Denmark bookkeeping

It's essential to understand how accounting operates in Denmark before starting a business there. Danish accounting includes all types of business structures, ranging from sole proprietorship to company. Depending on your chosen business structure, your bookkeeping will vary in difficulty, payment or reporting deadlines, documentation, taxes, and regulations. You can manage your bookkeeping independently or hire professional assistance. An experienced accountant can assist you with challenges that arise as a business owner, such as clarifying your responsibilities, addressing accounting and reporting issues, or navigating Danish accounting regulations and the Danish chart of accounts. Every entrepreneur doing business in the Kingdom of Denmark needs to be familiar with the most important issues in Danish accounting, if only so that they do not run the risk of heavy fines for not fulfilling their obligations.

The most important issues concerning Danish accounting:

• the aforementioned laws governing Danish accounting;
• systematisation of reporting obligations;
• accounting for the various forms of business activity;
• chart of accounts;
• auditing in Danish companies;
• taxes, insurance, benefits;
• factors that vary according to the business (deadlines, documentation, costs, rates);
• registration and permits;
• Danish accounting rules;
• issues related to registering your business in Denmark;
• employer obligations;
• settlements and adjustments - SKAT;
• Nemkonto, Tastsely, Pension, CPR, A- kasse, health card - DK.

Accounting in Denmark is regulated by several pieces of legislation. First and foremost are the legal statutes, but not only. Financial reporting requirements are set out in EU regulations and directives and adapted to Danish law. The areas of financial reporting are overseen by two bodies appointed by parliament:

1. DSFA, the Danish Financial Supervisory Authority;
2. DBA, the Danish Business Authority under the auspices of the Ministry of Economic Affairs and Development, which oversees the financial reporting of unfunded business entities. [IMPORTANT: In practice, since 2007, the authority to set Danish accounting standards has been taken over by the DASC, the Danish Accounting Standards Committee, which, while it has no legal mandate, sets requirements for small, medium and large Danish companies].

The main laws governing Danish accounting include:

1. The Accounting Act 1998, which deals with the organization of accounting, the keeping of accounting records and business records. It follows from the Act that Danish accounting is mainly based on the accounting chart of accounts, the profit and loss account structure (sales revenue and 6 expense accounts) and the balance sheet account structure (assets, capitals, liabilities);
2. The Financial Reporting Act 2001 (DFSA, as amended in 2015), which contains provisions relating to the preparation of financial statements. It speaks of two variants of the income statement - comparative and calculation. The Danish income statement templates do not hide the net profit deduction templates. The statements refer to the classes into which Danish companies are divided.

The preparation of financial statements is the basis for company accounting in Denmark. The Financial Reporting Act brings together the rules on their preparation. Class A includes private Danish companies with up to 10 full-time employees. Total assets should not exceed DKK 7 million and annual net turnover should be less than DKK 14 million. Class A companies are not required to keep financial statements, they only have to prepare tax reports.

Class B includes private and public limited liability companies, limited partnerships, commercial foundations and other companies with up to 50 full-time employees. Total assets must not exceed DKK 36 million and annual net turnover must not exceed DKK 72 million. In contrast to Class A, companies in Class B are required to prepare financial statements. The International Financial Reporting Standards contain recommendations on, among other things, the measurement, presentation and recognition of information. For Class B companies these recommendations are optional, for Class C they are mandatory.

Class C includes medium and large companies, limited partnerships, private and public limited liability companies, commercial foundations and all other companies with more than 50 full-time employees. Total assets must be less than DKK 143 million and annual net turnover must not exceed DKK 286 million.

Class D consists of all state-owned joint stock companies. Their obligation is to prepare consolidated financial statements, which must comply with the rules given by the MSSF. The obligation expires on 1st May (after 4 or 6 years). Class D also includes listed companies. Listed companies are required to prepare separate financial statements.

The reports of such companies should include information such as:

• a summary of management's activities;
• profit and loss account;
• annual balance sheet;
• statement of changes in equity;
• cash flow statement;
• additional information.

An entrepreneur who has a business in Denmark should foremost be familiar with the Employment Document Act (Ansættelsesbevis loven). According to this Act, employees must receive a document with information on the most important working conditions. Working conditions are the result of an agreement between the employer and the employees. The agreement is established through trade unions or an association of employees and is called a collective agreement.

Employees should comply with Danish labour law and follow Danish health and safety regulations, which can be found on the website of the Danish Labour Inspection Authority (UIP).

