Corporation income tax on account

It is time for Danish companies to pay the second installment of ordinary corporation income tax on account for the 2021 income tax year. Ordinary tax on account is payable twice a year in equally large amounts. Therefore, we hereby send some useful information about this as well as the possibilities for payment of optional tax on account.

Whether to make further payment of corporation income tax on account or reduction of the ordinary tax on account, depends on the expected result of the company.

Second instalment of tax on account and possibility of payment of voluntary on-account tax

The deadline for payment of the second installment of the ordinary tax on account for the 2021 income tax is 20 November 2021.

If the company expects a larger profit and the ordinary on-account tax therefore has been set too low, the Company can make a voluntary payment on 20 November 2021.

The residual tax rates for 2021 have not yet been set but are expected to be in line with the rates from 2020 and therefore these rates will be used in the following.

If the company does not make a voluntary payment, an interest rate of 4.4% will be added to any residual tax. As the interest rate is not deductible, this corresponds to an interest rate of approximately 5,6 % before tax.

Is it advantageous to make voluntary payment of residual tax?

Whether it makes sense to pay voluntarily before or after 20 November 2021 depends on the ratio of the Company’s loan interest rate/deposit rate compared to the interest rate that is attributed to any residual tax.

If the company has surplus cash, or if the company’s loan interest rate is less than 5.6%, it will generally be advantageous to make a voluntary payment together with the ordinary on-account tax.

The vast majority of Danish banks currently charge a negative interest on deposits. Therefore, it may be relevant to have the company’s expected residual tax calculated for the 2021 income year and pay as much as possible before the deadline.

Possibility of voluntary payment of the third instalment

If the company choose not to pay a voluntary on-account tax now, and it later turns out that there has been a higher profit than expected, it will be the possible to make a voluntary payment on 1 February 2022 at the latest.

Here the company must pay an interest surcharge which is expected to be 0.9%.

Reduction of ordinary tax on account

If the company expects a loss for the income tax year 2021 and if an ordinary on-account tax rate is set for payment on 20 November 2021, the rate of on account tax can be reduced via E-Tax (TastSelv Erhverv on www.skat.dk). The reduction must be made by 20 November 2021.

If you have any questions about paying corporation income tax on account or need help calculating the expected residual tax, please do not hesitate to contact me.