Company in Denmark - introduction
If you are an entrepreneur who wants to set up a company in Denmark
, you have probably made this decision for a reason. The three most important principles of the Danish economy are: the principle of free competition, the principle of a free market and the principle of no restrictions on doing business. This is why the country has been leading the business rankings for years and has attracted numerous foreign entrepreneurs.
On this page, you will find all the information you need to know before setting up a business in Denmark. You will find out what Danish regulations you need to know, what taxes you are obliged to pay, what deadlines you have to meet, what documents you will need when registering and running your business, what fees you have to pay and much more.
Starting a company in Denmark
If you are an entrepreneur who wants to set up a company in Denmark, you will need to meet certain set rules (these are the same for all EU citizens).
To avoid unpleasant situations, you should familiarize yourself with Danish law and market competition (especially in the industry you plan to operate in). To begin with, if you plan to stay in Denmark for more than a quarter year, you should apply for a residence certificate at the Danish regional office (statsforvaltning.dk
), as you must have one before starting your own business.
Importantly, you will need to accumulate approximately DKK 10-25,000 when planning to start your own business. This will be your start-up capital, which, will allow you to pay for a translator, a licence, the services of a consultancy or accountant, as well as the purchase of equipment (if you do not get EU funding for this). One of the most important steps is also to choose the right type of business and, consequently, to familiarize yourself with the issues that concern it (legislation, permits, patents, licences, labelling of goods).
Next, it is necessary to check that the company name will be unique. This can be done through the website of the Central Company Register - CVR (www.cvr.dk
). Once the name has been positively verified, the exact date of commencement of operations must be determined and a financial plan for the company must be drawn up (in cooperation with an accountant).
In order to proceed with registration, one of three conditions must be met - you must be employed in Denmark, you must have a fund for the first year of operation of the company, and you must submit a lease agreement for the premises (company premises). Some people, before setting up their company, also choose to sign agreements with entrepreneurs with whom they plan to cooperate (these agreements must be presented if necessary).
The final step, which has to be completed up to eight days before the start of the business, is registration with the Danish Agency for Business and Enterprise (Erhvervsstyrelsen). This agency is a branch of the Ministry of Economic Affairs, and its task is to forward the company's documents to the Customs and Tax Administration - SKAT. This office assigns a CPR tax identification number (personal TIN), which is needed for accounting for income tax and VAT.
If necessary, you can also consult the laws that regulate doing business in Denmark and may clarify your doubts. These are:
- The Private Companies Act;
- The Carrying on Business for Profit Act;
- The Public Limited Companies Act;
- The Company Accounts Act.
Business forms in Denmark
As previously stated, when starting a business, one must choose the legal structure of the company. The most popular options are sole proprietorship, joint-stock company, limited liability company, and branch of a foreign company. It is important to note that both domestic and foreign entrepreneurs have the freedom to select the legal structure of their company in Denmark.
PMV (Personligt ejet mindre virksomhed)
PMV is a hobby business suitable for individuals who are new to entrepreneurship. However, if the business generates an annual turnover exceeding DKK 50,000 or hires an employee, it must switch to the Enkeltmandszirksmhed legal structure (details below). While registering with the Central Business Register is optional, interested parties may do so to obtain a CVR number. The business owner assumes complete responsibility for all business operations, including profits and debts, which are considered the sole responsibility of the owner.
Sole proprietorship (Enkeltmandszirksmhed)
Sole proprietorship (self-employment) is the least complicated form of doing business in Denmark. This is probably why it is the most common form of business. The basic principle is that all assets and liabilities belong to the owner, who is liable for all debts with his/her own assets. And although the business may employ staff, no one but the owner has a say in the running of the business.
Sole traders must have a CPR number, which can be obtained by registering with Erhvervsstyrelsen (www.erhvervsstyrelsen.dk
). It is also worth remembering that the owner must choose one of the three forms of taxation of the company:
a. taxation of the profit as personal income (as for employed persons);
b. taxation according to the Share Capital Act (Kapitalafkastordning) (part of the company's profit as personal income and part as capital income);
c. taxation according to the Enterprise Act (Virksomhedsordning) (tax deductibility of costs from credit interest, possibility to retain company profit as bank savings).