Danish businesses with employees should:

• provide their employees with the necessary personal protective equipment;
• provide a suitable working environment;
• instruct employees on health and safety rules at work;
• provide employees with health and safety training at least once a year;
• ensure that workers know and comply with safety rules when carrying out their work;
• prevent injuries at work;
• respect and treat their employees equally;
• ensure that workers are paid a decent wage;
• insure their employees against accidents and occupational diseases;
• continuously cooperate with the Danish Occupational Health and Safety Administration.

Companies operating in Denmark must be registered with the Danish Commerse and Companies Agency and the Register of Foreign Service Providers (RUT). The Danish Commerse and Companies Agency assigns companies a CVR (Central Company Register) number.

Persons operating companies within the EU who wish to post their employees to work in Denmark must comply with the rules set out in the following documents:

• EU Directive 96/71 of 16 December 1996 on the posting of workers abroad (Working Environment Act, Equal Pay Act, Act prohibiting discrimination in the labour market, Legal Relations Act, Act on Equal Treatment of Men and Women in Employment and Parental Leave);
• Danish Posting of Workers Act No 993 of 15 December 1999;
• Polish employees who have been posted to work in Denmark should, prior to their departure, obtain an A-1 form (confirming the payment of contributions for employee social insurance and specifying the Polish provisions for such insurance in the country), which is drawn up by ZUS in the form of a certificate.

Information on registration, accounting and company operations in Denmark can be found on the website of the Danish Business Authority - www.erhvervsstyrelsen.dk. The most relevant issues that can be found on the website listed:

• CVR (company registration number);
• company name;
• company address;
• contact details;
• type of business activity;
• date of incorporation and liquidation of the company;
• CPR (registration number, but not for private individuals);
• number of employees;
• details of owners, partners, management;
• accounting principles;
• information on accounting, financial reporting or balance sheets;
• credit information;
• related companies;
• sectors and sub-sectors;
• documents needed to set up a business.

• Selvangivelse - a tax return form, issued by the Danish Tax Authority (SKAT). The form is sent by the office's staff to the address that the taxpayer has provided during registration. The address does not have to be Danish, the document can also be delivered to Poland.
• Oplyysningsseddel - a document summarizing the employee's earnings. Danish employers are obliged to issue such a document to their employees upon termination of employment. It is also worth mentioning that employers are obliged to keep documentation concerning their employees for a period of 5 years. This also applies to employees whose contract has been terminated.
• Tax return - is submitted via the website within 6 months of the end of the tax year. The tax year must be 12 months long, but does not have to correspond to the calendar year. If the tax year ends between 1st February and 31st March, the tax return should be submitted by 1st August. Fees are paid twice a year - on 20th March and 20th November.
• Arsopgorelse - a document issued and sent by the Danish Tax Authority after 2 July. It contains the tax decision, i.e. the amount of the refund or surcharge.

Bookkeeping for a sole proprietorship is uncomplicated. The setup cost for such a business is at least DKK 10,000, equivalent to just over PLN 6,000 at the current exchange rate. Additionally, there is only one tax return and income is taxed only once. The income tax or, if applicable, VAT return is filed every three or six months via the SKAT website, using the LetLøn system. Twice a year, on March 20th and November 20th, advance income tax payments are due, which is the only settlement required for a sole proprietorship. Providing annual statements, which include a balance sheet, profit and loss account, and outline accounting rules, is voluntary. Business owners who pay taxes and contributions are eligible for the same health and pension benefits as employed individuals in Denmark.

The "Forretningplan" is an essential requirement and refers to a comprehensive explanation of the entrepreneurial activity that one intends to carry out. This plan should encompass the vision, business concept, range of services, financial capabilities, and owner's duties. It is obligatory to register the business with the Danish Erhvervsstyrelsen, which can be done by accessing www.erhvervsstyrelsen.dk. To register, entrepreneurs are required to provide their personal identification number, CPR. Accounting for Danish companies is more complex than running a sole proprietorship. Companies fall into classes B, C and D and are, for example, a general partnership (Interesselskab - I/S), a limited liability company (Anpartsselskab - ApS), a public limited company (Aktieselskab - A/S) or a limited partnership (Kommanditselskab - K/S).

These companies are obliged to prepare reports according to the rules set out in the Financial Reporting Act. These reports should include:

• profit and loss account;
• a description of the management board's activities;
• a cash flow statement;
• statement of changes in equity;
• balance sheet;
• notes.

When companies hold securities that are traded on a regulated market, they are required to apply IFRS standards, as adopted by the European Union, in their consolidated financial statements.

