Doing business in Denmark


Among interesting locations for those who dream of starting and managing their own business, Denmark occupies a prominent place. This country is highly respected among entrepreneurs due to its favorable business environment and regularly tops business rankings. For foreign investors, Denmark is an attractive place that creates the right environment for doing business. A key aspect is to understand local regulations, taxes, deadlines and the necessary fees and documents that need to be provided. The main goal is to avoid potential pitfalls that may stand in the way of business. A thorough reading of the content available on this site will allow you to gain a comprehensive knowledge of running a business in Denmark.



The process of registering a business in Denmark  


In the economic area, Denmark adheres to the principles of a free market, fair competition and no restrictions on doing your own business. In the context of setting up a business in Denmark, the same guidelines apply to all citizens of the European Union:


Legal forms of doing business available in Denmark


Starting your own business in Denmark is a challenge with a number of advantages and problems, so you should think carefully about the decision. An important step is to choose the right legal and tax form that best suits your skills and plans.

The regulations for starting and running a business in Denmark include various acts such as the Act on Business for Profit in June 1996, the Joint Stock Companies Act of June 1973, as amended, the Private Companies Act of May 1996, as amended, and the Company Accounting Act of June 1996.

Access to the various forms of business is equal for domestic and foreign entities in Denmark, meaning that everyone can enjoy the same opportunities.

The different types of companies that can be established in Denmark include:

  1. Individual venture: self-employed person (Enkeltmandsvirksomhed),
  2. Joint stock company (Anpartsselskab - A/S),
  3. Partnership (Interessentskab - I/S),
  4. Limited liability company (Anpartsselskab - ApS),
  5. Limited partnership (Kommanditselskab - K/S),
  6. Branch of a foreign company (Filial af udenlandsk selskab),
  7. Representative office of an international company (Salgskontor),
  8. Cooperative association (Andelsforening/Brugsforening).

In Denmark, a popular choice is self-employment, which allows you to work on your own under an individual name or company name. This type of business also has the option of hiring employees.


Running a sole proprietorship (Enkeltmandszirksmhed)

The simplest form of business in Denmark is the individual initiative. The owner is personally responsible for all debts and obligations of the business. Those who choose this route use their private CPR registration number. The registration process for an individual initiative is handled by Erhvervsstyrelsen (www.erhvervsstyrelsen.dk). We outline the benefits and limitations of this model below

Advantages:

Disadvantages:


The owner must choose one of three options for taxing the company:

  1. ​The option according to the Share Capital Act (Kapitalafkastordning), which allows part of the profits to be transferred to individual income and part to capital income.
  2. The option to treat income as individual, the same as employee wages.
  3. An option in accordance with the Enterprise Act (Virksomhedsordning) that allows for the deduction of loan interest expenses and the retention of company profits as bank savings.


Joint stock company (Aktieselskab - A/S)


An alternative choice is to form a joint-stock company, consisting of a governing board, a board of directors or an oversight committee elected at a general meeting, and formed by at least three people (to preserve the rule of majority voting on key issues for the company).

The company's owners and shareholders are not personally liable for the company's debts, although the bank may require them to provide collateral for loans.

Important information about establishing a joint stock company in Denmark:


General partnership (Interesselskab - I/S)


Another available option for those wishing to run an independent business in Denmark involves the creation of a general partnership. Such a structure requires the involvement of at least two natural or legal persons who jointly undertake obligations, and their mutual relations are formally established in a founding agreement.

The main facts about a general partnership:


Limited liability company (Anpartsselskab - ApS)


One choice that is very popular in Denmark is a limited liability company (the equivalent of a Polish limited liability company). This option is often preferred by those planning to run a family business and retain personal control over it.

The Danish company Anpartsselskab - ApS has the status of a legal entity and is subject to the provisions of the law governing private limited liability companies. The establishment of such a company through a law firm involves a cost in the range of DKK 3,000 to 5,000.

Different variants of limited liability companies in Denmark:

  1. ​Private limited liability company - Anpartsselskab - ApS.

