DO YOU NEED ACCOUNTING?
NEED A QUOTE:
All rights reserved © 2024
Foreign investors choose Denmark as an ideal location to invest due to several factors. Denmark has a high GDP, a stable, open and flexible economy, and a low inflation rate. The bureaucracy is minimal, and political, legal, and tax issues are transparent for foreigners. Denmark's membership in various organizations also adds to its favorability. The country has an abundant labor market with highly-qualified specialists, thanks to its top-quality education system, and English is widely spoken in Denmark. The process of setting up a business in Denmark is fast, easy, and affordable, with various legal forms available, and foreign companies receive the same privileges as Danish companies. Denmark also offers low income tax rates for companies, and employers' costs related to the payment of social and health insurance premiums are low. Finally, Denmark has agreements with numerous countries to avoid double taxation in most cases.
Sole proprietorship is a popular legal form for businesses in Denmark that requires simple online registration with Erhvervsstyrelsen. The registration process includes submitting a business plan to the relevant municipality and obtaining a certificate of qualification. There is no need to raise share capital, but there are associated registration costs averaging DKK 10,000 or approximately PLN 5,000. All state institutions and authorities usually contact companies through digital post. Naming a sole proprietorship is arbitrary, and it can operate under the owner's name or an assumed name. This legal form has no legal personality, so the owner is liable for all the liabilities and assets of the company. The proprietorship can employ workers and grant power of attorney to other persons. Companies with an annual income not exceeding DKK 50,000 are not required to register for VAT.
A limited liability company is the most popular form of business in Denmark and is suitable for entrepreneurs who want strict control over the company's activities. To establish a Danish limited liability company, at least one partner is required, and a minimum of DKK 125,000 in start-up capital needs to be raised. The registration process is cheaper and simpler than for other Danish companies and requires the drafting of articles of association and memorandum of association. The company must be registered with the Agency for Enterprise and Trade within two months of signing the memorandum of association. The cost of setting up a limited liability company ranges between DKK 3,000 and DKK 5,000 on average.
A limited liability company has its own legal personality and is regulated under the Danish Private Limited Liability Company Act. This means that the company's capital is separate from that of the owners, and the company's management must be separate. A supervisory board of three members can be appointed, but it is not mandatory. The company can have only one shareholder.
In Denmark, a limited partnership can be established with a minimum of two partners, one of which must be a general partner and the other a limited partner. The general partner can be either an individual or a legal entity, and they have full liability for all debts of the partnership. The limited partner is only liable for the start-up capital contributed.
To register a limited partnership, a memorandum of incorporation needs to be drafted, which outlines 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 name of the partnership should include at least one name of the entering general partners.
The joint-stock company is the most developed legal form in Denmark and is suitable for medium and large companies that want to sell their shares and be listed on the Danish stock exchange. However, the registration process is more complicated, and several conditions must be met. These include having at least one partner, gathering a minimum of DKK 500,000 in share capital, preparing and signing an incorporation agreement, and electing the company's management and supervisory boards. The cost of registering a joint-stock company ranges from DKK 4,500 upwards. The company can start business as soon as the articles of incorporation are signed, but registration with the Companies and Trade Agents is required within six months.
A joint-stock company is required to have internal bodies such as an executive board, directorate, or supervisory board, established at the general meeting. Shareholders and co-owners are not liable for any debts of the company with their private assets, except in cases where the bank requires giro for loans. Founders are not obliged to hold shares in the company, but if an individual shareholder buys at least 5% of the share capital, they must inform the company within 30 days. It is also possible to buy an existing joint-stock company and adapt it for a specific business, but the process is usually more time-consuming and costly than setting up a new company.
A general partnership is a type of company in Denmark that does not require share capital to be established and does not have legal personality. It can enter into various contracts and participate in legal proceedings, but it must have at least two partners, who can be individuals or legal entities. To register a company, a memorandum of incorporation needs to be drafted, which defines the relationship between the partners.
The memorandum of incorporation and registration application should be submitted to the DBA within eight weeks. If all partners in the company have limited liability, it is necessary to register it with the DBA. The name of the general partnership must include the abbreviation I/S, indicating the legal form of the company. Shares are generally equally divided among the shareholders, unless otherwise stipulated.