IFRS are the International Financial Reporting Standards. As the name suggests, these are standards, interpretations and frameworks adopted by the International Accounting Standards Board (IASB). The recommendations issued by IFRS enable companies to organize their management according to the 'comply or explain' principle. The 'comply or explain' principle is that companies are not obliged to implement the recommendations, but if they choose to do so, they should explain why.

In Denmark, there is still the Danish Accounting Standards Committee (DASC), which was established by the Danish Auditors' Committee (FSR) to issue non-mandatory technical standards and guidance on the preparation of financial statements for unlisted entities. Since 2004, the DASC has mainly been involved in analysing and preparing comments on exposure drafts, discussion papers and draft comment letters from the European Financial Reporting Advisory Group (EFRAG) and the IASB Board, providing technical information on current accounting issues and conducting outreach activities.

Changes to company law and accounting law are being introduced by the Danish Enterprise Authority. A person operating a company in Denmark is obliged to pay tax. If the annual turnover of the company does not exceed DKK 20,000, then corporation tax - CIT, which is 22%, must be paid. On the other hand, if the indicated amount is exceeded, VAT must be paid, which is 25%. An audit is an audit of financial statements that Danish companies are obliged to carry out. Information on the conduct of an audit can be found in the Financial Reporting Act. The audit of the financial statements is carried out by independent, external auditors. They may be registered or authorised. For Class A and B companies, auditing is not mandatory and depends on the threshold of their annual turnover. Furthermore, companies in these classes can benefit from the type of audit of their choice and have the option to select the most favourable service from the available attestation services. The choices available include an audit of financial statements, accounting assistance or an audit and entrepreneurs make their choice after consulting with the auditor.

There are several types of audit:

• financial audit, is a detailed audit of the financial statements. It is carried out by a chartered accountant. During the audit, he checks two things. Firstly, whether the information presented by the owner regarding finances and assets is true. Secondly, whether the financial statements have been prepared in accordance with Danish or international accounting principles;
• management audit - this type of audit assesses the efficiency and economy of Danish companies' financial management;
• QA is the Danish system for checking the quality of financial statements;
• compliance audit, which examines whether the companies' financial systems and operations comply with the law.

Additional information on auditing Danish companies:

• it is mandatory to include internal audit in the planning and modification of accounting systems;
• the Danish Financial Supervisory Authority (FSB) follows the International Standards on Auditing (ISAs);
• both auditor appointees (auditors, state-authorized accountants, or SPAs) and audit firms are audited every six years. The audit is carried out by the Audit Oversight Authority, which was established by the DBA;
• the Auditor General's Act sets out good audit practice. According to this principle, the internal audit function should not be dependent on the head of the entity for the planning of its activities, implementation and organization, and the internal auditors should have insight into the necessary information;
• in 2011, three Danish organizations, the Danish Committee of Auditors (FSR), the Danish Institute of Certified Public Accountants (FRR) and the association for young accountants and trainees (REVIFORA) joined forces. From this merger the FSR, a professional accounting organization, was formed. Its tasks include auditing accounting, auditing financial statements or dealing with accounting and taxation in Danish companies.

The most important account groups in the Danish Accounting Chart of Accounts relating to the profit and loss account structure:

1. Account group: net revenue from sales of goods; account number: 1100; account name: sales of goods.
2. Account group: sales; account number: 2100; account name: sales.
3. Account group: other external expenses:
   • account number: 3100; account name: advertising cost,
   • account number: 3200; account name: local costs,
   • account no: 3300; account name: cash shortage,
   • account no: 3400; account name: exported vehicle costs,
   • account no: 3900; account name: other costs.
4. Account group: process costs:
   • account number: 4100; account name: salaries,
   • account number: 4200; account name: pension allowance.
5. Account group: depreciation:
   • account number: 5100; account name: depreciation of means of transport,
   • account number: 5200; account name: depreciation of equipment.
6. Account group: interest; account number: 6100; account name: interest (income).
7. Account group: interest; account no: 7100; account name: interest (expenses).
8. Account group: extraordinary items:
   • account number: 8100; account name: extraordinary gains,
   • account number: 8200; account name: extraordinary losses
9. Account group: taxes; account number: 9000; account name: corporate income tax.

