Danish VAT representation

When a company operates outside the EU but sells goods or services in Denmark, appointing a Danish fiscal representative becomes a requirement.

Many European countries require non-EU companies to appoint a local representative to handle their VAT registration obligations. This representative will manage your VAT affairs in Denmark and share responsibility for complying with Danish VAT requirements. Generally, the fiscal representative takes on joint and several liabilities for the company's VAT obligations.

Whether a fiscal representative in Denmark is needed depends on your company's geographical location. If a company must register for VAT in another country because of its business activities, it may be essential to appoint a local tax representative.

Fiscal representation explained

A fiscal representation service involves one company representing another that intends to import its goods into the European Union. This arrangement allows the importing company to navigate the complexities of EU regulations and compliance requirements more effectively.

A specific tax known as Value Added Tax (VAT) is implemented within the European Union. Companies are required by EU regulations to establish a physical presence in the EU to manage VAT procedures at customs effectively. This requirement ensures proper compliance with tax obligations during the importation process.

Managing VAT returns and remitting the necessary VAT amounts to the authorities falls under VAT representation. Additionally, this service includes submitting the required Intrastat European Sales statements whenever applicable, ensuring compliance with regulatory obligations.

Fiscal representation can be classified into two primary categories: general and limited.

For companies engaged in importing goods into Denmark, general fiscal representation serves as an essential solution, especially when limited fiscal representation is impractical. This situation often arises during transactions involving other EU Member States or when importing goods from outside the European Union.

An Article 23 permit, issued by the Danish tax authorities, enables companies to apply the reverse charge mechanism for VAT on imports. This means that VAT does not need to be settled at the time of importation and can instead be reported in the VAT return. However, this permit is exclusively available to non-Danish companies that have designated a general fiscal representative.

The role of a general tax representative is filled by a Danish entity responsible for managing all VAT-related transactions on behalf of a foreign company operating in Denmark. This position is often taken by customs agents, logistics companies, or accountants, as they are tasked with handling logistics and ensuring compliance with Danish VAT regulations. Furthermore, the general tax representative must provide surety to the Danish tax authorities, typically amounting to the VAT that the foreign company is anticipated to owe in a given quarter.

However, the liability of the representative goes beyond just the surety amount, as tax authorities can reevaluate VAT payments for the past five years. This reassessment may result in a liability that could be up to five times the original surety amount. To reduce this risk, general tax representatives frequently demand a corresponding surety from their foreign clients.

By allowing the import of goods into the EU without the immediate payment of import VAT, limited fiscal representation offers a significant liquidity advantage. A tax representative with limited authority is solely permitted to act on behalf of a non-resident company for the purpose of importing goods and reaping the subsequent benefits associated with those goods.

Additionally, a single license provided by limited fiscal representation facilitates the straightforward inclusion of new clients under the existing authorization. This approach enables us to act as fiscal agents for businesses that import products into the EU.

By utilizing tax representation, your company can gain support in building a competitive position within the European Union.

When do you need to register for VAT in Denmark?

The criteria for VAT registration in Denmark closely align with those of other EU member states, thanks to the harmonization of VAT regulations across the European Union. VAT registration in Denmark is required in several situations, including:

• Offering services that are subject to VAT.
• Conducting sales and purchases of goods within Denmark or selling goods from Denmark to other countries.
• Importing goods into other EU countries via Denmark.
• Organizing live events.
• Storing goods within Denmark.
• Receiving services on a reverse-charge basis when the company is not registered for VAT.

Furthermore, foreign companies engaging in Business-to-Consumer (B2C) transactions in Denmark must register for VAT if their sales exceed the intra-Community sales threshold and they are not accounting for VAT through the VAT One-Stop Shop (OSS) scheme.

Companies that generated less than DKK 50,000 in revenue over the past 12 months are not obligated to register for VAT in Denmark, although they may choose to do so. On the other hand, if a company's revenue exceeds DKK 50,000 and it is not already registered for VAT, it must complete the registration as soon as possible. Additionally, businesses expecting to reach this revenue threshold should register for VAT at least 8 days before starting their operations.