For companies looking to expand their operations to Denmark, a representative office of a foreign company can be a good option. This option is particularly attractive as it does not require share capital and involves lower costs. Companies engaged in business activities with legal forms similar to those in Denmark can apply to open a foreign company representative office. However, at least one person who manages the company must reside in an EU member state. The name of the parent company, the country of its registered office, and the word "filial" or branch should be included in the name of the representative office of a foreign company. It's important to note that the parent company is responsible for all obligations of the representative office as it does not have a separate legal personality.
Creating a branch of a foreign company in Denmark is a more complex and time-consuming process than establishing a company. However, it is still an option for Polish entrepreneurs if their company's legal structure is similar to that of Denmark. To establish a Danish branch, an online registration form must be submitted, including details such as the name of the parent company, KRS number, legal form, object of activity, total share capital, and the latest financial statements. Personal data and addresses of entities responsible for Danish branch activities are also required. Additionally, a minimum share capital of DKK 80,000 must be contributed, and the cost of setting up a Danish branch is roughly DKK 8,000. Like a representative office, the Danish branch must include the word 'filial' in its name, along with 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, and the branch must follow Danish law. The Trade and Companies Agency must receive copies of the monthly accounts for the entire year.
A cooperative association is not a common legal structure in Denmark, but it can be formed based on an association agreement made by individuals. This agreement allows members to engage in transactions for buying and selling goods, as well as processing products. The liability of the members is limited. To indicate the legal form of the company, the name of the cooperative association should include the abbreviation A.m.b.a.
Registering a company in Denmark depends on the chosen legal form, but certain elements remain the same. As Poland is an EU member state, any EU citizen can establish a company in Denmark by submitting necessary documents and attaching an EU citizen's residence certificate. A company also needs a bank account registered in the NemKonto system, and it is recommended to open a new Danish account, which the bank immediately registers. To open a Danish bank account, applicants must provide various documents, including a passport, residence permit, identification code, driver's license, Articles of Association, personal documents of the company's founders, documents proving ownership of Danish and foreign real estate, profit and loss account, statement of cooperation with other banks, and any required licenses. Obtaining an electronic signature or NemID/MitID provides easier access to Danish online banks and government websites. To obtain an electronic signature, one should go to a Citizens' Service Point and bring proof of identity and an accompanying person to confirm identity.
Certain types of businesses in Denmark require relevant licenses or approvals, which can slow down the registration process. To obtain licenses, applicants must apply to the relevant Danish authorities authorized to issue them, such as the Police, Food Base, or the municipality, depending on the company's activities. Commonly required licenses and permits are related 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 and includes start-up capital (ranging from DKK 0 to 500,000 depending on the legal form of the company), cost of registering the form of business ownership (DKK 670), digital signature processing (first three free of charge, subsequent 80 DKK), logo and trademark registration (DKK 4420 for the first, DKK 1435 for additional ones), services of a translator, notary, consultancy firms (ranging from DKK 10,000 to 25,000), and company registration done by a specialist organization (DKK 65,000).
If the registration is successful, documents such as a certificate of incorporation, an extract from the DCCA register, the company's name and address, directors' requirements, the size of the authorized capital, the original certificate of participation, the company seal, the original articles of association under apostille, and a power of attorney are issued.
An alternative to starting a new company in Denmark is to purchase an existing one. Ready-made companies are widely available for sale, and the process is easy and fast. The paperwork can usually be completed remotely, and the takeover process takes no longer than three weeks. These companies for sale are typically registered for a few months and have a universal name that fits different types of business, making them convenient for entrepreneurs who care about saving time and avoiding paperwork. Buying a ready-made business has other benefits as well. If the company has been registered for a long time, has no liabilities, and has accounting experience, it is seen as reliable and stable by banking institutions, government agencies, and business partners. The only task for the buyer is to open a bank account for the company.
The Start-up Denmark program is offered by the Danish Ministry of Business and Growth, in cooperation with the Ministry of Immigration, Integration, and Housing, to encourage foreign entrepreneurs to develop their company in Denmark. This program offers the opportunity to start a business in Denmark and obtain a residence permit for up to two people for two years. To participate in the program, certain criteria must be met, including having an innovative business idea that will bring added value to the Danish economy, being a shareholder in the investor's country of nationality and not receiving dividends, and having sufficient savings to cover living expenses for one year. The entrepreneur's business plan is reviewed by Danish experts who decide whether to approve or reject the idea.
