Setting up a one-person company in Denmark

The sole proprietorship, referred to as Enkeltmandsvirksomhed, is the most widely used and simplest legal business structure in Denmark. It is particularly advantageous for young entrepreneurs who are just starting out, have limited financial means, and cannot accurately predict their company’s future earnings. This type of business offers minimal administrative complexity, making it an appealing choice for those launching new ventures. Moreover, it allows for straightforward management and involves lower startup costs, providing flexibility to individuals who want to explore their business ideas with minimal financial risk.

Key facts about sole proprietorship

A sole proprietorship is characterized by the founder having complete control over all aspects of the business's operations. They can also choose to delegate certain responsibilities by granting power of attorney, which allows others to act on behalf of the company when needed. This level of autonomy enables the owner to make swift decisions and adapt to changing circumstances without the need for extensive consultation or approval from partners or shareholders.

This business model places full financial liability on the owner, meaning they are personally responsible for any debts and obligations incurred by the company. As a result, all financial responsibilities, including taxes and business-related debts, fall directly on the individual. If the business encounters financial difficulties, the owner may have to use their personal assets, such as a home or car, to settle these debts, which can pose significant risks. Consequently, this personal liability underscores the importance of careful financial management and planning for the owner to mitigate potential losses.

One notable advantage of running a sole proprietorship is the ease of setup, as there is no requirement to secure share capital. This simplicity makes it an attractive option for individuals looking to quickly establish their business without facing complex financial and administrative barriers. Many entrepreneurs prefer this model due to its straightforward nature and lower entry costs, facilitating a smooth start to their business endeavors.

Benefits of operating a sole proprietorship in Denmark

Advantages of establishing a sole proprietorship in Denmark:

• Global business expansion: Starting a sole proprietorship in Denmark offers significant benefits for international growth.
• Accessibility: The process is straightforward and open to any entrepreneur, making it easy to set up.
• Attractiveness for young entrepreneurs: With minimal financial and administrative hurdles, Enkeltmandsvirksomhed is particularly appealing for young business owners.
• Ease of management: Running a sole proprietorship is simple, especially for those with limited experience.
• Low start-up costs: The required initial investment is DKK 10,000, which is over PLN 6,000 at current exchange rates.
• No requirement for share capital: There is no obligation to raise capital when establishing the business.
• Streamlined taxation: Business income is reported on a single tax return, ensuring it is taxed only once.
• Delegation of authority: Owners can grant power of attorney to others to represent the company.
• Administrative support: The Danish government assists with business registration processes if challenges arise.
• VAT registration exemption: Companies are not required to register for VAT if their annual revenue is below 50,000 kroner.

Benefits of operating in Denmark

• Economic stability: Denmark is recognized for its stable and resilient economy.
• Innovation and Technology: A thriving environment for technology and innovation enhances business opportunities.
• Simple legal procedures: The ease of legal processes, along with low employer costs and favorable corporate tax rates, makes starting a business straightforward.
• No double taxation: Owners do not face the issue of being taxed twice on their income.
• Profit retention: The owner retains all profits, as there is no legal distinction between the individual and the business.

Essential criteria for establishing a sole proprietorship in Denmark

Any individual, regardless of their nationality, is eligible to become a sole proprietor in Denmark. This business structure is particularly popular among freelancers and entrepreneurs. However, foreign nationals must obtain a residence and work permit before they can register a sole proprietorship in the country. Furthermore, acquiring a NemID, which is a digital signature, is required before completing the company registration process.

To register a sole proprietorship in Denmark, the following documents are necessary:

• Original residence documentation (local residence proof is not mandatory)
• Civic Registration (CPR) Number for the individual owner.
• Proof of identity

Additionally, it is advisable to ensure that all documents are up-to-date and accurately reflect the individual’s current status. This attention to detail can help streamline the registration process and avoid any potential delays with the Danish authorities.

To function as a sole proprietor, one must be a resident and possess both a CPR number (Danish Social Security Number) and a digital signature known as "MitID." If you have just relocated to Denmark and have yet to acquire a MitID, obtaining it is necessary before registering your business on VIRK. Having a valid CPR number is essential for various administrative processes, including tax reporting and accessing public services. Moreover, the MitID digital signature enhances security for online transactions and communications with government agencies, ensuring a smoother business registration experience.

When starting your sole proprietorship, a business address is required. Many entrepreneurs begin by using their private addresses since they often launch their companies from home without an external office. Generally, the business authority permits the use of a personal address for this purpose. Using a private address can also help reduce initial overhead costs, making it a practical option for new business owners. However, as the business grows, entrepreneurs may consider obtaining a dedicated office space to enhance their professional image and better accommodate operational needs.