Entities or individuals involved in activities exempt from VAT according to Danish law are not required to register. Typical examples of these exemptions include:

• educational services,
• healthcare services, such as medical and dental care,
• financial services, including banking and insurance,
• cultural activities, which encompass certain types of art and entertainment,
• charitable organizations offering specific social services.

Additionally, certain small agricultural businesses have the option to choose a flat-rate VAT scheme rather than standard VAT registration, simplifying their VAT responsibilities. It's important to mention that although these entities are not required to register for VAT, they may still elect to do so voluntarily if it proves advantageous for their operations.

To complete the VAT registration process in Denmark, foreign entrepreneurs can fill out a form on virk.dk. Upon successful registration, they will receive a Danish VAT number, known as a DK-nummer, which will be sent to the specified mailing address.

When a company operates outside Denmark and offers taxable goods or services within the country, it may be required to obtain a non-resident VAT registration. This obligation is aligned with the EU VAT directive, which requires foreign businesses to register for VAT under specific circumstances to report taxable transactions and declare the applicable VAT charges.

Selecting a tax representative

A Danish tax representative may need to be appointed by a foreign company conducting transactions in Denmark that are subject to Danish VAT.

It is mandatory to appoint a tax representative based in Denmark. This requirement applies to all companies located outside the European Union that engage in transactions subject to taxation in Denmark, including:

• exporting goods from Denmark to non-EU countries,
• purchasing goods supplied in Denmark from EU member states,
• importing goods from non-EU countries into Denmark,
• business-to-Business (B2B) supplies of goods from Denmark to EU member states,
• business-to-Consumer (B2C) supplies of goods and services to Danish individuals, including transactions conducted through marketplaces.

A fiscal representative based in Denmark will manage the company's VAT obligations with the Danish tax authorities on its behalf. This role encompasses filing VAT returns, making VAT payments, requesting VAT refunds, and conducting tax audits.

Additionally, it's crucial to understand that European partners—such as providers, suppliers, customers, and marketplaces—often refuse to work with non-European companies that have not designated a tax representative in Denmark, viewing it as too risky for their operations.

Failing to designate a tax agent can lead to significant penalties imposed by the Danish tax authority and makes companies ineligible for VAT refunds.

Which services are included in Danish fiscal representation?

Fiscal representation services encompass the following:

• Assisting with the recovery of Danish VAT paid on local purchases, including the preparation and submission of VAT refund claims for non-resident companies.
• Preparing and submitting periodic VAT returns to the Danish tax authorities (SKAT).
• Ensuring compliance with local regulations related to invoicing, VAT handling, accounting protocols, and VAT reporting and payments.
• Managing inquiries and tax audits conducted by local VAT authorities.
• Aiding foreign businesses in VAT registration in Denmark.
• Handling the payment of VAT owed to the Danish tax authorities on behalf of the foreign company.
• Providing necessary reports and documentation required by Danish tax authorities, including annual returns and any additional reporting obligations.
• Ensuring 'VAT compliance' with domestic fiscal regulations.
• Serving as a liaison between the foreign company and Danish tax authorities.

Companies that require fiscal representation in Denmark

Evaluating compliance obligations and registering appropriately before starting any taxable transactions is essential for all companies operating in Denmark, if necessary.

Companies engaging in taxable transactions in Denmark are required to register as VAT payers, report taxable transactions, and remit VAT. While businesses within the European Union have the option to handle these processes independently or through a tax agent, those located outside the European Union must utilize a tax representative to comply with administrative obligations.

A fiscal representative must be appointed in Denmark by companies located outside the EU. Since the representative shares joint liability with the non-resident company, the client may need to provide a bank guarantee or security deposit in favor of the representative.

Businesses located in the EU, as well as those in Norway, Greenland, the Faroe Islands, and Iceland, can choose to register directly with the relevant local VAT authorities. Although engaging a Danish fiscal representative is not mandatory, non-resident companies may prefer to assign the often complex and time-consuming tasks to a local representative.

