Doing Business in Denmark

Denmark is the southernmost Scandinavian country: Norway and Sweden lie to its north, across the Skagerrak strait, while Germany shares a land border to the south. Unified from disparate region in the 10th century - and constitutionalised in 1849 - Denmark’s economy has benefited from an abundance of natural resources, and strong agriculture and fishing industries. Over the centuries, Denmark’s economy grew to become of of the most highly developed in the world - while agriculture, fishing and mining remain important, emergent sectors include iron, steel, construction, manufacturing, and food processing. Denmark’s technology sector is increasingly significant: science and research contribute in many sectors including the shipbuilding, pharmaceutical, telecom and energy industries. With a GDP of $333 billion, and one of the most liberal economies in the world, Denmark is a popular international business destination: an EU member state, its exports span the globe, reaching major trading partners including Germany, Sweden, the UK and the US.

Why invest in Denmark?

International businesses may find plenty of reasons to invest in Denmark, including:

  • Economic advantage: Denmark was ranked 3rd in the World Bank’s Ease of Doing Business Survey 2017 - and 1st for Trading Across Borders. Its business set-up process is one of the easiest in Europe, and can be completed in a matter of hours, at relatively low cost. Denmark’s government is committed to reducing barriers to trade, and increasing market access for foreign investment.
  • Talented workforce: The Danish labour market is one of the most qualified in the world - and businesses in Denmark can choose employees from a talented pool. Around 96% of Danish people complete secondary education, while 47% complete university or similar programmes. In addition to their native tongue, 50% of Danes also speak either English or German.
  • Strategic location: At the heart of Europe, and sharing a border with Germany, Denmark represents an international hub from which its businesses can reach markets across Europe and the world - by sea, land or air. Copenhagen airport is ranked as the most efficient in Europe, handling over 380,000 tons of cargo per year, and connecting to over 160 destinations.
  • Investment opportunities: Major investment targets in Denmark include agriculture (including cattle, pigs and poultry) and natural resources such as oil and gas. Beyond those traditional areas, exciting emergent sectors that are attracting attention  include renewable energy, life sciences, communication technology and electronics.
  • Business incentives: Denmark offers a favourable operating environment , including the lowest corporate tax rates in Scandinavia, and low employee social security contribution rates. Its rules and regulations are transparent and robust, offering businesses a stable environment in which to build.  

Foreign Direct Investment in Denmark

The Danish Government welcome inward investment, providing various incentives to foreign multinational countries. Denmark has an established infrastructure and provides political stability - making Denmark an attractive country for business investment and expansion.

Registering A Company And Establishing An Entity in Denmark

Registrations are required in order to conduct business in Denmark. All registrations are carried out by the Commercial Agency (Erhvervsstyrelsen). The nature of registrations depends on the type of business and establishment intended.

Registration application forms can be completed and submitted online but must (normally) be signed on paper. Unless a Danish company is registered, the foreign company’s registration certificate is necessary for enclosure. Upon approval a Danish company certificate is issued with a Danish CVR-number. The timescale for this process is approximately six to eight weeks.

The majority of authority communication and interaction is performed via various interactive websites. As such the registered entity will be supplied with a Nem-ID and NemKonto, which is a universal key to access the websites and a bank account for which all authority payouts are directed to (VAT, tax, reimbursements, social security etc.).

A foreign entity providing services in Denmark is also required to register in the RUT registry, which is a separate process.

Business Banking in Denmark

Generally, banks are open to the public from 10:00 to 1500/1600 hours. Banks are open until 1700 on Thursdays, but are closed on Saturdays, Sundays and on public holidays. The largest banks in Denmark are: Danske Bank, Nordea, Jyske Bank, Nykredit and Sydbank. There are a total of approx. 130 various bank branches in Denmark.

Working Days And Working Hours in Denmark

The Working Days in Denmark is Monday to Friday. The working hours for commercial and public offices are usually 37-40 hours per week. The working day is usually between seven and eight hours long, typically from 0800 or 0900 hours to 1600 or 1700 hours. Lunch breaks range from half an hour to one hour.