The program has various stages, including submission of a business plan, awaiting a decision from the Danish expert, submission of relevant applications, and final approval of the decision. An entrepreneur who successfully completes the program is granted access to privileges equal to those provided to Danish citizens, including state subsidies and support programs, access to the European market, and free consultations at business development facilities. The foreign investor and his or her family also gain benefits such as social guarantees, including health care and education. The program is not aimed at entrepreneurs planning to open a restaurant or a grocery shop in Denmark.
Residence without parking documents
Polish citizens can stay in Denmark without a residence permit for up to 3 months. After this period, they need to apply for an EU citizen's registration certificate, which confirms that they are legally residing in Denmark. The certificate requires a specific reason for the person's stay, which may change over time, in which case a new certificate must be obtained. Scandinavian citizens are exempt from this requirement, but citizens of other countries such as Switzerland, Norway, Iceland or Liechtenstein must follow the same rules as EU citizens.
Permanent residence
After living legally in Denmark for at least 5 years, it is possible to apply for permanent residency. To do this, one must bring a current EU citizen residence certificate to the local citizens' service office (Borgerservice), which is typically located in the municipality. At the Borgerservice, one will receive a registration number (CPR), a health insurance card, and address registration. The regulations on EU citizen residence in Denmark are governed by the EU-opholdsbekendtgørelsen.
The process of obtaining a business visa for visiting Denmark is straightforward and similar to applying for a Schengen visa. To obtain a business visa, you need an invitation from a Danish company or business partner, which should contain information such as the purpose of the visit, the date, confirmation of stay, and proof of financial security. You must apply for a visa at the Consular Section of the Danish Embassy or the Visa Center, and provide biometric data and a digital photo. The waiting time for a decision is usually up to 10 days, but it may extend to one month in case additional information is required. The cost of obtaining a business visa is €27, and you can opt for a fast-track procedure for €35, which takes three days. Required documents when applying for a business visa include the applicant's questionnaire, consent to processing of personal data, confirmation of payment for a visa, copies of the foreign passport pages, confirmation of purchase of health insurance, bank statement, and hotel reservation confirmation.
The business visa application process may require additional documents besides the basic ones such as an extract from the tax service or registration documents for individual entrepreneurs, an extract from the commercial register, copies of a power of attorney, and information about the company or business partner issuing the invitation. For stays longer than two weeks, a detailed itinerary may also be necessary. If the inviting party does not cover travel expenses, documents proving financial capacity must be provided. A business visa can be extended for an additional 90 days if a valid reason exists, and multiple-use visas are available to those conducting business in Denmark.
The taxation system in Denmark is progressive, meaning that taxes are based on a person's income. Individuals who are self-employed or employed in Denmark are required to pay taxes, and they may deduct certain expenses, such as transportation, insurance premiums, pensions, food costs, and child support. The Danish Tax Administration may carry out an audit if there is doubt regarding expenses, and this audit may relate to taxes paid over the past seven years.
A person's tax liability in Denmark is determined by factors such as residency status, length of residency, type and amount of salary received, place of employment, and place of permanent establishment of the employer or business. Those with full tax liability must pay tax on all their income, including income from other countries, while those with limited tax liability are not required to pay tax on income earned in Denmark. Tax liability ceases when an individual leaves Denmark.
Entrepreneurs should remember to register their company with the Enterprise and Trade Agency no later than eight days before starting operations. Unfortunately, Denmark does not offer tax breaks or tax holidays for entrepreneurs.
Individuals
The tax system in Denmark includes two types of taxes: income tax and progressive tax. Income tax is a flat tax of 32%, while progressive tax varies depending on the income earned. The progressive tax rate is 5.64% for incomes of less than DKK 42,000 per year and 15% for incomes above this threshold. Both income from 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 business owner's income and is taxed together with other sources of income on a single tax return. Sole proprietors need to file their tax returns quarterly or semi-annually, depending on the type of business. Tax returns can be filed online through the Danish Tax Authority's website. Sole proprietors are also entitled to health and pension benefits. Advance payments of income tax are due on 20 March and 20 November, and making early payments can result in higher interest rates. If payments are made after the due date in November, the interest rate will be reduced by 0.4.