An address for the relevant company will be provided at our location, and we will take care of all paperwork in Danish while managing all communication with local authorities. It’s important to mention that the cost of this service is lower for EU-based companies, as they are not subject to joint liability.

Why opt for a tax representative in Denmark?

Direct VAT registration in Denmark is not available to non-European companies; they must instead work through a Danish VAT representative. This representative, usually a local company, acts on behalf of the non-resident firm with the local VAT authorities. They are responsible for ensuring compliance with all VAT obligations, even those that may not have been communicated to them. As a result, they may require a deposit, such as a bank guarantee, from you prior to agreeing to provide representation.

In Denmark, foreign companies can enter the market through tax representation, allowing them to bypass the costs and challenges associated with establishing a business. This process involves avoiding the need to create a corporate structure and handle distinct accounting practices.

While European companies do not have to appoint a Danish VAT representative, they have the option to engage an agent to manage tax matters with local authorities, which streamlines their dealings. In these cases, a bank guarantee is not necessary. Nevertheless, the company remains entirely accountable for fulfilling its VAT responsibilities.

The VAT representative oversees the entire operation from abroad, managing all VAT-related responsibilities required by the Danish tax authorities. This includes acquiring a VAT number, submitting periodic declarations and VAT payments, and handling requests for VAT refunds, among other tasks.

In addition to meeting legal obligations, Danish VAT representation offers a simple and economical alternative to setting up a physical presence by creating a branch or subsidiary. Specifically, a foreign company that designates a tax representative in Denmark is exempt from paying corporate tax in the country.

Assigning VAT duties to a tax representative in Denmark

Assigning VAT responsibilities to a fiscal representative in Denmark is crucial for protecting your operations, minimizing your company's administrative burden, and effectively managing tax risks within the country.

It is a common practice for businesses, particularly foreign companies, to delegate VAT responsibilities to a tax representative when operating in a country where they lack a physical presence or adequate understanding of local VAT regulations.

The responsibilities for VAT that are most frequently assigned to a tax representative include the following:

• VAT registration: Managing the registration process for VAT in the relevant jurisdiction.
• VAT returns: Preparing and filing periodic VAT returns with the tax authorities.
• VAT payments: Ensuring that VAT payments are made on time.
• Invoicing compliance: Verifying that invoices adhere to local VAT regulations.
• Record keeping: Keeping accurate records and documentation related to VAT.
• Communication with tax authorities: Serving as the primary contact for tax-related inquiries and audits.
• VAT refunds: Overseeing the process of reclaiming VAT on eligible expenditures.
• Customs and import VAT: Managing import VAT and customs duties, including applying the reverse charge mechanism when applicable.
• Ongoing compliance: Keeping track of changes in VAT legislation to ensure continuous compliance.

The rules surrounding Intra-Community and Danish VAT are complex and subject to frequent changes. The requirements for declarations occur regularly and vary in their frequency. Non-compliance, delays, and errors in cash flow assessments can quickly lead to significant financial penalties.

To prevent unnecessary risks and stress, consider entrusting the management of your VAT obligations to professionals.

Advantages of having a tax representative in Denmark

In Denmark, tax representation provides benefits that extend beyond just the registration of a foreign supplier. It mainly focuses on easing the VAT management burden during imports while also lowering administrative costs for the foreign supplier.

Acting as a proxy for the foreign supplier, the Danish fiscal representative ensures that their rights and obligations are upheld. Hiring a VAT representative can lead to lower costs and faster delivery to European customers, along with various other benefits. Furthermore, the representative assumes responsibility and partial liability for VAT related to the movement of goods.

As a foreign company, you can take advantage of the reverse-charge mechanism for imports by appointing a tax representative. Nonetheless, you remain responsible for your own tax obligations. By selecting a fiscal tax representative, you can assign them the responsibility of fulfilling these obligations on your behalf.