Public limited company (Aktieselskab - A/S)
Unlike a sole proprietorship, the shareholders and co-owners of a public limited company are not liable with their assets for any debts of the company. This is because the company is subject to a different tax regime to the income earned by these individuals.
The process of setting up a joint-stock company must begin with the drafting of a memorandum of incorporation, which should contain the details of the founders and the company's management, the name, and address of the registered office, the type of business and the amount of the initial capital. Once the agreement has been adopted and signed, the company's articles of association must also be drawn up, and the initial capital paid into the company's bank account (DKK 500,000 in cash or other assets is required). It is important to note that it is mandatory to draft the documents in Danish, so you may need the assistance of a translator.
An important step in the registration of a public limited company is the statutory meeting (also called the general meeting), where the shareholders elect the supervisory board and the management board. According to the law, the supervisory board must consist of a minimum of three persons (a majority must be maintained).
The final step is to register the company with the Danish trade register, which will provide the company with a CVR registration number (equivalent to the Polish REGON number). It is worth remembering that after registering the company, registration with the tax authority (Told-og Skatteregion) must also be done.
Limited liability company (Anpartsselskab - ApS)
A limited liability company (Polish equivalent: spółka z o.o.) is one of the most popular Danish legal forms chosen by entrepreneurs. Its establishment, as in the case of a public limited company, requires the shareholders to sign a memorandum of incorporation and the drawing up of articles of association, as well as the payment of initial capital, which is a minimum of DKK 50,000. Detailed rules for the operation and organization of this company can be found in the Private Limited Liability Company Act.
Foreign branch (Filial af udenlandsk selskab)
Polish entrepreneurs may establish a branch of their company in Denmark if their company, registered in Poland, has a similar legal form to that in Denmark (e.g. a joint stock company or a limited liability company). Undoubtedly, a fact that encourages entrepreneurs to set up a branch of a company in Denmark is that it does not require the commitment of financial resources (payment of initial share capital), as is the case with a joint stock company or a limited liability company.
The registration of a subsidiary can be done electronically, via the eogs.dk website. To do so, you need to collect documents relating to the Polish company (it is necessary to have the financial statements from the last year) and a registration form. After entering the name of the Polish company, the legal form of the company, the object of its activity, the amount of the share capital, the KRS number, the address, and name of the Danish branch, the object of the branch's activity, personal data and addresses of persons authorized to make decisions on behalf of the Danish branch, it should be sent to the Agency for Trade and Enterprise.
It is also worth knowing that:
- one or more of the managers of the foreign company's branch must reside in Denmark, the Nordic countries or any of the EU countries;
- it takes a few days to set up a branch of a foreign company, but registration can take several weeks;
- the name of the branch must include the word 'branch' (filial) together with the name of the foreign company and its country of establishment;
- the branch is subject to 22 per cent Danish corporation tax (CIT);
- in order to register as a VAT payer, the new branch should be notified to SKAT;
- the person solely responsible for the branch's obligations is its director;
- an additional obligation is to send a copy of the company's annual accounts to the Trade and Companies Agency every year.
General partnership (Interesselskab - I/S)
This type of business can be established by a minimum of two natural or legal persons. There is no obligation to pay up share capital, but any contribution made, and all property subsequently acquired by the company, make up its assets. Furthermore, as with other companies, a memorandum of incorporation must be signed and presented at the time of registration. All documents, together with the registration application, must be submitted to the Enterprise and Trade Agency within eight weeks of the signing of the aforementioned agreement. The result of this procedure is that a Central Company Register number - CVR (www.cvr.dk
) - is issued.
It is also worth remembering that the Danish general partnership does not have legal personality, but have the right to conclude all agreements, it may be sued and sue other entities itself.
Limited partnership (Kommanditselskab - K/S)
A limited partnership is a partnership in which at least one partner (general partner) is unlimitedly liable for any liabilities and the liability of at least one partner (limited partner) is limited (liable only with the starting capital).