Companies – CIT
The Danish corporate tax rate is 28% and it applies to companies operating in Denmark. The tax is based on the principle of consolidation, which includes the parent Danish company, its branches, and subsidiaries. Partnerships are only taxed based on the partners of the companies.
VAT
In Denmark, companies with an annual turnover exceeding DKK 50,000 are required to register for and pay VAT, which is a value-added tax included in the price of goods or services. The VAT rate is 25% for companies selling goods or offering services, but some activities, such as medical care, education, and real estate, are subject to a 0% VAT rate. Foreign companies selling goods or services to Danish companies can apply the reverse charge procedure, which means they are not required to pay Danish VAT, and the purchaser becomes liable for the payment of VAT. The reverse charge procedure can be used for certain types of business, including construction work, sports events, cleaning, employee leasing, and maintenance and repair work.
Excise duties
Excise duties are taxes that are paid by end consumers when purchasing specific types of products such as mineral water, beer, wine, strong alcohols, tea, coffee, chocolate, ice cream, tobacco, motor fuels, video cassettes, phonograph records, and electric light bulbs. The excise duty is included in the price of the product and is paid by the end consumer at the time of purchase.
The labor law in Denmark is divided into two categories based on the type of workers - manual and white-collar workers. Employers are obligated to provide health and safety training, decent wages, and insurance against occupational illnesses and accidents to their employees, regardless of the nature of the work performed. Failure to do so may result in strikes, lockouts, labor conflicts, or solidarity industrial action by trade unions.
Working conditions
The labor laws in Denmark do not have uniform regulations for the various occupational groups, such as manual workers and white-collar workers. The main source of regulation for issues such as working hours, notice periods, minimum holiday entitlement, and maximum retirement age is the agreement between the Danish Federation of Trade Unions and the Danish Confederation of Employers. All employment agreements must be in writing, as verbal agreements are not recognized by Danish law. The length of the employment contract is not specified by law and can be negotiated individually. However, it is common for salary increases to be negotiated every two years, while employment contracts may be renegotiated every four years on average. Employers are required to provide health and safety training, decent wages, and insurance against occupational illnesses and accidents. Failure to do so may result in labor conflicts, strikes, lockouts, or solidarity industrial action by trade unions.
Social insurance
The social security system in Denmark covers all employees, and their employers are required to deduct social security contributions from their salaries. The amount of contributions deducted from employees is approximately DKK 1,080 per year. On average, Danish employers pay around DKK 10,000 to 12,000 per year in social security contributions for their employees.
Remuneration
Wages in Denmark are not regulated by minimum wage laws, but instead are determined by collective agreements. While there is no general minimum wage for all industries, specific agreements set minimum wages for each industry and profession, with wages paid hourly, daily, or monthly depending on the job. Wages are typically paid once or twice a month and are reset annually for each industry.
Working time
Danish employees typically work a standard workweek of 37 hours. Overtime is defined as the first 3 additional hours worked or the first 3 hours worked during a time when the employee would normally have off. An overtime bonus of 50% is agreed upon, but this increases to 100% for overtime worked beyond 3 hours in a day or on Sundays or holidays. Employees can choose to take additional time off instead of a bonus. Part-time workers are entitled to the same benefits as full-time workers.
Holidays
Employee leave is governed by applicable laws in Denmark. Employees are entitled to a total of five weeks of holiday, which amounts to 30 days inclusive of Saturdays. Second and third shift employees receive an additional two hours of holiday for each week worked. The employee must take at least 18 consecutive days of leave between May 1st and September 30th. In cases where 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 for each month worked in full.
Collective agreements
Collective agreements in Denmark are designed to safeguard the rights of employees regarding their working conditions. These agreements regulate various issues, such as working conditions, compensation, workplace safety, working hours, holidays, overtime pay, pensions, and more. Both employees and employers are part of these agreements. An employer can join a collective agreement if they choose to do so, especially if they are already a member of an employer's union. It is important to note that a company's adherence to collective agreements is not dependent on the presence of employees in a specific trade union.