Basic Facts about Denmark

Denmark lies south of Sweden and Norway and shares its southern land border with Germany. The country consists of the larger Jutland peninsula and an archipelago of over 400 islands - along with two constituent countries: the Faroe Islands and Greenland, lying to the west, in the North Atlantic Ocean. Historically a seafaring nation, Denmark first unified in the 10th century and went through centuries of territorial growth and secession - before becoming a constitutional monarchy in 1849. Today Denmark has grown to become a successful and wealthy nation, with one of the highest per capita income levels in the world. Denmark’s northern European location give it a temperate climate, but its proximity to the sea means its weather is changeable. The country is home to varied geographic regions, with flat grassland, forest and mountain regions and a healthy variety of flora and fauna.

General Information

Full Name: Kingdom of Denmark

Population: 5.61 million (UN, 2011)

Capital: Copenhagen

Primary Language: Danish

Major religion: Christianity

Monetary Unit: 1 krone = 100 ore

Main Exports: Machinery and equipment, foodstuffs, chemicals

GNI per Capita: US $60,390 (UN, 2015)

Internet Domain: .dk

International Dialling Code: +45

Hello Hej

Good morning Godmorgen

Good evening Godaften

Do you speak English? Taler du engelsk?

Good bye Farvel

Thank you Tak

See you later Vi Ses

Dates are usually written in the day, month and year sequence. For example: “1. July 2015” or “01/07/2015”. Numbers are written with a period to denote thousands and a comma to denote fractions. For example: DKK 80.000,50 (eighty thousand Danish kroner and fifty øre (cents).

Income Tax & Social Security in Denmark

Denmark is normally recognized for its world record high tax level on Salary Income although the actual average taxation never reaches that level. The system is based on a progressive scale, which ultimately reaches 56.4 % on the last earned salary above DKK459,200. There are a variety of Deductions and Tax levies, which affect this calculation.

Generally an individual taxable in Denmark is obligated to file a yearly tax return, but for the ordinary employee there is often not much to change as most of the information has been reported through the employer or official channels (e.g. pension and banks). This however raises the requirements for the employers who are preparing the reports.

As a general rule, the income year (tax year) runs from 1st of January to 31st of December.

All companies are required to register with the Danish authorities in order to obtain a company number (CVR-number). As a part of the registration process the company/entity must state if they are an Employer and if a salary will be paid to Employees.

When a CVR-number is obtained a separate code or Nem-ID to access the tax authorities system is required and must be obtained separately. The access is vital to comply for reports and withholding.

The registration forms can be applied for online. This process can be completed in approximately six to eight weeks along with the registration process. Unfortunately no English version of the application is available.

Nem-ID is a Digital Signature Employee Certificate. The Nem-ID is used for identifying yourself as an employee/agent of a particular company or organization. An application is made by appointing a Nem-ID Administrator for the company. The administrator is able to act on the company’s behalf with regards to issuing and administering other Nem-ID signatures. The signatures grant access to information from the Danish authorities, such as outstanding tax, outstanding social security contributions etc. The Administrator can issue three free signatures. It is possible to add additional services for a fee.

All companies/entities are entitled to gain access to a Digital Mailbox (“Digital Postkasse”) through which all correspondence from Danish authorities is received.

Further information can be found on the following governmental webpages:

  • Social security: http://www.virk.dk/home/myndigheder/international-social-sikring.html (for Employers) and https://www.borger.dk/Sider/International-social-sikring.aspx (for Employees)
  • Registration: www.virk.dk, www.erst.dk and www.webreg.dk
  • Income tax: www.skat.dk
  • Digital Mailbox: https://hjaelp.virk.dk/hjaelp/digital-post-0

Income Tax in Denmark

Withholding and Calculation of Income Tax

“Large” corporations (companies with withheld tax or labour market contribution exceeding 1.000.000 DKK or 250.000 DKK during the last 12 months) are required to pay withheld taxes on the last banking day of each month. For “small” corporations the due date is, as a general rule, the 10th in each following month after withholding. The penalty for late payment (2015) is 0.8% per month of the tax due.

Payment of taxes is made possible on the basis of a monthly online report on withholding through the EIncome-System (SKAT). Reports must be uploaded the last day of the month with the penalty for late reports being DKK800. Months with no withholding must be reported actively with a “zero-report”.

