Company in Denmark
For years, Scandinavian countries have been the most popular destination for both employees and entrepreneurs. It is no different with Denmark, which has been at the top of the business rankings for years.
However, before you decide to set up a business in Denmark, it is worth reading the following article. It will give you some basic information about doing business in this country. You will no longer have to worry about Danish regulations, taxes, payment deadlines or the type of documents you need to submit to avoid falling into business traps.
Key information about setting up a business in Denmark
The economy in Denmark is based on three key principles:
the principle of free competition;
The free market principle;
the principle of no restrictions on running a business.]
Importantly, the rules that apply in this country are identical for all EU citizens.
To set up a company in Denmark, there are a few key steps to follow step by step:
- The first challenge is to familiarize yourself with the types of business in Denmark and choose one of them;
- In addition to making a choice, it is important to familiarize yourself with Danish law and the obligations that await the owner of a particular business;
- It is also important to familiarize yourself with the market and the competition within it;
- After this, you must apply for an EU/EEA citizen's residence certificate at the Danish regional office (statsforvaltning.dk). The certificate must be obtained before you start your own business;
- Once you have come up with a name, check with the registrar to see if a company with a similar name already exists;
- Formulate financial expectations and set a start-up date;
- Hire an accountant and ask him or her to prepare a financial plan for the company;
- Meet one of three conditions: to be employed in Denmark, to have a fund for the first year of operation, or to have a rental agreement for the premises where the company will be established;
- Sign agreements with the Danish entrepreneurs with whom you plan to work;
- Have start-up funds (DKK 10,000 to 25,000) with which to pay for a translator, a licence, a consultancy office or the purchase of equipment. If equipment is purchased, it is advisable to apply for EU funding;
- Use the Internet to register your business with the Danish Business and Enterprise Agency (Erhvervsstyrelsen). Registration must be done at least eight days before the start of operation. Erhvervsstyrelsen is a branch of the Ministry of Economic Affairs, which forwards the company's documents to the Tax Office - SKAT to assign a CPR tax identification number. The CPR number is needed for accounting for income tax and VAT. At the same time, it is worth remembering that if the annual turnover is less than 50,000 kroner, registering the company as a VAT payer is optional.
Business forms in Denmark
When it comes to the forms of business in Denmark, the choices include sole proprietorship, joint stock company, general partnership, limited partnership, branch of a foreign company, cooperative associations, representative office of a foreign company or limited liability company. Before setting up a company, it is advisable to find out what the different types of business operation and activities consist of and choose the one that suits you best. Both domestic and foreign entities equally have access to all legal forms of doing business.
Doing business in Denmark is regulated by four laws:
The Commencement and Operation of a Business for Profit Act of June 1996;
The Private Companies Act of May 1996 as amended in April 2003);
The Joint Stock Companies Act of June 1973 as amended in January 2002 and June 2003;
The Company Accounts Act June 1996.]
The most common types of businesses:
Sole proprietorship (Enkeltmandsvirksmhed);
Public limited company (Aktieselskab - A/S);
General partnership (Interesselskab - I/S);
Limited liability company (Apartsselskab - ApS);
Limited partnership (Kommanditselskab - K/S);
Branch of a foreign company (Filial af udenlandsk selskab);
Representative office of a foreign company (Salgskontor);
Cooperative associations (Andelsforening/Brugsforening).].
Sole trader (Enkeltmandszirksmhed)
The easiest to run and at the same time the most common form of business in Denmark is the sole proprietorship. Otherwise, known as self-employment, sole proprietorships are run by a person under their own name or under a predefined company name. The basic principle of sole proprietorship is that all assets and liabilities belong to the owner, who is liable for debts with his/her own assets.
In the case of self-employment, owners use a personal CPR registration number and registration is made with Erhvervsstyrelsen, via the website www.erhvervsstyrelsen.dk
. Only the founder of the business has a say in the running of the business.
Like any type of business, self-employment has both, advantages and disadvantages.
