Managing accounting and tax reporting is a fundamental aspect of running a business in Denmark. Whether you operate a sole proprietorship, an ApS (private limited company), or a larger corporation, compliance with Danish financial laws is essential. Understanding your tax obligations, bookkeeping requirements, and financial reporting standards can help you avoid penalties and ensure your business runs smoothly. Denmark has a structured and transparent tax system, but it requires meticulous record-keeping and timely submissions to SKAT (the Danish Tax Authority). This guide provides a detailed checklist to help businesses navigate accounting in Denmark.
1. Registering Your Business for Tax and VAT
All businesses in Denmark must be registered with Virk.dk, the Danish Business Authority. Upon registration, businesses receive a CVR number (Central Business Register number), which is essential for tax and financial reporting.
Key Registration Steps
- Register your business on Virk.dk to obtain a CVR number.
- Determine whether you need to register for VAT (Moms). Businesses with a revenue exceeding 50,000 DKK annually must register for VAT.
- If you hire employees, you must register as an employer with SKAT and handle payroll taxes.
- Certain businesses may need additional licenses or industry-specific registrations.
Once registered, you will be responsible for ongoing financial and tax obligations.
2. Understanding VAT (Moms) in Denmark
VAT (Moms) is a critical aspect of Danish taxation. Most businesses are required to collect and report VAT on their sales and services. The standard VAT rate in Denmark is 25%, but some goods and services have exemptions or reduced rates.
VAT Compliance Checklist
- Charge 25% VAT on applicable goods and services.
- Keep detailed records of input VAT (purchases) and output VAT (sales) to ensure accurate reporting.
- Submit VAT returns on time. Depending on your business turnover, this may be monthly, quarterly, or annually.
- Pay any outstanding VAT to SKAT by the deadline to avoid penalties.
Late VAT filings can result in fines and interest charges, so maintaining accurate records is essential.
3. Bookkeeping Requirements for Danish Businesses
Proper bookkeeping is necessary for compliance with Danish financial laws. Businesses must maintain accurate records of income, expenses, payroll, and tax payments. The Danish Bookkeeping Act (Bogføringsloven) outlines specific requirements.
Essential Bookkeeping Practices
- Maintain records of all invoices, receipts, and bank transactions.
- Store financial documents for at least five years as required by law.
- Use a digital bookkeeping system if your business is subject to new e-bookkeeping regulations.
- Ensure transactions are recorded correctly using accrual accounting unless eligible for the cash-based method.
Many businesses use accounting software such as Dinero, e-conomic, or Billy to streamline bookkeeping and reporting.
4. Payroll Taxes and Employee Contributions
If your business has employees, you must comply with payroll tax regulations and report wages to SKAT. Employers are responsible for withholding A-tax (income tax) and AM-bidrag (labour market contribution) from employees’ salaries.
Payroll Reporting Checklist
- Register as an employer with SKAT before hiring employees.
- Deduct and report A-tax and AM-bidrag (8% labour market contribution).
- Pay ATP (Labour Market Supplementary Pension) and any additional pension schemes.
- Submit monthly payroll reports to eIndkomst (the digital income reporting system).
- Ensure compliance with holiday pay and employee benefits regulations.
Employers must submit payroll taxes and contributions on time to avoid penalties.
5. Corporate Income Tax in Denmark
Companies operating in Denmark must pay corporate income tax (CIT) on their profits. The standard corporate tax rate is 22%. Taxes are calculated based on net profit after deductions, allowances, and any applicable tax credits.
Corporate Tax Filing Checklist
- Maintain accurate profit and loss statements throughout the financial year.
- Submit annual tax returns via TastSelv Erhverv, the Danish tax system for businesses.
- Pay corporate tax in two installments – March 20 and November 20 (for companies with calendar-year accounting).
- Ensure compliance with Danish transfer pricing regulations if engaging in cross-border transactions.
Businesses that fail to submit their corporate tax return on time may face fines and interest charges.
6. Personal Tax Obligations for Sole Proprietors
Sole proprietors (Enkeltmandsvirksomhed) do not pay corporate tax but instead report their business income as personal income tax. Taxes are calculated based on Denmark’s progressive tax rates, which can be as high as 56.5% for high-income earners.
Sole Proprietor Tax Checklist
- Report business income on annual personal tax returns (Selvangivelse).
- Deduct eligible business expenses to reduce taxable income.
- Make B-tax payments (self-employed tax prepayments) throughout the year.
- Keep records of personal withdrawals from business earnings for tax calculations.
Sole proprietors should consider working with an accountant to optimize tax deductions and reporting.
7. Preparing Annual Financial Statements
At the end of the financial year, businesses must prepare and submit annual financial statements. These documents provide a comprehensive overview of a company’s financial health and are required for tax reporting.
Financial Reporting Checklist
- Prepare a profit and loss statement (P&L) and balance sheet.
- Ensure all income and expenses are recorded correctly.
- Submit financial statements to the Danish Business Authority (Erhvervsstyrelsen) if required.
- Verify compliance with Danish GAAP or IFRS accounting standards.
Larger companies (ApS and A/S) must have their financial statements audited by a certified accountant.
8. Business Deductions and Tax Benefits
Danish tax laws allow businesses to deduct expenses related to operations, reducing taxable income. However, deductions must be legitimate and well-documented.
Common Deductible Expenses
- Office rent and utilities
- Employee salaries and social security contributions
- Business-related travel expenses
- Work-related IT equipment and software
- Marketing and advertising costs
Proper documentation of expenses is required to support deductions in case of an audit.
9. Digital Accounting and Automation
Denmark is increasingly moving towards digital accounting and tax reporting to improve efficiency and transparency. Many businesses use accounting software and digital tax platforms to streamline compliance.
Benefits of Digital Accounting
- Automated tax calculations and VAT reporting
- Integration with SKAT for real-time tax submissions
- Cloud-based storage of financial records
- Time savings and error reduction in bookkeeping
Investing in certified accounting software helps businesses stay compliant and reduce manual workload.
10. Avoiding Common Tax and Accounting Mistakes
Errors in tax reporting and bookkeeping can lead to penalties, audits, and financial losses. Business owners should take steps to avoid common pitfalls.
Common Mistakes to Avoid
- Missing tax deadlines – Leads to interest and penalties.
- Incorrect VAT reporting – Misreporting input/output VAT can trigger audits.
- Mixing personal and business finances – Always maintain separate accounts.
- Failing to keep records – SKAT requires financial documentation for audits.
- Not seeking professional advice – Accountants can help optimize tax planning.
By staying proactive and organized, businesses can ensure tax compliance and financial stability.
Accounting and tax reporting in Denmark require diligence, proper record-keeping, and compliance with SKAT regulations. Whether managing VAT, payroll taxes, or corporate income tax, business owners must follow structured procedures to avoid fines and legal complications. By using digital bookkeeping solutions, maintaining detailed records, and seeking professional guidance when needed, businesses can efficiently manage their financial obligations and focus on growth.
