Currently, an increasing number of Polish entrepreneurs are choosing to open a business abroad. Business owners conducting business in Denmark are required to file an annual tax return with SKAT, which in Polish structures corresponds to the tax office. However, Danish tax law differs significantly from the Polish one. So, how does it look like in practice?
Annual settlement of companies in Denmark lasts till, July 1st. Before that, each entrepreneur receives a special tax return form from the office – Selvangivelse. The documents will be delivered to the address given by the taxpayer during the process of registration of the company. As a Danish entrepreneur, you are fully entitled to tax reliefs. This gives you the possibility to deduct e.g. costs related to accommodation, travel or even utilities in rented premises. Of course, all this must be supported by appropriate documentation, for example in the form of bills or a rental agreement. In addition, the entrepreneur is entitled to reimbursement for insurance premiums, pensions, transport to work, food, as well as child support. Furthermore, when filing the tax return, it is also useful to have a basic, knowledge of some important terms.
Here are some of them:
Personfradrag – tax allowance (its amount is set annually);
Personnummer – the CRP given by the Tax and Customs Administration when registering a company;
Personlig indkomst – personal income after deduction of ATP and relief for pension contributions;
Kapitalindkomst – capital income (in other words, investment income, such as interest from a deposit). In this case, tax is deducted as for a loan;
Fradrag – deduction from capital income;
Renteindtægter – interest income;
Renteudgifter – interest expense.
It should also be mentioned that before starting any activity, it is necessary to register the company as a VAT payer within eight days of its establishment. The entrepreneur is then subject to a 25% tax, which is included in the prices of services and goods, and is also included in the annual tax return. The tax applies to all domestic companies. Danish law ensures that companies do not pay more than 51.5% tax on their annual tax return. However, if the turnover is equal to or exceeds DKK 50,000, it is necessary to register the company in the Register of Foreign Suppliers on the virk.dk website. At the same time, for domestic companies, Danish legislation gives the possibility to use the reverse-charge procedure, which means that the cost of VAT is borne by the buyer. In this case, only the net cost of the goods or services will appear on the invoice. The document must be marked by formula: „Reversed charge”; and include the customer’s registration number – SE-nummer or CVR.
Tax liability applies to all businesses registered in Denmark. Income obtained from both domestic and foreign transactions should be included in your tax return. It is then worth remembering about the double taxation convention, which guarantees that income earned abroad is tax-exempt in the country of tax residence. After filing the return, the entrepreneur has the opportunity to check or correct the submitted tax declaration. All you have to do is go to the website www.skat.dk and log in to your individual account (you have to order a special NemID or Tastselv code in advance to access it). Then click on Se årsopgørelsen or Ret årsopgørelsen/oplysningsskemaet. Once the deadline for filing tax returns has passed, SKAT will, from 2nd July, issue the relevant documents, including a tax decision stating the amount of the refund – shown in green; or the surcharge to be paid – shown in red. The Authority will pay the granted tax refund to NemKonto, which the business owner establishes upon registration of the business. The taxpayer has the right, to appeal against the office’s decision within 3 years. In turn, SKAT may, within 7 years, check whether the entrepreneur’s expenses correspond to reality.
TYPE OF ANNUAL ACCOUNTS IN DENMARK
In Denmark, the type of business activity is reflected in the method of tax settlement with the local tax office, i.e. SKAT. Therefore, before starting your business it is advisable to find out what are the rules for different forms of settlement in order, to choose the most suitable model, which will certainly translate into better functioning of your company in the future.
Danish authorities offer nine forms of annual tax settlement:
Enkeltmandsvirksmhed – annual tax return for a sole proprietorship;
Aktieselskab – A/S – annual tax return for a joint-stock company;
Interesselskab – I/S – annual tax return for a general partnership;
Anpartsselskab – ApS – annual tax return for a limited liability company;
Kommanditselskab – K/S – annual tax return of a limited partnership;
Filial af udenlandsk selskab – annual tax return of a branch of a foreign company;
Salgskontor – annual tax return of a representative office of a foreign company;
Andelsforening/Brugsforening – annual tax return of a cooperative association;
Iværksætterselskab – IVS – annual tax return for a limited liability company (a form of tax return introduced from 1st January 2014);
Annual tax return for sole proprietorships in Denmark
Under Danish legislation, income from a sole proprietorship is treated as self-employment when the owner derives income from the company. In addition, the self-employed person can choose between three taxation options:
- taxation according to the Share Capital Act, allowing the company’s profit to be divided into two parts, i.e. personal income and capital income;
- taxation of the profit as personal income – in this case, the self-employed are treated in the same way as full-time employees in the annual taxation;
- taxation in accordance with the Corporations Act, so that the self-employed person has two options: either write off the cost of the loan interest or keep the profit as bank savings.