Arrangement of account classes relating to the balance sheet:


10. Account group: fixed assets:
    • account number: 112; account name: tangible assets,
    • account number: 11120; account name: cars,
    • account no: 11121; account name: write-offs on cars,
    • account no: 11130; account name: furniture,
    • account no: 11131; account name: depreciation allowances for furniture.
11. Account group: current assets:
    • account no: 121; account name: inventories,
    • account number: 12110; account name: composition,
    • account no: 122; account name: accounts receivable,
    • account no: 12210; account name: receivables from recipients,
    • account no: 12220; accruals.
    • account no: 123; account name: cash,
    • account no: 12310; account name: cash,
    • account no: 12320; account name: bank account,
    • account number: 1230; account name: savings account.
12. Account group: capitals:
    • account number: 121; account name: share capital,
    • account no: 134; account name: reserve capital,
    • account no: 135; account name: financial result.
13. Account group: liabilities:
    • account number: 141; account name: long-term liabilities,
    • account number: 14110; account name: mortgages,
    • account no: 142; account name: current liabilities,
    • account no: 14210; account name: revolving credit,
    • account no: 14220; account name: receivables,
    • account no: 14230; account name: pension supplement,
    • account no: 14240; account name: from labour market contributions,
    • account no: 14250; account name: from taxes,
    • account number: 14250; account name: tax settlements,
    • account number: 14290; account name: other liabilities.

Deductions:

• account number: 21000; account name: profit and loss account,
• account number: 22000; account name: balance sheet.

Bookkeeping in Denmark also involves dealing with costs, accounts, balance sheets and assets. According to the Danish balance sheet formula, assets are grouped into debt and equity according to the principles of increasing liquidity, i.e. from the least liquid (intangible assets) to the most liquid (cash).

1. Non-current assets:
   • intangible assets:
     • completed development projects including concessions, patents, trademarks and similar rights that originate from development projects,
     • development projects in progress and prepayments for IPI,
     • goodwill,
     • acquired concessions, patents licences, trademarks and similar rights;
   • property, plant and equipment:
     • land and buildings,
     • plant and machinery,
     • property, plant and equipment in progress and advances for fixed assets,
     • other (equipment, fixtures and fittings);
   • financial assets:
     • shares in related parties,
     • receivables from related parties,
     • other receivables,
     • equities,
     • receivables from owners and management,
     • investments in associates,
     • receivables from associates,
     • other investments.
2. Current assets:
   • inventories:
     • raw materials and consumables,
     • advances for goods,
     • work in progress,
     • finished goods and merchandise;
   • receivables:
     • trade receivables,
     • receivables from owners and management,
     • receivables from associates,
     • receivables from related parties,
     • other receivables,
     • contracts for work in progress,
     • settlements;
   • investments:
     • equities,
     • investments in related parties,
     • other investments;
   • cash:
     • liabilities,
     • accruals,
     • current and non-current liabilities (mortgages, other debts incurred by issuing bonds, loans, profit shares in debt instruments, advances received from customers, trade payables, payables to related parties, payables to associates, income tax, other liabilities),
     • capitals (paid-in capital, agio, revaluation reserve, other reserves, profit/loss),
     • provisions (provision for pensions and similar obligations, provision for annual tax, other provisions).

Denmark's most important trading partners include the member states of the European Union. The main partners are Germany, the Netherlands, the United Kingdom and Sweden. Poland ranks only in 13th place.

Denmark's cooperation with other countries is handled by the Danish Export Council (Eksportradet). In 1995, the Danish-Polish Chamber of Commerce was established by entrepreneurs to take care of Polish-Danish economic relations.

Thanks to the European Agreement created on 16th December 1991, trade between the European Union and Poland is being normalized. In 1995, a free trade area for industrial goods was created. As a result, the same preferential duty rates, which are usually 0%, apply to all EU countries. This does not apply to agricultural and processed agri-food goods. To be able to apply the preferential rate, certificates of origin of the products (EUR1) must be presented to Danish customs officials. Customs duty is calculated on the customs value of the goods. This means that the price on the invoice is what counts. Transport and insurance costs are included in the quoted price. You must pay the so-called MOMS, that is VAT of 25%, must also be paid. The tax applies to agricultural products, industrial products and almost all services.

Denmark's most common exports are food products, chemicals and chemical products, as well as live animals. In contrast, it imports the most equipment and machinery, processed products, chemicals and chemical products. All food products should be labelled and meet standards for the use of preservatives. The label should include the composition in Danish. If a commodity may pose a risk to life and health, such as a medicine or chemical, a warning should be placed on the packaging of that commodity. In addition, entrepreneurs who wish to import goods containing hazardous chemicals in them are obliged to check whether the transported substances are on the EINECS list of hazardous substances. Any chemical substances outside the list must be notified to the Ministry of the Environment. When placing a chemical substance on the Danish market, we have to assign it to one of two groups - for commercial or private use.

