Company in Denmark – why is it worth it?
Denmark is a highly attractive country for foreign investors due to several factors, including its high GDP, stable and flexible economy, and low inflation rate. Denmark’s negligible bureaucracy and clear and transparent political, legal, and tax issues are also favorable for foreign investors.
Being a member of various international organizations, such as the EU, the Council of Europe, the WTO, EFTA, OSCE, and the OECD, is another advantage for establishing a business in Denmark.
Denmark’s top-quality education system ensures an abundant labor market with some of the most productive and best-educated workers in Europe. The widespread use of English in Denmark is also an advantage for foreign investors, as it is spoken widely in everyday life and official matters.
The process of setting up a business in Denmark is one of the fastest, easiest, and cheapest in the world, and foreign companies have the same privileges as Danish companies. Denmark’s policy actively supports entrepreneurs, including those running small and medium-sized businesses, providing many grant, loan, or credit opportunities.
Denmark offers various legal forms when establishing a business, such as sole proprietorship, limited liability company, limited partnership, public limited company, general partnership, limited liability company, representative office of a foreign company, foreign branch office, and co-operative association. Additionally, Denmark has low income tax rates for companies, and low costs for employers related to the payment of social and health insurance premiums. Finally, Denmark has agreements with numerous countries to avoid double taxation in most cases.
Sole proprietorship (Enkeltmandszirksmhed)
A sole proprietorship is a popular and simple legal form of business in Denmark that can be established easily through online registration with Erhvervsstyrelsen. The only requirements are the submission of a business plan to the relevant municipality and a certificate proving that the person is qualified. There is no need to raise share capital, but registration costs on average DKK 10,000. The naming of a sole proprietorship is arbitrary, and it has no legal personality, so all the liabilities and assets of the company belong to the owner. If the company’s income is less than DKK 50,000 per year, it is not required to register for VAT.
Limited liability company (Anpartsselskab – ApS)
A limited liability company is the most common business form in Denmark and is suitable for entrepreneurs who wish to exercise strict control over their company’s activities. To register, at least one partner is needed, and a minimum start-up capital of DKK 125,000 is required. The registration process is much simpler and cheaper than for other Danish companies. The company has its own legal personality, and the owners’ capital is separate. The average cost of establishing a limited liability company ranges from DKK 3,000 to DKK 5,000. This type of legal form requires the management of the company to be separate, and a supervisory board can be appointed. Only one shareholder may own the company.
Limited partnership (Kommanditselskab – K/S)
In Denmark, you can establish a limited partnership as long as you have at least two partners, with one being a general partner and the other a limited partner. The general partner can be an individual or a legal entity such as a limited liability company. The general partner is responsible for all of the partnership’s debts, while the limited partner is only liable for the amount of start-up capital they contributed.
To register the partnership, a memorandum of incorporation must be drafted detailing how the partnership will conduct its business. The limited partnership must be registered with the Trade and Companies Agency within 8 weeks of signing the agreement. The partnership’s name must include at least one of the entering general partner’s names.
Public Limited Company (Aktieselskab – A/S)
In Denmark, the joint stock company is the most advanced legal form and is suitable for medium and large companies that want to sell shares and be listed on the Danish stock exchange. The registration process for a joint stock company is complex and requires meeting certain conditions, such as having a minimum of one partner, gathering a share capital of DKK 500,000, and preparing and signing an incorporation agreement and articles of association.
The cost of registering a Danish limited company ranges from DKK 4,500 upwards, and the registration must take place within six months after the memorandum of incorporation is signed and the initial capital is deposited. The process takes approximately 2-3 weeks, and all documents must be in Danish. After registering the company, it must also be registered with the tax authority.
A joint stock company must have internal bodies, such as an executive board or supervisory board, established at a general meeting. Shareholders are not responsible for the company’s debts with their private assets, but there are exceptions. Founders of a company are not required to hold shares in the company, but individual shareholders who buy a minimum of 5% of the share capital must inform the company within 30 days. It is also possible to buy an existing joint stock company, but the process of converting it is usually more time-consuming and expensive than setting up a new company.