  2. Private limited liability company - Ivaerksaetterselskaber - IVS, introduced in Denmark as of January 1, 2014. This company, like Anpartsselskab - ApS, is regulated by the Danish law on private limited liability companies. The minimum initial capital for Ivaerksaetterselskaber is 1 Danish kroner or the equivalent in euros. At least 25% of the company's profit from the last 12 months must be reserved as mandatory reserves, and dividends can only be paid if the sum of share capital and reserves reaches 50,000 Danish kroner.


Comparison of Anpartsselskab and Aktieselskab


The regulations governing the operation of a limited liability company and an Aktieselskab in Denmark show some common features.


Limited partnership (Kommanditselskab - K/S)


Denmark also has another type of company, namely a limited partnership, which is available for incorporation. This option requires the presence of at least one general partner (e.g., a limited liability company), who is fully liable for the company's obligations. In addition, a limited partnership must contain several limited partners, who are liable for the company's debts only up to the amount of the contribution they make.

Basic information related to the K/S partnership:

Another variant of a limited partnership is a limited liability company for shareholders - Partnerselskaber - P/S. The partners of such a partnership are limited liability companies responsible for the company's obligations only up to the limit of shares specified by specific amounts or the entire share capital.


Branch of a foreign company (Filial af udenlandsk selskab)


When operating in the Danish labor market, there is an additional option for Polish entrepreneurs, which is to establish a branch of a foreign company. This procedure does not require share capital, but is more time-consuming than the company formation process.

Polish entrepreneurs may choose to create a branch of their company in Denmark, provided that the company registered in Poland has a legal structure that is accepted in Denmark (for example, ApS limited liability company or A/S joint stock company).

Important considerations for a foreign branch of a company are:




Representative office of a foreign company (Salgskontor)

In the context of operating in the Danish market, entrepreneurs have the option of choosing yet another legal form. This possibility is the establishment of a representative office of a foreign company to promote products and services (although the representative office itself does not have the authority to sell directly).

A representative office of a foreign company, although lacking legal capacity, acts as a branch acting on behalf of the parent company, which takes full responsibility for all obligations of the representative office. It is important to note that legal issues concerning Salgskontor are not explicitly regulated in Danish law.


Cooperative associations (Andelsforening/Brugsforening)


Within the legal form that is a cooperative association, there is an association contract that is entered into by individuals. With the help of this agreement, it is possible both to process and sell products owned by members, as well as to purchase and resell goods to the same individuals. The members of this type of association are responsible for the obligations of the venture to a certain extent. An important element is the addition of the abbreviation "A.m.b.a." to the name of the cooperative, indicating its limited liability.


Tax system in Denmark


If you are in business in Denmark or working there as an employee, you will be covered by the country's fiscal system. The taxation rules there are diverse and are based on gradually increasing tax rates that depend on the income you earn. The limit at which taxable income begins is related to the level of income earned. In Denmark, there is an option to deduct certain expenses from tax, such as insurance premiums, child support, retirement contributions, travel expenses for work and food. However, the tax authority in Denmark has the right to verify the accuracy of these expenses over a seven-year period.

There are key points about taxes in Denmark that are noteworthy:

For self-employment in Denmark, the tax authority (SKAT; www.skat.dk) treats business income as income for the business owner. In view of this, the company's taxation is reported as a single tax return. Business owners who pay taxes and contributions are also entitled to health and pension benefits, similar to those provided to employed workers. Periodically, on a quarterly or semi-annual basis, it is necessary to file a tax return (which includes income tax and VAT) through the Danish Tax Authority's online platform (SKAT), using the LetLøn system, which streamlines the management of employees' payroll records. The regulations allow advance income tax payments to be paid by March 20 and November 20. During these periods, there is an option to make a higher down payment, which will allow the overpaid tax to be refunded with interest, exceeding the interest rate offered by banks. In addition, a reduced interest rate of 0.4% is scheduled for November 20, which translates into lower interest compared to banks.

If we are talking about companies operating in Denmark, the corporate income tax (CIT) is 22%. Danish companies whose annual turnover exceeds DKK 20,000 will also be required to pay VAT, where the rate is 25%.

As for individuals in Denmark, there is a flat income tax of 32%. This tax is remitted to the local authorities. In addition, there is also a progressive tax of 5.64% (for income up to DKK 42,000) or 15% (for income above this amount). It is responsible for income from labor and capital. The value of this tax will not exceed 59%.