It is also useful to know who to contact in order to obtain licences or permits. When it comes to importing food products, you need to report to the Danish Veterinary and Food Inspectorate ( www.vfd.dk). At the aforementioned Ministry of the Environment, there is the Department of Chemical Products, to which entrepreneurs wishing to introduce cosmetics, cleaning products or detergents into the Danish market should report. Furthermore, entrepreneurs are obliged to provide the Department with a report on the activities of their companies. The report shall be delivered annually, by 1 February.

According to the New Approach Directives, the following industrial products should be CE-marked:

• toys,
• machinery,
• the efficiency of water power boilers,
• equipment used in potentially explosive atmospheres,
• non-automatic weighing equipment,
• gas appliances,
• simple pressure vessels,
• energy efficiency of freezers and refrigerators,
• telecommunications terminal equipment,
• recreational boats and yachts,
• gas appliances,
• diagnostic equipment (in vitro),
• low-voltage electrical products,
• explosives for civilian use,
• gas appliances,
• cable systems for the transport of persons,
• construction products,
• electromagnetic compatibility,
• active medical implants,
• lifts,
• personal protective equipment.

Important agreements that affect Polish-Danish relations:

1. UN Convention on Contracts for the International Sale of Goods.
2. Agreement on industrial, scientific and technical cooperation - of November 1974.
3. Agreement on the Prevention of Double Taxation - of April 1976, as amended by the Protocol of 1992.
4. Agreement on the development of economic cooperation - of May 1976.
5. Agreement on the promotion and mutual protection of investments - of May 1990.
6. Agreement on cooperation in the field of energy - of 1990.
7. Agreement on cooperation in the field of environmental protection - of 1990.
8. Agreement on mutual assistance in customs matters - of 1992.
9. Agreement between the former Ministry of Spatial Planning and Construction of the Republic of Poland and the Ministry of Environment and Energy of the Kingdom of Denmark on assistance to the energy and environment sector - of 1995.
10. Agreement between the Ministry of Agriculture and Food of the Republic of Poland and the Ministry of Food, Agriculture and Fisheries of the Kingdom of Denmark on technical assistance and cooperation - of 25 June 1999.
11. Agreement between the Ministry of Economy of the Republic of Poland and the Ministry of Trade and Industry of the Kingdom of Denmark on developing and strengthening the private sector in Poland - of 18 June 1999 (extending the 1994 Memorandum until the end of 2001).

A-kasse - unemployment insurance fund. It is optional insurance, but if you want to receive benefits after losing your job, you must become a member of a-kasse.

TastSely - an eight-digit code to help you settle your accounts with the Tax Office electronically. It can be ordered at www.skat.dk.

Skat til udbetaling - this phrase stands for the amount of tax refund. It is placed on the tax decision from the tax office.

Restkat til betaling - this expression stands for the amount of the surcharge to the Tax Office. It is also placed on the tax decision.

NemKonto - an employee bank account into which the tax refund from the Tax Office and the payment is transferred.

Feriepenge - holiday benefits to which persons legally employed in Denmark are entitled. A Danish employee is entitled to 2.08 days of holiday for each month worked, making a total of 5 weeks. The holiday period in Denmark runs from 1st May to 30th September. And it is during this period that a minimum of 3 weeks of accrued holiday must be taken. Importantly, you can apply for the benefit up to six months after you have finished working in Denmark. In that case, you must remember to register with the municipality before leaving the country. Feriepenge is paid into your NemKonto for up to three months for the previous tax year. It can only be used in the following holiday year.

Feriekonto - a special fund into which Danish employers are obliged to pay holiday contributions for employees. The rate is 12% of gross salary, less 8% allocated for social purposes.

Årsopgørelsen - tax decision, which can be found on the Danish Tax Administration's website.

Personfradrag - tax relief to which Danish residents who have worked in the country for more than 12 months are entitled.

Pension - a private Danish pension that is accumulated in private pension funds (Danica Pension, PFA Pension, Pensiondanmark, Industries Pension).

Folkepension - Danish state pension. All Danish citizens over the age of 65 are entitled to a state pension.

ATM - Danish employee schemes belonging to the second pension pillar. They cover all Danish citizens who have reached the age of 16.

DK - Danish health card, which must be set up by anyone planning to stay in Denmark for more than 3 months. It is issued together with a CPR number and guarantees free medical care. However, it does not apply to dental treatment.