Denmark

Financial Year – 1 January – 31 December
Currency – Danish krone (DKK)

Corporate Tax Summary

Residence – Resident companies are subject to corporate income tax, based on a modified worldwide income principle. Profits derived from foreign immovable property or foreign permanent establishments are not subject to corporate income tax.

Denmark has a classical system of taxation of corporate income. This tax system is coupled with a participation exemption.

A corporate entity is resident in Denmark if it is registered with the Danish business authorities or if its place of effective management is located in Denmark.

Basis of Taxation – Private and public companies in Denmark (ApS and A/S) are liable to corporate tax on their income in Denmark. Income from foreign permanent establishments or properties are, as a rule, exempted unless international joint taxation is chosen. In order to avoid double taxation related to foreign income, Denmark has entered into tax treaties with approximately 150 countries. The most common instrument for the avoidance of double taxation is credit for foreign tax paid.

Foreign companies are also liable to corporate tax in Denmark if the effective seat of management is in Denmark. There is a flat rate of tax on all taxable income and gains

Ordinary Losses
The carry forward of losses is restricted. Losses can be used to offset no more than 60% of the taxable income in any future years. However, companies may offset tax losses of up to DKK 8,572,500 per year in 2020. Companies with a taxable income in excess of DKK 8,572,500 will then pay corporate income tax and the remaining deficit will be carried forward. Carry forward may be restricted upon changes in ownership, and in settlement with creditors, either voluntarily or by court order, or upon conversion of debt into equity.

No loss carry back is permitted.

Distributions
(dividends, royalties, interest)

Dividends distributed to non-transparent entities owning at least 10% of the share capital are not subject to withholding tax. If the recipient qualifies as a conduit company, or ownership is less than 10%, withholding tax applies. Dividends do not constitute a deductible expense for the distributor.

Royalties are, as a rule, subject to withholding tax of 22%. However, in many cases the percentage will be reduced or even waived according to tax treaties or the EU royalty directive. Royalties are a deductible expense for the distributor.

Interest is, as a rule, not subject to withholding tax. However, if the recipient company is incorporated within EU but qualifies as a conduit company and the beneficial owner is situated in a jurisdiction without a tax treaty (tax heaven), then 22% withholding tax applies. Interest is generally considered as a deductible expense for the distributor. However, regulation to avoid tax erosion due to thin capitalisation is applicable.

Group Treatment
Permanent establishments located in Denmark, resident subsidiaries of non-resident companies and Danish immovable property owned by non-resident companies are subject to taxation in Denmark under the mandatory national tax consolidation rules.

This applies if the parent company controls directly or indirectly through companies included in the group more than 50% of the votes of the shares in the subsidiaries, either by ownership or voting agreements.

International joint taxation can be opted for. If international joint taxation is chosen, it must include all foreign companies in the joint taxation. Obviously, such a decision will require thorough pro et con considerations, also as international joint taxation, if chosen, will be compulsory for a minimum of 10 years.

Income from Shareholdings
If the Danish company owns at least 10% of the share capital, dividends and capital gains from the sale of the shares are exempt from taxation if the subsidiary is within the EU or in a country with which Denmark has a double taxation agreement and the dividend received does not constitute a deductible expense for the distributing company.

Individual Tax Summary

Taxable Persons
Taxable individuals are those who are residents in Denmark (section 1 of the KSL). This is the case if:

• The individual has an abode in Denmark. The test of abode is one of facts and circumstances, with available accommodation being a very important criterion, though not sufficient.
• The individual is present in Denmark for a period of 6 months, including short stays abroad. Tax liability then commences from the first day of presence.

Married persons are taxed separately, but certain modifications apply. A child is also taxed separately.

Basis of Taxation – Generally speaking all types of income are taxable – both money and payments in kind (fringe).

Taxable income includes:

• Personal income, including earned income and pension income, remunerations, income from letting out property etc., income from capital, e.g. interest, income from bank accounts. Equity income is taxed according to special rules and is not directly included in the personal income or the income from capital.
• Employee benefits that may be equated with salary. Employee benefits are taxed because they are of financial benefit to the individual. Employee benefits are either fully or partially paid for by the employer. The taxable value of the employee benefit is determined on the basis of tax rates set by the state or on the basis of ordinary market value. If the employee pays a certain amount to the employer for placing the employee benefit at his disposal, this amount can be deducted from the value of the employee benefit. There are, however, a number of employee benefits that are always taxed and which should therefore not be included when deciding if the minimum level has been exceeded.

Taxable Base (DKK) in General

Filing Status – In general Companies must file their income tax return 6 month after the year end.

New in terms of transfer price documentation in 2020 is that it will be mandatory to file this within 60 days after the deadline for the tax return in 2021.

Individuals with an extended tax return because of a personal business of some kind: 1 July of the following year. For other individuals, 1 May of the following year.

In practice, the local tax authorities send out an income tax return form in March or April stating your income and allowances in the previous income year. The form is based on the figures that are known to the local tax authorities. It is the individual’s obligation to check whether the figures correspond to their actual income and allowances for the year in question.

Personal Income Tax Rates

Income from being a board member does not in itself result in a tax-free share. There are certain conditions for the special tax scheme for highly paid foreigners.

Church tax, which is voluntary, is not included.

Goods and Services Tax (GST)

Other Taxes Payable

Excise duty
Denmark levies excise duties on, inter alia, alcoholic beverages, cars, chocolate and sugar, gasoline, certain insurance policies and tobacco.

Inheritance tax, and gift tax also exist.

Last updated: 28.10.2020