Advantages include, above all:
Disadvantages associated with sole proprietorship:
- easy running business;
- the minimum cost of setting up such a business is DKK 10 000, which at the current exchange rate is more than PLN 6 000;
- the owner is not obliged to accumulate share capital;
- business tax is declared on a single tax return. Thanks to this procedure, income is taxed only once;
- a power of attorney can be granted to other persons to act on behalf of the company;
- in case of problems, the Danish administration helps with the formalities for registering a business;
- If your annual income does not exceed DKK 50,000, you do not have to register for VAT.
When running a sole proprietorship, there are three forms of taxation to choose from:
- there is no separation between the business and private assets of the owner. Therefore, the owner has unlimited liability for the business with his/her personal assets;
- this type of business cannot tax its income separately;
- the death of the owner is equivalent to the cessation of the business. However, the owner leaves behind fixed assets that are not separate from his/her total estate, which unfortunately makes it difficult to dispose of the business in its entirety.
- taxation of the profit as personal income, as is the case for employed persons;
- taxation according to the Share Capital Act (Kapitalafkastordning) - part of the profit from the company can be transferred to personal income and part to capital income;
- taxation according to the Enterprise Act (Virksomhedsordning) - the costs from credit interest can be written off or the profit from the company can be retained as bank savings.
Public limited company (Aktieselskab - A/S)
The joint-stock company is a legal form for medium-sized and large companies. It is the only one that can be listed on the Danish stock exchange. To establish a public limited company, the founders must draw up and sign a memorandum of incorporation. The memorandum of incorporation should contain: the personal data of the founders and the company's board of directors, the name and registered office of the company, the type and purpose of the business and the amount of the initial capital. The company's articles of association must then be drawn up, and the share capital paid in. The next step is to set a date for the statutory meeting at which the shareholders elect the supervisory board and the management board.
A Danish company can be established by at least one person. It consists of a board of directors and a management or supervisory board. The supervisory board is elected at the general meeting and should have a minimum of three members. When voting on important decisions for the company, there must be a majority of votes. According to the law, the founders of a company do not have to be owners of its shares.
A joint-stock company is obliged to have at least one shareholder. Individual shareholders are obliged to notify the company that they have acquired a minimum of 5% of the share capital. The notification must be made within 30 days. Shareholders and co-owners of a joint-stock company are not liable with their assets for the debts of the company, as is the case with a sole proprietorship. However, in the case of loans, the bank may require them to provide a guarantee. As far as taxation is concerned, in the case of shareholders, only the income received is subject to taxation. The company is subject to separate tax rules.
The initial capital must be contributed before the company is registered. The amount of initial capital is DKK 500,000 in cash or other assets. Once the memorandum of incorporation has been signed and the start-up capital has been deposited in the company's bank account, six months are left to register the company with the Danish Trade Register. Registration usually takes two to three weeks. Once this is done, the registered company is given a CVR registration number, which is the equivalent of the Polish REGON number. It is worth remembering that after registration with the Danish Trade Register, the company must also be registered with the tax authority (Told-og Skatteregion). All required documents must be drawn up in Danish. We can register a public limited company through a Danish law firm. The cost of such registration is between DKK 4,500 and 6,000. It is also worth mentioning that when the words 'under registration' (under stiftelse) are added to the company name, then the company has the right to commence operations from the date of signing the memorandum of incorporation.
General Partnership (Interesselskab - I/S)
A Danish general partnership does not have legal personality. However, it has the right to conclude contracts, and may also sue and be sued herself. The company must be established by at least two natural or legal persons. The relationship between them is specified in the articles of association. When registering a general partnership, the documents must be sent together with the registration application to the Danish Commerce and Companies Agency (DCCA Erhvervsstyrelsen, erhvervsstyrelsen.dk
) within eight weeks of signing the agreement. The company will then be assigned a Central Company Register number - CVR (www.cvr.dk
). It is important to include the abbreviation I/S in the company name, which indicates the legal form of the company. In the event that all partners have limited liability, the company must be registered with the DBA. It is worth knowing that a general partnership does not require share capital, and the assets of the company consist of the contribution made and property acquired.