A type of limited partnership that is gaining popularity on the Danish market is the limited liability partnership (Partnerselskaber - P/S). Its partners are public limited liability companies. They may be liable for their obligations with the entire share capital or only with certain sums.
Representative office of a foreign company (Salgskontor)
A representative office of a foreign company is usually established to merely act on behalf of the parent company and promote products and services (it has no right to sell). This form of business has no legal personality, its obligations are the responsibility of the company it represents, Danish law does not regulate this type of business in any way.
Cooperative associations (Andelsforening/Brugsforening)
A cooperative association is a legal entity that is formed on the basis, of an association agreement. This document makes it possible to sell and process products, but also to buy and sell goods to other legal entities. The members of a cooperative association are responsible for its obligations to a limited extent. The association, like other forms of activity, must include in its name an abbreviation indicating the legal form - A.m.b.a.
Register of Foreign Service Providers (RUT)
Notification to the RUT by entrepreneurs who want to run their own business in Denmark is necessary so that the Danish authorities are able, to supervise foreign companies. This can be done through the virk.dk website. It is important to make the notification before you start your business (at the latest on the day you start). Any changes must also be notified (no later than the first working day on which they take effect). If a Danish business is not reported to the Register or the information is out of date, the Labour Inspector may file a charge or impose a fine on the owner (DKK 10,000 or even DKK 20,000 in the event of repeated non-compliance).
In addition to entrepreneurs who want to run their own business in Denmark, anyone working in Denmark (employer/employee) should register with the RUT.
The personal RUT number received after registration is necessary in contact with many Danish authorities. In some industries, the employer requires the employee to provide a receipt from the RUT before starting work.
Whether you are an entrepreneur running a business or a person working in Denmark - you are subject to Danish taxes. Their rates vary. Different taxes apply to an employee of a Danish company, different taxes apply to the owner of a sole proprietorship, and different taxes apply to the president of a company or shareholder. It is important to remember that all taxes in Denmark are progressive - the tax threshold depends on the amount of income.
In Denmark, individuals are subject to a tax that consists of two parts:
1. a flat municipality tax (paid to local authorities), determined by each region individually and averaging 32%,
2. a progressive tax paid to the treasury, the rate of which depends on the value of the income received and is:
- 5.64% for incomes below DKK 42,000,
- 15 per cent for income above DKK 42,000.
There is also a voluntary church tax, the rate of which varies from 0.44 to 1.5%.
For SKAT, income from a sole proprietorship (self-employment) is equal to that of a business owner. Income is taxed once, so only one tax return is required.
It is worth remembering that advance payments for income tax are due on 20th March and 20th November.
Companies in Denmark are taxed at 22 per cent of annual income. If a company's 12-month turnover exceeds DKK 50,000, it becomes liable for VAT (25 per cent).
Corporate tax revenue accounts for approximately 8 per cent of total tax revenue in Denmark. The basis for calculating the tax is the total income of the company, including income from capital. It is worth recalling that this tax applies to joint stock companies, limited liability companies, cooperative associations, associations, as well as branches and other permanent establishments of foreign companies. All these entities are required to settle their income tax by six months after the end of the tax year.
VAT applies to all goods traded by a company. It is otherwise known as value added tax. The amount of this tax is fixed at 25%. By law, a Danish company whose annual turnover exceeds DKK 50,000 must be registered as a payer of this tax. The zero rate of VAT in Denmark applies, for example, to banks, the real estate market, electricity, gas and water bills and insurance, healthcare and cultural activities.
If, as a business owner in Denmark, you wish to register your business as a VAT payer, you must do, so before you start supplying goods and services. You can make the registration through the RUT website, the Register of Foreign Suppliers (virk.dk). It is worth remembering that the recipient of services in Denmark is also obliged to register as a VAT payer (and pay this tax) (even when providing services to companies that are not registered for VAT).
