Accountancy in Denmark

>> Taxation in Denmark

Corporate taxes

The Corporate Income Tax Act comprises as taxable entities the limited company (A/S), private limited company (ApS), and a registered branch or a subsidiary of a foreign company.

The corporate tax rate is 22 %. The tax is prepaid during the current year in two instalments (March and November). The taxable base is the worldwide income.

The corporate tax is charged on a company’s profits defined as income and taxable capital gains. In principle, all expenses are deductible if incurred in producing or maintaining business income including annual depreciations on operating equipment or buildings.

Dividends from a subsidiary are tax exempted if the recipient company maintains a 10% shareholding for at least one year and the dividends are distributed during the holding period.

Dividends not qualifying for the participation exemption must be included in the taxable base as far as 100% of the dividend amount is concerned.

An exemption applies if dividends are received from a foreign subsidiary having mainly financial activities, and provided the profits of the subsidiary have been subject to substantially lower taxation than if taxed in Denmark.

Such dividends are fully taxable, however, subject to credit, according to double tax treaties or internal Danish credit regulations.

Capital gains are normally taxed as income. Capital gains on bonds and other financial claims or debts are taxable income. Losses in both foreign and Danish currencies are deductible. Capital gains on real estate are also tax liable, while losses can be set off exclusively against capital gains on other real estate.

Danish corporations are required to choose group taxation with Danish owned or foreign subsidiaries.  Group consolidation means primarily that losses of one company can be set off against profits of the other companies.  However, upon termination of group consolidation with a non-resident subsidiary, losses which have been set off against profits of other companies may be recaptured according to specific regulations.

Tax losses

Tax losses may be carried forward indefinitely but losses can only be set off against positive taxable income up to 8.025 mill. (2017) DKK. Remaining tax losses can only reduce the remaining taxable income by 60 %. No carry-back is allowed.

Intercompany loans

Thin capitalisation rules have applied since 1999. Companies will only be affected by the thin capitalisation rules if the equity makes up less than 10 mill. DKK.

The non-deductible part of the interest expenses will be calculated according to the following formula:

debt ÷  (4 x equity) x (net capital expenses)


debt

Net capital expenses amount to net interest expenses plus net exchange losses.

In addition, limited deduction possibilities will not be viable if the company can prove that a similar financing can be obtained with an independent party. In that case, the solvency ratio in the line of business in question will be taken into consideration.

A loss on intercompany accounts receivable is non-deductible with the exception of documented trading losses due to currency fluctuations.

CFC taxation

A Danish resident parent company is liable to pay Danish tax on the net financial income of a non-resident controlled subsidiary (direct or indirect ownership  of more than 25% of the share capital or of 50% of the voting power), and provided that the income of the subsidiary is  subject to substantially lower taxation  than if subject to taxation in Denmark,  and provided the subsidiary’s activities  are mainly financial.

Personal income tax

Individuals resident in Denmark are liable to income tax on their worldwide income.  Most capital gains are calculated as taxable income. Capital losses are to some  extent deductible.

An individual is considered to be a resident if they permanently lives in Denmark, if a house or a flat is available for them or their family in Denmark, or if they maintain their residence in the country for six months or more in a consecutive period without taking up legal residence in Denmark.

An individual is considered to be a resident if they permanently lives in Denmark, if a house or a flat is available for them or their family in Denmark, or if they maintain their residence in the country for six months or more in a consecutive period without taking up legal residence in Denmark.

Taxable individuals are liable to pay national income tax (statsskat), municipal, health contribution and church taxes (kommuneskat, sundhedsbidrag og kirkeskat).

2017
Municipal-, health contribution, church taxes, average 27.6%
Basic state tax (bundskat) 10.08% 10.08%
State top tax (topskat) 15%
Total tax rate 52.68%

MAXIMUM TOTAL TAX RATE

52.95%

Social security and pension contributions(tax value at marginal income tax rate) 8%

Income deriving from shares is taxed at 27% if the amount is less than DKK 51,700 (or for married couples DKK 103,400) (2017). Income exceeding this amount is taxed at 42%. Income deriving from shares includes dividends and capital gains/losses on shares. Husband and wife are taxed separately. However, personal allowances and tax-free amounts can be transferred to the other
spouse.

Social security and pension contributions are deducted when calculating the taxable personal income. The tax value is up to 51.95 %. Non-residents are subject to the same taxes as residents on various sources of income and capital gains. Limited tax liability includes the following types of income:

  • Income from a trade or business carried out in Denmark through a permanent establishment
  • Income from immovable property in Denmark
  • Dividends, 27% withholding tax (depending on tax treaty provisions)
  • Royalties, 25% withholding tax (depending on tax treaty provisions)

Business income

Business income can be elected to be taxed under a particular tax regime allowing the business income to be provisionally taxed at a rate of 22% (the tax rate follows the corporate tax rate). When no longer retained in the business, profits will be finally taxed.

Expatriates with high salaries

A special legislation relates to foreign employees working temporarily in Denmark. When certain conditions are met, foreign employees may choose to be taxed at a flat rate of 26% of their gross income rather than being subject to the general rules of taxation of individuals. The foreign employees must normally pay a tax-deductible labour market contribution at a rate of 8% (2017). Thus, the total tax amounts to 31,92% of the gross income (8% + (26% x 0,92))

The foreign employees must work for a Danish employer subject to full Danish taxation or for Danish branches or permanent establishments of foreign companies with legal residence in Denmark.

The 26% taxation may be chosen for an aggregated period of 5 years within a  10-year period. The employees will, however, be subject to normal Danish taxation, if the period of time exceeds  5 years.

The minimum monthly salary of the employees in cash and fringe benefits, e.g. free company car and free accommodation, must be DKK 63,794.65 (2017) after deduction of labour market contribution. This minimum salary is adjusted annually.

The tax and the labour market contribution are withheld by the employers. The employers’ withholding is the final settlement of the tax liability.

Expenses incurring in connection with earning the salary cannot be deducted.  A tax loss from another income year cannot be offset against income taxed  at 26 %. However, it can be offset against other income.

Value added tax

The Danish VAT is 25% on the sales price and is levied on most goods and service. Registration for VAT must take place within 8 days before starting business activities.

The general registration threshold is DKK 50,000.


Latest version updated 12th October 2017

Country Breakdown

5.7

Million

Population

kr

Danish Krone

Currency

$ 305

Billion

GDP

2.211

Million

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