In the context of VAT, Denmark has certain guidelines. Companies with an annual turnover of more than DKK 50,000 are subject to this tax. The VAT rate is 25%. Exceptions are certain services, such as the sale or rental of real estate (including energy, water and gas), healthcare, education, banking, insurance and cultural activities, which are exempt from VAT. In these cases, the VAT rate is 0%.

Foreigners working in Denmark for between 3 months and 3 years and earning a minimum salary of DKK 47,500 are required to pay a 25% flat tax, to which a 9% labor market contribution is added.

All companies, both domestic and foreign, that offer their services or products in Denmark are required to pay a flat VAT rate of 25%. This is a value-added tax that is added to the price of goods and services sold by companies.

Business owners operating in Denmark must register their companies as VAT payers before providing services and goods. Registration can be done through the RUT (Register of Foreign Suppliers - virk.dk) website. A reverse charge is also available, which means that foreign companies do not have to charge Danish VAT when supplying services and goods to the Danish companies in question. In such a situation, the invoice contains only the net value of the services or goods, applying the reverse charge, which means that the buyer is responsible for calculating and paying the VAT on the service or goods in question. Examples of such services are, for example:

The SE number (assigned by SKAT) is used by Polish companies operating in Denmark as a VAT payer ID (if there is no VAT registration, only the TIN is provided). If the owner of a Danish company also acts as an employer, he must register as an employer in Denmark. Persons working abroad, regardless of permanent or seasonal employment, are subject to different tax regulations, depending on their origin and length of stay in Denmark.

Polish companies, even if they are not registered as VAT payers in Denmark, can claim VAT refunds on taxable expenses incurred in Denmark.

Recipients of services in Denmark are required to register as VAT payers and pay this tax, even when using the services of companies that are not registered as VAT payers.

Highlights of CIT:



Rights of employees and obligations of employers in Denmark


Entrepreneurs who decide to hire employees in Denmark should carefully familiarize themselves with the country's labor regulations and laws aimed at different professional groups. One example of such regulations is the law relating to employment-related documentation (Ansættelsesbevis loven). According to it, people who work for a minimum of one month and spend more than eight hours a week at work are entitled to receive a document containing key information about their employment.

In Denmark, it is customary to back up labor regulations with so-called collective agreements, which are agreements governing working conditions that are negotiated between employers (companies or employer organizations) and employees represented by trade unions or employee associations.

Collective agreements cover a wide range of issues, such as:

All employers operating in Denmark are obliged to provide insurance against occupational diseases and accidents for their employees, as well as to organize training in occupational health and safety. Guaranteeing fair wages and prohibiting discrimination are also important. If these rules are not followed, unions in Denmark have the ability to organize strikes, lockouts and protests in defense of workers and to negotiate better wage conditions. In addition, unions have the right to initiate labor disputes in order to reach a collective agreement.

Denmark also has a law that regulates the posting of workers to work abroad.



Danish health and safety regulations


In Denmark, individuals who are self-employed or employed by a local company are required to comply with regulations related to labor laws and rules regarding health and safety in the workplace. Failure to properly comply with these regulations can result in financial penalties or even the withholding of work performed. Guidance on this issue is available on the website of the Danish Labor Inspection Authority (UIP).

Key responsibilities of employers in Denmark include:

  1. Providing workers with the necessary protective equipment.
  2. Informing employees about safety rules.
  3. Supervising work in a manner that ensures safety.
  4. Creating a safe work environment.
  5. Preventing injuries during work.
  6. Taking care of hygiene in the workplace.
  7. Organizing annual safety and health training for employees, documenting accordingly and sending this information to the UIP.
  8. Ongoing cooperation with the occupational health and safety institution in Denmark.

Among the key tasks of employees in Denmark are:

In Denmark, individuals who are self-employed or employed by a local company are required to comply with regulations related to labor laws and rules regarding safety and health in the workplace. Failure to properly comply with these regulations can result in financial penalties or even the withholding of work performed. Guidance on this issue is available on the website of the Danish Labor Inspection Authority (UIP).