Limited liability company (Anpartsselskab - ApS)
A limited liability company is most often chosen by those who wish to exercise personal and total supervision over the company. They are often entrepreneurs running a family business. Anpartsselskab has legal personality. We can find out more about its organization and operation from the Private Limited Liability Company Act. The cost of establishing a company with the assistance of a law firm is between DKK 3,000 and DKK 5,000.
The rules that govern the running of a limited liability company and a joint-stock company are similar. See the table below for a comparison and common features between the two forms of business.
|Anpartsselskab - ApS
||Aktieselskab - A/S
More freedom to decide on company matters
||Less freedom to decide on company matters
Initial capital - DKK 50,000
||DKK 500,000 (various assets, min. 125,000 in cash)
Capital belongs to the company, not the owners
Cost of setting up the company by a law firm is DKK 3-5 thousand DKK
||4,500 to 6,000 DKK
||Both management and board of directors (possibly supervisory board) are needed
Are subject to tax law
Must have at least one owner
The law to which they are subject is set out in the Danish Companies Act (Selskabsloven). They are obliged to report annually (årsrapport), need statutes (vedtægter) and incorporation documents (stiftelsesdokument).
Types of limited liability companies in Denmark:
Private limited liability company (Anpartsselskab - ApS);
Private limited liability company - Iværksætterselskaber - IVS,
which can be incorporated in Denmark from 1st January 2014. This company, like Anpartsselskab - ApS, is regulated by the Danish Private Limited Liability Company Act. The starting capital of an Iværksætterselskaber is a minimum of one Danish krone, or the equivalent amount in euros. At least 25 per cent of the company's 12-month profit must be transferred to a reserve fund, which is necessary, and dividends are only paid when the sum of the start-up capital and reserve funds is equal to DKK 50,000.]
Limited partnership (Kommanditselskab - K/S)
A limited partnership requires a minimum of one general partner, i.e. an active partner. An example of such a partner could be a limited liability company. The general partner is liable for the obligations of the company. In addition to this, the company also needs limited partners, who are also liable for the company's obligations, but only up to the amount of the initial capital they have contributed to the company. Another type of limited partnership is the Partnerselskaber - P/S, i.e. a partnership with limited liability up to the amount of shares. Its partners include public limited liability companies that are liable for the company's obligations. They do so using sums set aside in shares or by managing the entire share capital.
K/S company highlights:
The operation of a limited partnership is governed by a memorandum of incorporation, which is needed to register the company;
the Kommanditselskab company must be registered with the DBA;
a limited partnership must be registered if all its partners are legal persons;
the company should be registered by the partners up to eight weeks after signing the agreement in the Agency for Trade and Enterprise (the registration form can be completed via www.eogs.dk);
the name of the company should include the name of at least one general partner and the abbreviation S/K, which indicates its legal form.]
Branch of a foreign company (Filial af udenlandsk selskab)
Polish entrepreneurs have the possibility to establish a branch of a foreign company in Denmark. This is a form of business which, although it does not require share capital, the process of setting up a branch takes longer than setting up a company. The opening of a Danish branch is possible when the company registered in Poland has a similar legal form to the one in Denmark. In the case in question, these are a limited liability company ApS or a joint stock company A/S.
In order to register a branch of a company, documents concerning the Polish company are required. The registration is made through the website www.erhvervsstyrelsen.dk
. If you wish to use the option of establishing a company branch with the assistance of a law firm, you should expect a cost of DKK 8,000. It is worth knowing that the name of the company branch should contain the word "branch", in Danish 'filial', and the name of the company and the country in which it is established.
What the registration form should contain:
name of the Polish company;
legal form of the company;
object of activity;
amount of share capital;
financial statements for the last year;
address and details of the Danish branch of the company;
the object of the branch's activities;
addresses of entities authorized to make decisions on behalf of the Danish branch.]
The share capital should be at least DKK 80,000. The branch is subject to both corporation tax (25%) and VAT. In order to settle VAT, the branch must be reported to the Danish Tax Authority (SKAT).
The Danish branch is governed by Danish law and the branch manager is fully liable for any liabilities incurred. The branch of the foreign company is obliged to prepare 12 monthly company accounts. A copy of this report should be sent annually to the Trade and Companies Agency.