General partnership (Interesselskab – I/S)
A general partnership is a type of company that does not require share capital to be established. It must have at least two partners who can be individuals or legal entities, and does not have legal personality. To register, a memorandum of incorporation must be drawn up and sent to the DBA within eight weeks. The name of the company must include the abbreviation I/S. Shares are generally equally divided among the partners.
Representative office of a foreign company (Salgskontor)
A representative office of a foreign company is a good option for companies that want to expand their operations to Denmark without requiring share capital or incurring high costs. The office must be managed by at least one person who resides in an EU member state. The name of the representative office should include the name of the parent company, the country of its registered office and the word 'filial’. The parent company is responsible for all obligations of the representative office, which does not have a separate legal personality.
Foreign branch office (Filial af udenlandsk selskab)
Setting up a branch of a foreign company in Denmark is a more time-consuming process than setting up a company or representative office. The company must submit an online registration form and contribute share capital, with a minimum amount of DKK 80,000. The cost of setting up a branch is approximately DKK 8,000. The branch should include the word 'filial’ in its name, the name of the parent company and the country of origin. The director of the Danish company is responsible for the liabilities of the foreign company branch, which is subject to Danish law. The branch is also obliged to send copies of the monthly accounts of the entire year to the Trade and Companies Agency.
Co-operative association (Andelsforening/Brugsforening)
A cooperative association is a legal form that is uncommon in Denmark. It can be established by individuals through an association agreement, which allows the association to engage in transactions for the purchase and sale of goods and the processing of products. The liability of the association’s members is limited. The name of a cooperative association should include the abbreviation A.m.b.a., indicating the legal form of the company.
Other formalities related to registering a company in Denmark
The process of registering a company in Denmark varies depending on the chosen legal form, but there are some standard requirements. As Poland is a member of the EU, any EU citizen can freely establish a company in Denmark and only needs to attach an EU citizen’s residence certificate to the necessary documents.
A company in Denmark needs a bank account registered in the NemKonto system, which can be either a Danish or foreign account. It is recommended to open a new Danish account, which the bank immediately registers in the NemKonto system. To open a Danish bank account, the applicant must provide various documents, including the passport, residence permit, identification code, Articles of Association, personal documents of the company’s founders, and proof of ownership of Danish and foreign real estate.
An electronic signature, or NemID/MitID, is also useful for accessing Danish online banks and official government websites. To obtain an electronic signature, proof of identity is required at the Citizens’ Service Point.
Certain types of businesses may require relevant licenses or approvals, which can be obtained from the relevant Danish authorities. The most commonly required licenses relate to the sale of alcohol, passenger and goods transport services, food market activities, and medical or pharmaceutical activities.
The cost of registering a company in Denmark varies depending on factors such as the legal form of the company, the services of translators, notaries, and consultancy firms, and the cost of registration done by a specialist organization.
If the registration passes, various documents, including a certificate of incorporation, an extract from the DCCA register, and the original articles of association under apostille are issued.
Purchase of an existing company
Instead of starting a new company, an alternative option is to buy an existing one. Ready-made companies for sale can be easily found in Denmark and the whole process is quick and easy. All paperwork can be completed remotely in most cases and it takes no longer than three weeks to take over a company. Companies for sale are typically registered for a few months and have a universal name, suitable for different types of business. They are created for resale to entrepreneurs who want to save time and minimize paperwork. Buying a ready-made business has other advantages as well. If the company has been registered for a long time, has no liabilities and has accounting experience, it is widely recognized as reliable and stable by banking institutions, government agencies, and business partners. The only thing a person buying a ready-made company needs to do is open a bank account for the company.
Start-up Denmark
The Start-up Denmark program is a joint initiative by the Danish Ministry of Business and Growth and the Ministry of Immigration, Integration and Housing, that aims to encourage foreign entrepreneurs to develop their business in Denmark. The program includes obtaining a residence permit for up to two people for a period of two years. To participate, an entrepreneur must have an innovative business idea that will bring added value to the Danish economy, be a shareholder in the country of nationality without receiving dividends, and have sufficient savings to cover one person or the whole family for one year.