Key responsibilities of employers in Denmark include:

If a company in Denmark has at least 10 employees, it is required to establish a structure responsible for occupational health and safety issues and to appoint inspectors to oversee the implementation of safety regulations. The same applies to companies that engage employees in rotating or temporary positions, with employees working more than two consecutive weeks.


Register of Foreign Service Providers (RUT)


Those who decide to start and operate their own business in the Danish area are required to register the company with the Registry of Foreign Service Providers - RUT, even before the actual start of work. It is also important to report any changes to the company, and these changes should be reported no later than 1 business day before they are made.

Highlights of the RUT:


Common doubts about running a company in Denmark


  1. ​Denmark Holding Company - What is it?
    Definition of Denmark Holding Company: A company originating in Denmark that functions as a holding company that must be registered with the Trade and Companies Authority. 

  2. Denmark Holding Company is a private company from Denmark operating as a holding company, also known as Anpartselskab (ApS).
    • The Denmark Holding Company holds shares in other foreign subsidiaries.
    • It has the right to control 100% of the shares of foreign companies.
    • Profits generated by such a company are exempt from taxation.
    • The minimum required share capital is DKK 125,000.
    • One shareholder is sufficient, no greater number is required.
    • No restrictions on the activities of subsidiaries.
    • Registration procedure possible within one day.
    • Company accounts are publicly registered and subject to annual audit.
    • Holding company holds only foreign shares.
    • Dividends are exempt from taxation.
    • Based on the 2009 Tax Reform Law, there are different types of investors depending on the level of shareholding. Related investors, who hold shares at 50% of the share capital, are exempt from capital gains tax. Portfolio investors, who hold shares with less than 10% of the share capital, are required to pay capital gains tax. In contrast, subsidiary investors who hold shares between 10% and 50% of the share capital are not required to pay capital gains tax.

  3. Compliance supervision
    Companies operating in Denmark are subject to scrutiny by the police, the Tax Authority and the Labor Inspectorate. These authorities check, among other things, registration with the RUT, payment of taxes, compliance with health and safety standards and the legality of employment. Violations of these regulations can result in fines, warnings or even prosecution.

  4. Choosing between setting up a branch and a new company
    Establishing a branch of a foreign company in Denmark is a good option for Polish entrepreneurs. An entrepreneur has the option of establishing a branch if the type of business in Poland is similar to that of A/S or ApS companies in Denmark. Establishing a branch does not require start-up capital, unlike setting up a new company.

  5. Danish krone exchange rate
    Online exchange offices offer more attractive rates than traditional outlets. Exchange rate margins are also negotiable. Sample site: www.rkantor.com.

  6. Important websites and contact numbers in Denmark are:
    • erhvervsstyrelsen.dk,
    • skat.dk,
    • virk.dk,
    • statsforvaltning.dk,
    • toldskat.dk.

  7. Company registration in Denmark - procedure
    The procedure for registering a company in Denmark is simple and characterized by no restrictions, free competition and low income tax. It is possible to establish a business through the Danish Commerce and Companies Agency (DCCA) website: www.erhvervsstyrelsen.dk. A new company is assigned a special Central Company Register (CVR) number: www.cvr.dk. Registration with Customs and Taxation is possible at www.toldskat.dk.

  8. Residence certificate
    Polish individuals planning a longer stay in Denmark or starting their own business must obtain an EU/EEA citizen's residence certificate from the Danish Regional Office (www.statsforvaltning.dk).

  9. Invest in Denmark
    Invest in Denmark is an organization in Denmark that serves as a source of investment information for entrepreneurs.

  10. LetLøn system
    The LetLøn System is a free tool available on the website of the Danish Customs and Taxation Service (SKAT), which is used to maintain payroll records for employees of small businesses. The tool calculates taxes and expenses on its own.

  11. Afstaelse
    Afstaelse is a fee for renting premises for business, which is paid by tenants.

  12. VAT payer
    Entrepreneurs in Denmark must pay CIT and 25% VAT if their annual turnover exceeds DKK 20,000.

  13. Translation of documents
    Translation of documents from Danish by a certified translator costs about DKK 400 per page.