Termination of an employee’s contract
The notice period for terminating employment in Denmark is determined by the duration of employment and can be negotiated by both the employer and employee. Dismissal rules are regulated by collective agreements and vary based on the industry and the employee's position. Typically, an employee who has worked for at least nine months and is 18 years or older can only be dismissed for specific reasons that justify the dismissal. If the employee believes the dismissal was unjustified, they can take legal action or file a complaint. If the employer is found to be at fault, they must provide appropriate compensation. However, there is an exception where an employer can immediately dismiss an employee without notice if the employee engages in grossly wrongful conduct.
Entrepreneurs who operate businesses in Denmark are required to adhere to the country's health and safety regulations, which are listed on the Danish Working Environment Authority's official website. If a company employs ten or more workers, it is also necessary to establish a health and safety organization led by designated inspectors. The primary responsibility of these inspectors is to ensure that the company's existing safety rules are being followed, even in temporary or fluctuating workplaces. Failure to comply with health and safety regulations may lead to fines and work suspensions. Among the employer's main obligations under Danish health and safety legislation are: providing a safe working environment, paying attention to occupational hygiene, training employees in safety rules, providing personal protective equipment, ensuring that employees work safely and comply with health and safety regulations, and taking measures to prevent work-related injuries.
In Denmark, individuals who earn small amounts of money are not required to pay taxes and are granted a "frikort." However, entrepreneurs and foreign investors are not eligible for this privilege and must obtain a tax identification number and a tax card. These documents are issued electronically and can be accessed through TastSelv. To apply for a tax identification number and tax card, an application must be submitted either electronically or by completing form 04.063. The application should be submitted no earlier than 60 days before the first planned day of work in Denmark and must include copies of various documents, such as proof of identity, a residence permit in Denmark, a signed employment contract if applicable, and a marriage certificate for married individuals.
In order to establish a company in Denmark, it is mandatory to register it with the Register of Foreign Service Providers (RUT). The RUT provides important information about companies operating in the Danish market and should be completed before the company begins operating. Any changes in the company's operation should also be reported at least one working day in advance. Applications for registration with the RUT are submitted digitally via the virk.dk website and can be completed in English, German, or Polish. Information such as the company's name, address, type of services, location, activity date, CVR and VAT registration numbers, sector classification code, and contact details must be provided. After registration, a personal RUT number is received and should be used when contacting any Danish authorities. Employees of Danish companies, especially those in gardening, cleaning, construction, agricultural, and forestry services, should provide their employer with their receipt for the RUT number. Failure to register or notify changes can result in fines or prosecution by the Labor Inspector, with the standard fine ranging from DKK 10,000 to 20,000, or calculated on a per-day basis.
When terminating a company in Denmark, certain formalities must be completed, including amending the tax return. The relevant information must be provided at the Tax Office to calculate the tax liability. The country in which taxes will be paid depends on various factors, including the individual's residence and type of work. The form that must be completed for termination depends on the person's tax capacity, which can be either limited or full. The criteria for each tax capacity are different and may depend on factors such as where the individual lives, works or runs a business, the center of vital interests, and the residence of their partner or spouse. If an individual resides and works or runs a business in both Denmark and their home country, the center of vital interests and partner's residence will be the determining factors. In addition to changing the tax return, the individual must also notify the Tax Office of their new address and deregister from the Danish national register. This can be done at a local resident service point.
Denmark is a welcoming country for foreign investors, especially for those with innovative and original start-up projects. To get a better idea of the Danish economy, it is helpful to understand the major sectors, which include food, renewable energy, information technology, maritime transport, and biotechnology. Companies in these sectors can receive substantial amounts of state funding.
Many foreign investors choose to open restaurants or cafes in Denmark, which are typically safe investments that yield significant returns. Danes enjoy spending time with their loved ones over good food and are more likely to choose restaurants over home-cooked meals. Other popular investment options include hair salons, travel services, hotels, and industries such as banking, insurance, and transportation.
Jewelry stores are also in high demand in Denmark, as Danes are increasingly seeking safe investment options due to the negative interest rates in the country. Many people have a considerable amount of cash that they want to invest in a secure way, and precious stones and metals are an attractive option.