Representation of a foreign company (Salgskontor)
A representative office of a foreign company is an interesting form of business activity. Such an activity deals with the promotion of products and services. However, it is worth knowing that such a representative office has neither legal personality nor the right to sell and is not regulated by Danish law. It acts only on behalf of the parent company, which is responsible for all obligations.
Cooperative associations (Andelsforening / Brugsforening)
A cooperative association is formed on the basis of an association agreement. The contract is entered into by individuals and allows for the sale and processing of products belonging to them, as well as the purchase and sale of goods. In the case of a co-operative association, partial liability for obligations is borne by its members. Be sure to add the abbreviation - A.m.b.a. (cooperative association with limited liability) to the name. The abbreviation indicates the legal form of the activity.
Information on taxation in Denmark
In Denmark, individuals and entrepreneurs are subject to taxation. Taxes are progressive, which means that the tax threshold is correlated with the amount of income. Tax deductions are subject to, among other things:
- pension contributions,
- child maintenance,
- insurance premiums,
- transport to work,
- food costs.
It is worth remembering to keep your tax return factually correct, as the Danish tax authorities have up to seven years to check the authenticity of the declared expenses.
Highlights of Danish taxation:
The income tax percentage rates for 2019 are:
8% for income below DKK 50 217;
39.2% for income between DKK 50 217 and DKK 558 043;
56.5% for income higher than DKK 558 043.
The Danish municipality tax paid to regional governments is movable; in Denmark, the tax-free amount is set every year (2019 was 10.10 per cent on gross wages; those whose income did not exceed DKK 37,200 were exempt from paying tax).
Denmark also has a church tax, which is voluntary and amounts to 0.92%.
Registration with the regional Customs and Taxation office must be done through the Enterprise and Trade Agency.]
- Tax on a sole proprietorship is declared on a single tax return, as the income earned is deemed to be the owner's income. In other words, the owner is accounted for in the same way as an employed person.
- The owner is entitled to the same pension and health benefits as an employed person in Denmark.
- A tax return must be submitted once every three or six months via the website of the Danish Tax Administration.
- The Danish Tax Administration has a system called LetLøn, which makes it possible to keep payroll records of employees.
- Advance income tax payments can be made twice a year, the first due on 20 March and the second on 20 November.
- By making a higher advance payment on the first deadline, we can count on a tax refund with interest higher than that offered by the bank.
- If you decide to make the advance payment on the second deadline, you should expect interest rates lower than those offered by the bank.
Company owners pay corporation tax, so-called CIT, at a rate of 22%, unless the company's annual turnover exceeds DKK 20,000. The company then becomes liable for VAT, and this tax in Denmark is 25%.
Taxes that individuals pay:
- linear income tax, which is 32%. This is paid to the local authority;
- progressive tax, which depends on the amount of income collected (5.64% for income less than DKK 42,000 or 15% for higher income). This tax applies to income from work and capital gains.
It is worth knowing that an individual's total tax burden may not exceed 59%.
Information on VAT
VAT is another word for value added tax. It is added to the price of goods and services. In Denmark, it amounts to 25%. It is paid by companies that sell services or goods and have an annual turnover of more than DKK 50,000.
A Danish company must be registered before providing services and goods. Registration must take place within eight days before business starts. The website of the Register of Foreign Suppliers (RUT) - virk.dk
- is used to declare a business as a VAT payer.
Foreign workers, both seasonal and permanent, are subject to different tax regulations. The amount and type of taxes depend on their origin and how long they have lived in Denmark.
The owner of a Danish company that employs workers is required to register as an employer.
What you should know about CIT tax:
corporate income tax is 22%;
legal persons, i.e. limited liability companies or joint stock companies, are subject to CIT, and in the case of partnerships, only the partners of such companies are subject to taxation;
in Denmark, companies are taxed on the basis of consolidation, i.e. the parent Danish company, its branches and subsidiaries are taxed.]