The owner of a sole proprietorship is entitled to, exactly, the same pension and health benefits as a salaried employee. The difference comes in the payment of income tax and VAT, as a self-employed person has to pay it in several instalments, i.e. either every six months or every quarter. Then the so-called advance payments for income tax are made. This can be done on 20th March or 20th November. If the entrepreneur pays the higher amount of the advance payment by the first deadline, he may receive a tax refund with interest, which is higher than in a bank. On the other hand, in the second term, the interest rate is reduced by 0.4% (lower than in a bank). In order, to settle your tax online, you have to order a special eight-digit code – TastSelv-kode – in advance. This can be done via tastselv.skat.dk. This gives the entrepreneur access to private tax information on www.skat.dk. The code is used as a password to your account at the Danish tax office’s website and gives you permanent access to your company’s tax information. Furthermore, the owner of a sole proprietorship has the right, to deduct expenses related to: purchase of goods for sale, company insurance, rent of premises, network, telephone, company car, maintenance, and repairs to company premises, heating, electricity, machinery, equipment and devices, inventory, auditor, and lawyer. At the same time, it must be stressed that any plant, machinery, goods, and equipment intended for private use, even though purchased for the company, are NOT tax-deductible. Furthermore, documents confirming the right to allowances granted in the annual tax return must be kept for 5 years. In other respects, the tax return remains unchanged. This means that the self-employed must submit their annual tax return by 1st July, having received a Selvangivelse from SKAT for this purpose. From 2nd July, the Årsopgørelse, or tax decision, is expected.
Annual accounting for companies in Denmark
Companies in Denmark are divided into two categories according to their income. As a result, companies whose annual turnover does not exceed CZK 50,000 are obliged to pay corporate income tax – 22% CIT – and if the turnover exceeds this amount, the company bears the cost of 25% VAT.
As in the case of the self-employed, the entrepreneur also has a choice between the three types of annual accounts already mentioned:
- taxation according to the Share Capital Act;
- taxation of profits as personal income;
- taxation according to the Companies Act.
Having chosen the most suitable form of taxation, it is important to remember that the income tax settlement must take place no later than six months after the end of the tax year – this applies to all groups of entrepreneurs. How does it look in individual cases?
Well, limited liability companies – ApS – and joint stock companies – A/S – are regarded as physical entities under Danish law, and consequently the authorities do not require the owners to be liable for the company’s obligations with their, own assets. The only guarantee is therefore the shares in the company’s capital. On the other hand, the settlement concerns income or dividends of shareholders. Meanwhile, in the case of limited liability companies, called IVS (which, like ApS, are a physical entity), it is obliged to create annually open financial reports, on the basis, of which they are later accounted for. The report should include:
- a summary of the activities of the company’s management ;
- an annual balance sheet;
- profit and loss account;
- statement of changes in equity;
- additional information.
As in other cases, all company owners are obliged to submit a tax return by 1st July.
DOCUMENTS NEEDED FOR DANISH COMPANIES’ ANNUAL RETURN
If you run a business in Denmark, you will need to submit an annual tax return to the Danish Customs and Tax Administration. If your company has employees, you as the owner are obliged to issue them with the necessary documents for the annual tax return. The official letters directly related to the annual tax return are mainly:
ÅRSOPGØRELSE – tax decision;
OPLYSNINGSSEDDEL – certificate confirming the employee’s earnings. The employer is obliged to issue such a document to employees. It is an equivalent of Polish PIT-11;
SELVANGIVELSE – tax return form sent by the Danish tax authorities to the taxpayer at the address provided during registration;
LONSEDDEL – weekly/monthly pay slips which every Danish employer is obliged to provide to their employees.
ANNUAL TAX RETURN DEADLINES FOR COMPANIES IN DENMARK
Danish entrepreneurs (and Danish non-resident taxpayers) who run their own business in Denmark must settle their tax with the Danish tax authorities by 1st July. Although, this deadline has now been extended to 20 September 2020 due to the pandemic. At the same time, the deadline from 1st March to 1st May is for persons with limited tax liability and Danish tax residents to file their tax returns. If someone wants to settle for the previous tax year with a spouse in order, to benefit from the Cross Border Tax Credit, the deadline for filing returns is 1st June. As of 2nd July, SKAT will send out tax decisions, in which the amount of the return is marked in green and the surcharge in red.
Danish entrepreneurs, for 3 more years and 4 months, have the right to:
- appeal against the decision of the authority;
- file a correction to their tax return;
- settle the tax.
A Danish entrepreneur is obliged to keep all the documentation regarding obtained tax reliefs for the next 5 years because during that time SKAT has the right, to carry out an audit to check whether a given taxpayer was actually entitled to deduct the costs indicated by him.