Steps to register a sole proprietorship in Denmark

Individuals relocating to Denmark have the opportunity to establish their own company by registering with Erhvervsstyrelsen (the Agency for Business and Enterprise under the Ministry of Economic Affairs), ideally via the website erhvervsstyrelsen.dk. The Danish authorities offer assistance to self-employed individuals in navigating the formalities of business registration. For newcomers, this support can be invaluable, as it helps them understand the specific requirements and regulations that apply to their new venture.

Additionally, leveraging online resources can further simplify the process, ensuring that entrepreneurs are well-prepared to meet all necessary criteria. The process of registering a sole proprietorship in Denmark (Enkeltmandsvirksomhed) is generally straightforward. Below are the steps required to complete the registration for this type of business:

1. Gather the required information
Ensure that you have the following details ready before initiating the registration process:

• Name of the company
• Company address
• PKD code (business activity code)
• CPR number (personal identification number)

Selecting a distinctive name for your company is crucial, as it should not resemble any existing business names. If a physical registered office in Denmark is not necessary-such as for online businesses-you may consider utilizing a virtual office service to provide your company with a Danish address.

2. The registration process for a sole proprietorship is completed through Virk.dk. You will need to fill out a registration form, which, once approved, will be forwarded to the appropriate offices.

This online platform not only streamlines the application process but also provides helpful resources and guidance for entrepreneurs unfamiliar with the registration requirements. Additionally, tracking the status of your application is made easy through Virk.dk, allowing you to stay informed throughout the entire registration process.

3. Obtain CVR number
Upon completing the registration form, you will be assigned a CVR (Central Business Register) number that serves as your company’s unique identifier. This CVR number is crucial for handling all formalities related to your business operations.

In addition to being necessary for tax reporting and legal documentation, the CVR number is often required when opening a business bank account or applying for permits. It acts as a reference for government agencies and other entities that you may interact with in the course of running your business. Consequently, ensuring you keep your CVR number secure and accessible is essential for smooth business operations.

4. Should you expect your company’s annual revenue to surpass DKK 50,000, registering for VAT is necessary. This registration process can also be completed via Virk.dk:

• Access the Virk.dk website.
• Locate the VAT registration form.
• Complete and submit the form.

Additionally, you may want to explore the possibility of engaging a fiscal VAT representative, as they can assist not only with the registration process but also with VAT payments and various related formalities.

5.Establish a bank account
It is essential to set up a dedicated bank account for your business, as this will simplify the management of your finances and the filing of tax returns. Maintaining a separate account allows you to clearly track business expenses and income, making it easier to prepare for audits and financial assessments. Furthermore, many banks offer business accounts with features tailored to entrepreneurs, such as credit options and tools for managing cash flow, which can enhance your overall financial management strategy.

6. Maintain accurate bookkeeping
Ensure that your bookkeeping complies with Danish laws. You have the option to handle this on your own or to enlist the help of an accounting firm for professional assistance. Keeping precise records is vital not only for meeting legal obligations but also for gaining insights into your business’s financial health. Regularly updating your accounts can help identify trends, manage cash flow, and make informed decisions about future investments. Additionally, accurate bookkeeping can save you time and stress during tax season, as well as reduce the risk of errors that could lead to penalties.

7. Tax filing
Regularly reporting taxes and submitting tax returns as mandated by the Danish Tax Authority (SKAT) is crucial for compliance. It’s advisable to stay informed about deadlines and any changes in tax regulations that may affect your obligations. Additionally, working with a tax professional can help ensure that you maximize deductions and credits available to your business, ultimately contributing to better financial outcomes.

When starting your business, it’s essential to ensure that you have all necessary permits and licenses in place. If your enterprise involves trading goods with other EU nations, submitting Intrastat declarations may be a requirement; this helps maintain accurate records of cross-border transactions within the EU. Additionally, obtaining sufficient insurance for your business is advisable to protect against potential risks.

Another important step is to establish a start date for your business activities. A well-chosen start date can lead to savings on accounting fees and annual reports. For example, selecting December 31st as your commencement date means you will have to submit a VAT declaration for the fourth quarter, a tax return, and an annual report for the entire year, despite operating for only one day. In this scenario, beginning on January 1st would be a more strategic and cost-effective option.

Moreover, identifying the activity code, known as "branchekode" in Danish, is necessary for your sole proprietorship. This code outlines the specific type of activities your business will engage in, ensuring that it is classified correctly within the Danish business framework. Accurately determining this code is important not only for compliance with regulations but also for obtaining relevant industry insights and accessing potential support tailored to your sector.