Forretningsplan?
A forretningsplan is a description of a company that is usually drawn up by the entrepreneur (often in cooperation with an accountant). This plan includes the founder's vision and idea for his or her business, but also the scope of activities, financial possibilities and responsibilities.
- What is a NemKonto?
A NemKonto is an employee bank account into which SKAT tax refunds and payments are transferred.
- Where can I find information to help Danish entrepreneurs?
A lot of relevant information about registration, accounting, and the operation of companies in Denmark can be found on the website of the Danish Business Authority (www.erhvervsstyrelsen.dk). On this website, you can also find a lot of information about Danish companies, such as: name, address, contact, CVR number, i.e. company registration number, type of business, date of establishment and liquidation of the respective company, details of owners, partners, board of directors, number of employees, information regarding accounting, balance sheet, financial reporting and personal and company data (limited liability companies, joint stock companies), etc.
- What is the FSR?
FSR is a Danish professional accounting organization, established in 2011, which deals with accounting audit, auditing, bookkeeping and taxation in Danish companies.
- What products should be CE marked?
The following products should be CE marked:
- the efficiency of water-fired power boilers,
- equipment used in potentially explosive atmospheres,
- non-automatic weighing equipment,
- gas appliances,
- pressure vessels,
- energy efficiency of freezers and refrigerators,
- telecommunications terminal equipment,
- recreational boats and yachts,
- diagnostic equipment (in vitro),
- cable systems for the transport of people,
- construction products,
- active medical implants,
- personal protective equipment.
- What is Årsopgørelsen?
Årsopgørelsen are tax decisions that can be found on the website of the Danish Tax Administration.
- Is there a penalty for not settle up with the tax office in Denmark?
The consequence of failing to settle up with tax office (or not submitting your return on time) is a fine of up to 5,000 kroner.
- Is there any permanent tax relief in Denmark?
Yes, this relief is called Personfradrag. It is an allowance that is available to any Danish tax resident and to those who have worked in the country for at least one year.
- What do the phrases Skat til udbetaling and Restskat til betaling mean on the decision from the office?
Skat til udbetaling - the amount of tax refund.
Restskat til betaling - the amount of the surcharge to the Danish authorities.