Once the entrepreneur has submitted their business plan, it is reviewed by Danish experts, and if approved, the entrepreneur must submit two applications to the Danish Agency for International Recruitment and Integration. Once all stages have been successfully completed, the entrepreneur is granted equal access to privileges provided to Danish citizens doing business, including state subsidies and support programs, unlimited access to the European market, and free consultations at business development facilities. The entrepreneur and their family are also offered social guarantees, including health care and education.
Right of residence in Denmark
Residence without parking documents
The law in Denmark allows Polish citizens to stay in the country for up to 3 months without a residence permit. The 3-month period is counted from the day of entry. If a stay is planned to last longer than 3 months, it is necessary to apply for registration of the stay of the EU citizen, even before the 3-month period has been exceeded. The EU citizen’s registration certificate confirms legal residence in Denmark and must state a reason for the stay. The reason for the stay may change, requiring a new certificate. Scandinavian citizens are exempt from holding residence permits, while citizens of other countries, such as Switzerland, Norway, Iceland, or Liechtenstein, must follow the same rules as EU citizens.
Permanent residence
Individuals who have legally lived in Denmark for at least five years are eligible to apply for permanent residence. To do this, they must go to a citizens’ service office (Borgerservice) with a valid certificate of residence for an EU citizen. This office is usually located in the municipality. After visiting the Borgerservice, they will receive a registration number (CPR), a health insurance card, and an address registration. The regulations on the residence of EU citizens in Denmark are governed by the EU-opholdsbekendtgørelsen.
Business visa
If you are planning to visit Denmark for business purposes, such as attending meetings or conferences, you can apply for a business visa, which is similar to a Schengen visa. To get the visa, you need an invitation from a Danish company or business partner that includes information about the purpose of the visit, the date, the length of stay, and proof of financial security. You must apply for the visa between three months and two weeks before the planned visit at the Consular Section of the Danish Embassy or at the Visa Center. If it’s your first time applying for a visa, you must apply in person and provide biometric data and a digital photo. The decision usually takes up to 10 days, but in some cases, it may take up to one month or three months if the embassy needs to forward the documents to the immigration service for thorough verification. The fee for a business visa is €27, but for a fast-track procedure that takes three days, it costs €35.
When applying for a business visa to Denmark, several documents must be provided. These include an applicant’s questionnaire, a consent to processing of personal data, a confirmation of payment for a visa, an invitation from a company or business partner, copies of the pages of the foreign passport containing the marks (which must be valid for at least 90 days after the planned end of the visit), a confirmation of purchase of health insurance, 2 color photos showing the applicant’s face (which should be 3.5 x 4.5 cm in size, the face should be on a white background and take up approximately 70% of the photo area), a bank statement to show that you have approximately €60/day and a confirmation of hotel reservation.
Apart from the basic documents required for a business visa application, additional documents may be needed such as tax service extract or registration documents for individual entrepreneurs, extract from the commercial register, copies of a power of attorney, as well as information about the company or business partner that issued the invitation. A detailed itinerary may also be required for stays longer than two weeks. If the inviting party does not cover the travel expenses, the applicant must provide documents proving their financial capacity.
It is possible to extend the validity of a business visa for another 90 days for legitimate reasons. To do this, an application must be submitted to the Danish Immigration Service Centre or the nearest station. Visitors conducting business in Denmark may also apply for a multiple-use visa.
Taxation in Denmark
The Danish tax system is based on a progressive tax rate that is determined by an individual’s income. Anyone who is self-employed or employed in Denmark is required to pay Danish taxes. Taxpayers can deduct certain expenses such as insurance premiums, pensions, food costs, and child support, but they must be substantiated and documented. The Danish Tax Administration may audit taxes paid over the past seven years.
Full or limited tax liability is determined based on factors such as residency, duration of stay in Denmark, salary type and amount, place of employment, and place of the employer or business’s permanent establishment. Those with full tax liability must pay tax on all of their income, including income from other countries. However, those with limited tax liability are not required to pay tax on income earned in Denmark.
When starting a company in Denmark, it is necessary to register it with the Enterprise and Trade Agency at least eight days before the start of operations. This can be done through the regional Customs and Taxation office. Denmark does not offer any tax breaks or holidays for entrepreneurs.