Employer's obligations relating to the employment of an employee in the company
Entrepreneurs hiring employees in Denmark should first familiarize themselves with Danish labour law. The second thing you should familiarize yourself with are the regulations covering particular occupational groups. In particular, it is worth reading the Employment Document Act (Ansaettelsesbevis loven). Among other things, it states that persons employed for a minimum of one month, for more than eight hours per week, must receive a document informing them of their working conditions. In Denmark, there is also a separate act that regulates the rules of the agreement on the posting of employees to work abroad.
So-called collective agreements are popular in Denmark. This is an agreement between employers and employees and concerns working conditions. The collective agreement is concluded through trade unions or an association of employees.
A collective agreement can regulate issues:
the time and place of work;
the amount of pay received;
the settlement of overtime;
dealing with problems at work safety at work;
a framework agreement between DA and LO, i.e. a set of additional rules;
other rules regulated by Danish law.]
Workers must be guaranteed health and safety training and insurance against occupational diseases. The employer must also provide adequate pay. Unfortunately, discrimination against workers sometimes occurs. When this is discovered, trade unions have the right to organize strikes, lockouts or industrial action. The aim of such actions is to negotiate higher payments for the affected individuals. In addition, trade unions in Denmark can organize labour conflicts or collective disputes with a view to concluding a collective agreement.
Health and safety at work in Denmark
Each Danish employer to comply with both Danish labour law and health and safety regulations. If these are not complied with, the employer may be fined or ordered to stop the work being carried out. A company with more than 10 employees in Denmark is obliged to set up a health and safety organization and to appoint inspectors who are responsible for implementing all safety rules. Companies that provide employees with variable and temporary workstations where people work for more than 14 days are obliged to do the same.
Key responsibilities of a Danish employer:
to provide their employees with personal protective equipment;
organizing a safe working environment;
instructing employees on safety rules;
providing employees with annual health and safety training (these must be documented and submitted to the UIP);
preventing injuries at work;
watching that workers perform their work safely;
ensuring occupational hygiene;
continuous cooperation with Danish Occupational Health and Safety.]
Key responsibilities of a Danish employee:
Compliance with the rules of Danish health and safety legislation;
use of required personal protective equipment;
complying with rules and instructions;
participating in annual health and safety training.]
Information on reporting a company to the Register of Foreign Service Providers - RUT
Companies operating in Denmark must be notified to the RUT before starting work. Any changes that affect the company must be notified within 1 working day on which they take effect. Importantly, any entity, physical or legal, for which services are performed is considered a Danish service provider. Therefore, anyone working in Denmark (employer and employee) should register.
Registration can be done via the virk.dk
website. When registering, the following information is needed:
- contact details,
- location and date of the work,
- the name and address of the company,
- the company's sectoral classification code,
- CVR number and VAT registration number,
- personal data of the posted workers,
- type of service,
- the duration of the assignment.
If you have additional questions about the registration itself or Danish labour law, it is possible to contact the staff of the Register of Foreign Service Providers by telephone. The telephone number can be found on the RUT website.
After registration, the employer or employee will receive a personal RUT number. The number is necessary when contacting the Danish authorities. The employee should additionally provide his or her employer with a receipt with the number attached.
Failure to register or to update reported data may result in prosecution or a financial penalty imposed by the Labour Inspector. Importantly, the inspector has the right to charge a penalty for each day of delay in reporting the services to the Register. The penalties are quite severe, and can amount to DKK 10,000 or even DKK 20,000 if the regulations have been breached repeatedly.
Frequently asked questions
How do I set up a business in Denmark?
Denmark is an entrepreneur-friendly country. It is characterized by relatively low income tax (at 28%) and a low burden on employers for health and social insurance (only 1% of the wage fund). Denmark has a free market and free competition. There are no restrictions on setting up and running your own business. Registration is done through the website of the Danish Commerce and Companies Agency (DCCA), located at: www.erhvervsstyrelsen.dk
. When registering, the company is given a special Central Company Register number - CVR. The company must also be registered with the Tax Office. This can be done via www.toldskat.dk
Who is a VAT payer in Denmark?
VAT is payable by those whose annual turnover exceeds DKK 20,000. VAT in Denmark is 25%.
What is a residence certificate?
Anyone who intends to stay in Denmark for more than three months and entrepreneurs who want to set up a business in Denmark must apply for an EU/EEA residence certificate. Information on this can be obtained both from the Regional Office and from the website www.statsforvaltning.dk
What is a PMV?