Third party service providers (payroll service providers) must be licensed with the Danish Tax Authorities in order to file withheld tax on behalf of their clients.

Reporting Tax in Denmark

Payroll reports are done via the tax authorities’ online portal called Eindkomst (E-income). The reports can be done manually or via file upload. Besides tax information; social security, holidays and amount of work is also reported through the system, which is then passed on to the respective authorities.

Yearly

There is no additional annual report since the annual information is submitted on the monthly reports.

Monthly

Each month a report must be made to Eincome, which in detail explains the current month’s tax information. Furthermore information about taxable benefits is required to be reported. The report is normally extracted from a payroll system and uploaded via the tax authorities’ website.

Special Reporting

Outside of the standard system (Eincome), individuals who are covered by Hydrocarbon taxation or Hired-Out of labour taxation must be reported through special tax divisions. The reports are possible to do in an excel format, but must contain a certain specific set of details and be comprised with a certain setup.

New Employees in Denmark

A company must be registered as an Employer in order to comply with the requirements for reporting/withholding. There are no requirements for providing information regarding employees to the authorities when hiring a new employee provided the employee is already registered with the Danish tax authorities. If the employee is not registered with the Danish Tax Authorities, the authorities must be informed.

Expat New Employees are required to provide the following documentation:

  • Work Visa
  • Copy of Passport (or other ID card)
  • Copy of Marriage Certificate
  • Local Bank Account Details
  • File Preliminary Tax Assessment Additional documentation may be requested by the tax authorities.

Pension Schemes (Tax Relevant) in Denmark

Deductions for Pension Contribution

There are two different Danish pension schemes: - deductible arrangements and net-of-tax arrangements. Many Danish employees are set up with a mandatory pension arrangement, where the employer has an obligation to contribute to the arrangement on a monthly basis. The employee can also have private arrangements as well. The tax treatment of the pensions depends on the sort of saving and setup – see below for further elaboration.

Personal Pension Payable in Installments (Ratepension)

This pension scheme is paid out in installments over a period of at least 10 years. The pay outs to the individual commence at the earliest when the individual reaches 62 years of age. Contributions to this pension scheme are deductible and exempted from tax (Employer Contributions) at the point of contribution. The limit for annual contributions made to this scheme is DKK51.700 (2015). Contributions exceeding this limit are taxable and non-deductible.

Annuity pension (Livsvarig Livrente)

This scheme ensures payouts throughout the entire lifespan of the contributor. Employer Contributions are deducted in the full payment of salary before tax is calculated. Pension payments made within the same year not exceeding DKK47.600 (2015) within one year are fully deductible. If this pension scheme is employer-administrated there is no ceiling/limitation on deductible contributions.

Leavers in Denmark

In Danish law, relationships between employer and employee are covered by specific legislation - most notably, the Danish Salaried Employee Act. Under the Act, employees who are terminated must be provided with justified reason by their employer. The justified reason may concern the employee’s conduct (in which written warnings are also necessary), or may relate to the company’s wider situation (such as financial difficulties).

Salaried employees facing termination are entitled to a notice period of 1 - 6 months, and severance pay of up to 3 months (varying by length of employment). In cases of unjustified termination, compensation amounts of up to 6 months’ salary may be due (for those workers employed for over 1 year).

Payroll in Denmark

Payroll processing in Denmark takes place monthly and involves certain employer obligations, including income tax withholding and social security deductions. Monthly payroll procedures include:

  • Each pay cycle, new employees must be registered with the Danish Tax Authorities (SKAT). Relevant personal information, including Personal Tax Number, will be necessary
  • Employers must collect up-to-date tax information for their employees (available online).
  • Collected payroll information should be uploaded to SKAT.
  • Social security deductions (with contributions from employee and employer) must be paid to SKAT.
  • Withheld income tax must be paid to SKAT (at a progressive rate).

Employers usually pay employees in arrears, and must provide payslips with a range of salary details. Employee payroll records must be kept for at least 5 years.

If required, payroll administration can be outsourced fully or partially to a third-party company.

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