Individuals
The Danish tax system requires individuals to pay income tax and progressive tax. Income tax is a fixed rate of 32%, while the progressive tax rate depends on the amount of income earned. If an individual earns less than DKK 42,000 per year, the progressive tax rate is 5.64%. If an individual earns more than this amount, the rate increases to 15%. Both work and capital income are taken into account when calculating progressive tax. Income tax is paid to local authorities, while progressive tax is paid to the treasury.
Sole proprietorship
The income generated from a sole proprietorship is considered as the income of the business owner and is taxed together with other income on a single tax return. This return should be filed quarterly or semi-annually, depending on the company, and can be submitted online through the Danish Tax Authority’s website. Sole proprietors are also eligible for health and pension benefits. There are two due dates for advance payments of income tax – March 20 and November 20. If the advance payment is made earlier, the tax can be refunded with interest, which is higher than that offered by banks. However, if the payment is made after November, the interest rate is reduced by 0.4, resulting in a lower interest rate.
Companies – CIT
In Denmark, businesses must pay a 28% corporation tax, which is calculated by consolidating the parent company, its branches, and any subsidiaries. However, for partnerships, only the partners are subject to taxation.
VAT
Companies in Denmark with an annual turnover of more than DKK 50,000 must register and pay value-added tax (VAT) at a rate of 25%. VAT is included in the price of goods and services offered, except for some activities such as medical care, real estate, education, cultural activities, and banking and insurance transactions, which are taxed at 0%. Foreign companies can use the reverse charge procedure to avoid paying Danish VAT when selling to Danish businesses. Under this procedure, the purchaser is liable for VAT payment, and the value of goods or services should be net. The reverse charge can only be used for certain types of businesses, including construction, sports events, cleaning, employee leasing, maintenance and repair, entertainment, exhibitions, and conferences.
Excise duties
Excise duties are a type of tax that is paid by the end purchaser of certain products. These duties apply only to specific categories of goods, such as mineral water, beer, wine, strong alcohols, tea, coffee, chocolate, ice cream, tobacco, motor fuels, video cassettes, phonograph records, and electric light bulbs.
Employment of employees
There are two categories of labor law in Denmark: one for manual workers and one for white-collar workers. However, all employers who hire workers in Denmark are required to provide their employees with health and safety training, decent wages, and insurance coverage for occupational illnesses and accidents, regardless of the type of work performed. If these obligations are not met, labor conflicts such as strikes, lockouts, or solidarity industrial action by trade unions may occur.
Working conditions
There is no single piece of legislation in Denmark that uniformly regulates the relations between employees and employers for different occupational groups. The main reference point is the agreement between the Danish Federation of Trade Unions and the Danish Confederation of Employers, which covers issues such as working hours, notice periods, minimum holiday entitlement, and maximum retirement age. All agreements between employers and employees must be in writing, and verbal agreements are not recognized. There is no regulation in Danish law regarding the length of employment contracts, which must be decided individually. However, it is generally accepted that a salary increase can be negotiated every two years, while an employment contract can be negotiated on average once every four years.
Social insurance
The Danish social security system provides coverage for all individuals who work in Denmark. When hiring an employee, the employer is required to deduct social security contributions from the employee’s salary. The annual amount of these contributions is approximately DKK 1,080. It is estimated that, on average, a Danish employer pays between DKK 10,000 to DKK 12,000 per year in social security contributions for each employee they employ.
Remuneration
Danish law does not establish a minimum wage, as work and pay conditions are determined by collective agreements. While there is no universal minimum wage for the entire labor market, collective agreements set minimum wages for particular industries and professions. Depending on the type of work, wages may be calculated on an hourly, daily, or monthly basis. Wages may be paid once or twice a month, depending on the employment agreement. For specific industries, wage rates are reviewed and updated annually.
Working time
Employees who work for a Danish company are expected to work a standard 37-hour workweek. Overtime is defined as the first three hours worked beyond this standard workweek or the first three hours worked during an employee’s time off. Overtime compensation is set at 50%, but if the number of overtime hours worked in a day exceeds three or if the employee works on Sundays or holidays, the rate increases to 100%. Employees can also choose to take additional time off instead of receiving a bonus. Part-time workers are entitled to the same overtime benefits as full-time employees.