PMV (Personligt ejet mindre virksomhed) is a small self-employed business for which the owner is responsible with his/her own assets. There is no obligation to register this type of business with the Central Register of Business Activities (CRV). What is more, a PMV does not require start-up capital. However, if you employ an employee or if your annual income exceeds DKK 50,000, you will need to change to a self-employed form of business.
What is a Denmark Holding Company?
A Danish Holding Company is a Danish holding company with shares in other foreign subsidiaries. There are no imposed restrictions on subsidiary companies, but may only have one shareholder. It requires a minimum share capital of DKK 125,000. Dividends as well as profits of such a company are tax-free. To register a company, one must go to the Agency for Trade and Companies. Registration takes a very short time, it can even be done in one day. The company's accounts are public and are audited every year.
Who can invest in a Denmark Holding Company?
The Danish Tax Reform Act 2009 refers to several types of investors:
What is a Danish Private Limited Company - PLC?
- affiliated investors - exempt from paying capital gains taxes and holding shares of 50% of the share capital;
- portfolio investors - charged with capital gains tax and holding shares that comprise less than 10% of the share capital;
- subsidiary investors - do not have to pay capital gains tax and hold shares between 10% and 50% of the share capital.
It is a Danish limited liability company (Anpartsselskab -ApS). A share capital of DKK 50,000 is required to establish such a company. The abbreviation ApS must be added to the end of the company name. A PLC company is required to have one Danish director and at least one shareholder. Importantly, the shareholders of a PLC company are only liable for liabilities with their contribution. Registration of a Denmark Private Limited Company must be done with two government agencies: The Danish Trade and Companies Agency and the Companies Registry. At the Danish Business Authority, we can find specimens of the Articles of Association, which include provisions on, among other things, the personal details of the promoters, the costs of setting up the company, the personal details of the auditor of Danish business or the allocation of shares and who is on the board of directors. It is important to remember that Denmark is part of the European Union, which means that the company has more opportunities to develop in the market of EU member states.
It is worth knowing that a PLC can operate in various forms. However, it is prohibited to set up several types of them:
What is 'Invest in Denmark'?
- fiduciary activities;
- collective investment schemes;
- fund management;
- trust management;
'Invest in Denmark' is a Danish organization dedicated to providing information on new Danish investments.
What is the cost of translating documents from Danish?
To translate documents from Danish, you will need to contact a sworn translator. The cost of such a service is approximately DKK 400 per page of document.
Where can I buy Danish kroner at a favourable exchange rate?
Online exchange offices are the best choice, as not only do they have lower margins than those found at land-based outlets, but it is also possible to negotiate them.
What penalties can be imposed on Danish companies?
Danish companies are supervised by the police, the Tax Authority and the Labour Inspectorate. Areas that are subject to scrutiny include registration with the RUT, payment of taxes, adherence to health and safety rules and employees' Danish work permits. Before financial penalties are imposed, however, Danish employers are given warnings. If both forms do not work, prosecution is possible.
What is the supervision carried out by the Labour Inspectorate?
The Labour Inspectorate supervises every company operated in Denmark, including foreign ones. All inspections are carried out of concern for employee safety. Inspectors do not need a court order to carry out inspections of companies. Furthermore, inspections are unannounced. The Labour Inspectorate inspects areas such as:
What is LetLon used for?
- control of marine installations;
- risk-based surveillance, retail surveillance and market surveillance;
- registration of companies in the RUT;
- cooperation with the police to determine whether foreigners are legally present in the country;
- checking with the Tax Office that companies are not in arrears with contributions and taxes.
LetLon is a free system found on the website of the Danish Tax Administration. It makes it easy to keep payroll records for employees. Simply enter the hourly rate of the person working for your company, and the system will give you all the taxes and costs you need for your annual settlement.
What is Afstaelse?
It is a rent or deposit for renting premises for a business, which the tenant pays to the landlord.
What is a NemID?
NemID (EasyID) is an identifier that all Danish companies receive. It functions as a digital signature in Denmark.