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

It is not mandatory to make employee salary payments and third party authority payments from an in-country bank account.

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 public holidays. The largest banks in Denmark are: Danske Bank, Nordea, Jyske Bank, Nykredit and Sydbank. There are a total of approx. 70 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: 5.77 million (World Bank, 2017)

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 2018” or “01/07/2018”. 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 56.5 % on the last earned salary above DKK 513,400 (2019). There are a variety of Deductions and Tax levies, which affect this calculation.

Tax Return

Currently, there are two different situations with regards to tax return. Generally, all individuals taxable to Denmark, are obliged by the end of each year to submit a tax return to the Danish Tax Administration. However, with regard to ordinary employees, as information is typically reported by official channels (e.g. employer, pension providers, banks etc.), there will usually not be any changes to submit. Based on the reported information, the Danish Tax Administration will issue an annual tax return, which the individual is obliged to review in order to verify that the reported information is correct.

If, however, the individual has any special circumstances (e.g. foreign income, foreign properties etc.), the individual will be obliged to submit an extended tax return, as such income must be filed by the employee himself.

However, this obligation to submit tax returns is expected to vanish during the next few years.

The Income Year

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

Registration

When companies are operating in Denmark and/or delivering goods or services in Denmark without being present, the company is obliged to register as a company in Denmark and thus receive a CVR-number. This is done by submitting a registration form, which can be found online. As a part of the registration process, the company/entity must state if they are an employer and if salary will be paid to the employees, as employers shall withhold tax when paying salary to an employee.

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.

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 regard to issuing and administrating 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.

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

Furthermore, there is an obligation to register Foreign Service providers working in Denmark in the RUT register, for both foreign employees and companies. The RUT register is the Danish Government’s official report of a foreign service. The reason to why any foreign service providers must be registered in the RUT register is so that the Danish Authorities can ensure that foreign companies are covered by the same health, safety and tax conditions in Denmark as a Danish company is. Please note in this regard, that registration in the RUT register entails an obligation to pay AFU contribution.

Further information can be found on the following governmental webpages:

Income Tax in Denmark

Withholding and Calculation of Income Tax

An employer, who has legal jurisdiction in Denmark, shall withhold Danish taxes and labour market contribution (“AM-bidrag”) when paying salary to an employee. The same goes for employers, who do not have legal jurisdiction in Denmark, but are present in Denmark through a permanent establishment or if the salary is paid by a legal representative, who has legal jurisdiction in Denmark.

The deadlines for paying tax and labour market contributions are dependent on the size of the company paying the salary. For large companies (labour market contributions over DKK 250,000 and/or taxes over DKK 1,000,000), payment should be done by the last weekday of the month of account. For small and medium-sized companies (labour market contributions less than DKK 250,000 and/or taxes less than DKK 1,000,000), payment should be done by the middle of the month following the month of account.

The penalty for late payment (2019) is 0.7% per month of the tax due.

Payment of taxes is made possible on the basis of a monthly online report on withholding through the E-Income-System (Skattestyrelsen).  Reports must be uploaded the last day of the month with the penalty for late reports being DKK 800. Months with no withholding must be reported actively with a “zero-report” Third party service providers (payroll service providers) must be licensed by the Danish Tax Authorities in order to file withheld tax on behalf of their clients.

Reporting Tax in Denmark

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

In some cases, only Danish social security shall be reported. In such cases, the employer can submit information by form.

Yearly

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

Quarterly

As per above, payments for social security are required to be paid on a quarterly basis. For the exact dates, please see the payment schedules above.

Monthly

Each month a report must be made to E-indkomst, 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 (E-indkomst), individuals who are covered by Hydrocarbon taxation or Hiring-Out of labour taxation must be reported through special tax divisions.   It is possible to draw up the reports in excel format There are, however, certain requirements with regard to content and 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 (unless employees are covered by the hiring out of labour regime or the hydrocarbon tax regime).  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 DKK 55,900 (2019).  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 DKK 51,500 (2019) within one year are fully deductible.  If this pension scheme is employer administrated there is no ceiling/limitation on deductible contributions.

Leavers in Denmark

When an employee’s employment is terminated, there are generally not many requirements for the employer to comply with.  However, the employee will most likely be entitled to a payment due to his holiday accruals.  The employer is generally required to pay any outstanding holiday accrual to the Holiday Fund (FerieKonto), when the employee finally ceases their employment (end of notice period).

Payroll in Denmark

Danish payrolls run on a monthly basis. Each month the employer is required to obtain the recent tax information from the tax card of the employees. A tax card is a digital document, stating the tax rate and deductions of an employee, based on their registration and issued by the Danish Tax Administration. Furthermore, the monthly payroll information must be uploaded to the Danish Tax Authorities site in order to pay withheld taxes and report the current month’s details.

The Danish Tax Administration is the main entry point for several reports, which they communicate to the applicable authorities (social security, etc.).  Pension reports are dealt with using a separate process.

A payslip must be issued for each month of payroll, which describes the month’s salary in detail.

Payroll reports must be kept for at least five years.

The full guide is available in PDF format for registered users.

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