What is the reverse-charge procedure under the law in Denmark? Simply put, the payment of VAT is assumed by the buyer. Foreign companies, when doing business with companies in Denmark, therefore do not have to worry about the payment of VAT in Denmark and should not enter it on the invoice. All that needs to be included in this document is the value of the goods (net), the company (buyer) number and a formula - usually - 'Reversed-charge'.
Responsibilities of a Danish employer
Entrepreneurs who want to set up a business in Denmark should also familiarize themselves with Danish labour law, in addition to numerous issues such as the already mentioned taxes, especially if, they want, to hire employees
. Particular attention should be paid to Ansættelsesbevis loven - this is the Employment Document Act, which states that people who have been (or will be) employed for a minimum of one month, for more than eight hours a week, must be given a document with clear and detailed information about the working conditions.
It is also worth mentioning that Denmark is the only European Union country where labour relations are governed by collective agreements between trade unions and employers' unions. The working conditions negotiated in these agreements cover all employees, regardless of whether they are members of a trade union.
It is the duty of an entrepreneur who runs his or her own business in Denmark, but also of those who work for a Danish company, to comply with health and safety regulations (the penalty for non-compliance can be a fine or an order to stop the work being carried out). The regulations can be found on the website of the Danish Labour Inspection Authority (UIP), but among the most important obligations are to provide your employees with personal protective equipment and a safe workplace, and to provide your employees with annual health and safety training (these must be documented and submitted to the UIP).
- What costs can be deducted from Danish tax?
In Denmark, previously collected pension contributions, child support, insurance premiums, transport to work, and food costs can be deducted from tax. However, it is worth remembering that the Danish tax authorities have the right to check within seven years whether the above expenses are genuine.
- What is the maximum income taxation in Denmark?
For individuals, the maximum charge cannot be more than 59 per cent of income.
- Who must have a residence certificate?
Anyone who plans to stay in Denmark for more than 3 months, as well as an entrepreneur who wants to set up their own business in Denmark, must apply for a residence certificate (prior to registration). The application can be submitted to the Danish Regional Office (www.statsforvaltning.dk).
- What is a NemID?
NemID is a Danish identifier that all companies receive. The ordering option at www.nemid.nu is only available to those with a valid passport, Danish driving licence or proof of residence in Denmark.
- What is the LetLøn system?
LetLøn is a system that can be used via the website of the Danish Tax and Customs Administration (SKAT). It makes it possible to keep payroll records of employees. In practice, the way it works is that the employer enters the hourly rate he has agreed with the employee in question and LetLøn calculates the taxes and costs needed for the annual settlement on this basis.
- What do the abbreviations in Danish business names mean?
It is mandatory for every business name to contain an abbreviation that indicates its legal form. Thus:
- joint stock company (Aktieselskab - A/S);
- general partnership (Interesselskab - I/S);
- limited partnership (Kommanditselskab - K/S);
- limited liability company (Anpartsselskab - ApS);
- branch of a foreign company (Filial af udenlandsk selskab);
- cooperative associations (A.m.b.a).
- Which Danish website addresses are worth knowing?
- What services are exempt from VAT in Denmark?
The following services are exempt from VAT in Denmark:
- funeral services,
- sale and purchase of real estate,
- financial transactions,
- postal charges,
- gaming and sports,
- medical care,
- all kinds of insurance and social benefits,
- culture and the arts,
- passenger transport (including travel agency services),
- voluntary and charitable activities.
- Who is liable for VAT in Denmark?
A business becomes liable for 25 per cent VAT when its annual turnover exceeds DKK 50,000.
- What information must be provided when registering with the RUT?
At the outset, it is worth noting that self-employed persons without employees only need to register with the RUT if they provide services in the building and construction industry or in the installation and repair of machinery and equipment. In this case, when registering, the following must be provided: the name, address, and contact details of the company, the time frame and location of the task, the classification code of the company, and optionally, VAT registration number from the country of origin, and the CVR number of the Danish service provider.
If the company employs employees, the above information must be supplemented with the personal data of the posted employees, the duration of the posting and confirmation of their insurance during work and social benefit.