Holidays
Employee leave entitlements in Denmark are regulated by relevant laws. Each employee is entitled to a total of five weeks, or 30 days, of holiday leave per year, including Saturdays. Second and third shift employees are eligible for an additional two hours of holiday for each week worked. At least 18 consecutive days of leave must be taken between May 1 and September 30. If an employee has not worked the full previous calendar year, their holiday entitlement is calculated based on the number of months worked, with 2.08 days of holiday leave being granted for each month worked in full.
Collective agreements
Collective agreements in Danish companies are designed to protect employee rights and regulate working conditions. These agreements focus on issues such as working conditions, pay, workplace safety, work schedules, holiday entitlements, overtime, and pensions, among others. Both employers and employees are included in collective agreements. Employers can join a collective agreement if they choose to do so, especially if they are already a member of an employer union. It should be noted that an employee’s membership in a particular trade union does not necessarily mean that the company will follow the collective agreements established by that union.
Termination of an employee’s contract
The length of the notice period for employee termination is determined by the duration of the employee’s employment and can be negotiated by both the employer and the employee. Dismissal rules for employees are regulated by collective agreements and can vary by industry and position. Generally, an employee who has worked for at least nine full months and is at least 18 years old can only be dismissed if specific reasons justify the dismissal. If an employee feels that their dismissal was unjustified, they can take the matter to court or an appeals tribunal. If the employer is found to be at fault, they must pay due compensation to the employee. There is an exception to the notice period where the employer may dismiss the employee immediately without notice if the employee engages in grossly wrongful conduct.
Health and safety at work
Entrepreneurs with businesses in Denmark are required to comply with Danish health and safety regulations. The regulations can be found on the official website of the Danish Working Environment Authority. Companies with at least 10 employees must also establish a health and safety organization led by designated inspectors. The inspectors’ main responsibility is to implement the company’s safety rules, including those for temporary or fluctuating workplaces. Failure to comply with health and safety regulations can result in fines and work suspension. Employers’ primary obligations under Danish health and safety legislation include ensuring a safe work environment, paying attention to occupational hygiene, training employees in safety rules, providing personal protective equipment, monitoring employee compliance with safety rules, and taking measures to prevent work-related injuries.
Tax identification number and tax card
Individuals who earn small amounts of money in Denmark are exempt from paying taxes and receive a „frikort.” However, entrepreneurs and foreign investors are required to have a tax identification number and tax card. The tax card is issued electronically and can be accessed through TastSelv. To obtain a tax identification number and tax card, applicants must submit an application either electronically or by completing form 04.063. The application must be submitted no earlier than 60 days before the first planned workday in Denmark and must be accompanied by copies of documents such as proof of identity, a residence permit in Denmark, a signed employment contract (if applicable), and a marriage certificate (for married individuals).
Register of Foreign Service Providers
When establishing a company in Denmark, it is mandatory to register with the Register of Foreign Service Providers (RUT). The registration should occur before the company begins operations in Denmark or when any changes to the company’s operation take place. Applications can be submitted digitally, and the registration process is quick and straightforward. Upon completion of the registration, a receipt with a personal RUT number is issued, which is necessary when contacting Danish authorities. Failure to register or notify changes can result in a fine or prosecution by the Labor Inspector.
Termination of activity in Denmark
The decision to terminate a company in Denmark involves several formalities, including amending the tax return. The country in which tax liability must be paid depends on factors such as residency and the type of work conducted. There are two types of tax capacity: limited and full, and a person’s living situation may not necessarily fit either category. Individuals must also inform the tax office of their new address and deregister from the Danish national register at a local resident service point.
Danish economy
The Danish economy has several major sectors that foreign investors can explore, such as food, renewable energy, information technology, maritime transport, and biotechnology. Companies operating in these sectors may be eligible for various types of state funding. Opening a restaurant or café in Denmark is also a popular choice for foreign investors due to the country’s culinary culture. Other popular options include hair salons, travel services, hotels, banking, insurance, and transport. With negative interest rates in Denmark, jewelry stores have also become increasingly popular as a safe investment option for Danes with surplus cash.