Depreciation, amortisation, and depletion
Tax depreciation need not be in conformity with book depreciation.
Annual depreciation allowances on machinery and equipment may be claimed under the diminishing-balance method at up to 25%. The depreciation base is the cost of fixed assets less sales proceeds from disposals and depreciation allowances previously claimed.
New machinery and equipment acquired between 30 May 2012 and 31 December 2013 could be included in the base with a supplement of 15%. Hence, 115% of costs of new fixed assets was added to the base and depreciated at up to 25% per year. If a company has applied this principle, the assets in question must be kept on a separate account until the end of the tax year 2017.
For ships, the depreciation rate is 20% in the year of construction and a 12% declining-balance basis in subsequent years.
Depreciation allowances on buildings (other than residential buildings and office buildings, etc. not adjoining a depreciable building) may be claimed at up to 4% per annum on a straight-line basis.
Airplanes, trains, and utility plants can be depreciated only at 15% per annum on a declining balance basis.
Rails, telecommunications facilities, and certain other long-life plant and equipment can be depreciated only at 7% per annum on a declining balance basis.
Depreciation allowances that are recaptured as part of a capital gain on the sale of an asset generally are fully taxable.
Acquired goodwill and other intangible property rights can be amortised at up to one-seventh per year on a straight-line basis. Costs related to the purchase of patents or know-how (including rights/licences to utilise patents or know-how) can either be fully expensed in the year of acquisition or amortised over a seven-year period on a straight-line basis.
Certain restrictions regarding the depreciable value of goodwill apply in the case of group transactions. Goodwill on the purchase of shares cannot be amortised for tax purposes.
Depletion of the cost of acquisition or exploitation of natural resources is subject to special rules.
No specific rules in Danish tax law govern the treatment of start-up expenses. Instead, these expenses are treated according to general tax law.
Companies may, under certain conditions, benefit from a scheme allowing for a cash payment equal to the tax value (22%) of negative taxable income, provided the negative income is created from research and development (R&D) costs (see the Tax credits and incentives section).
See Thin capitalisation and interest relief limitations in the Group taxation section.
Companies may deduct loss on bad debt, which is not inter-company debt.
The main rule for calculation and taxation of companies’ gains and losses on receivables for tax purposes will be the mark-to-market principle (i.e. taxation based on the difference in value at the beginning and end of the assessment year). Use of the mark-to-market principle means that recognition of losses on these types of receivables for tax purposes is not conditional on a final loss having been ascertained.
Special rules apply to gains and losses on trade and inter-company receivables, as these, as a main rule, should be calculated according to realisation principles. Companies may, however, opt for the mark-to-market principle for each category of receivables.
Companies may deduct a small amount in gifts to certain organisations approved by the Danish tax authorities and mentioned in the Danish tax authorities' guidelines. The deduction cannot exceed DKK 16,300 per year for tax year 2019.
Furthermore, companies may deduct gifts to cultural organisations that receive a maintenance grant for operating expenses from either the government or the municipality. According to these rules, there is no limitation in terms of value, but certain restrictions regarding the use of the gift are applicable.
Finally, gifts to certain charitable organisations within Denmark or the European Union may be deducted, provided the recipient uses the funds for research. Deductibility is conditioned upon the organisation being approved by the Danish tax authorities. No limitation in regards to amount is applicable.
Deduction for R&D expenses
From 2018, a political agreement has been reached by the Danish Ministry of Taxation on an increase of the deduction for R&D. For 2018/19, the deduction is increased from the current 100% to 101.5%. Furthermore, the deduction for R&D is 103% for 2020, 105% for 2021 through 2024, 108% for 2025, and 110% for 2026.
Fines and penalties
Fines and penalties are, in general, not deductible, as these are not considered operational expenses.
Bribes, kickbacks, and illegal payments
Even if considered economically reasoned and custom in certain jurisdictions, amounts used for bribery of officials are not deductible.
Taxes are non-deductible for CIT purposes, except for employer’s tax, non-recoverable VAT, land tax, and coverage charge (see the Other taxes section).
Net operating losses
Tax losses may be carried forward indefinitely. However, the utilisation of tax losses carried forward may be restricted. According to the rules, taxable income up to DKK 8,385,000 for 2019 can always be eliminated by tax losses carried forward, whereas taxable income exceeding DKK 8,385,000 can only be reduced by 60% as a result of tax losses carried forward. For Danish tax consolidation groups, the rules apply for the group collectively. If losses are restricted, the limitation must be allocated to each of the companies according to complex rules.
Certain restrictions on the right to carry tax losses forward apply when more than 50% of the share capital or 50% of the voting rights at the end of the financial year are owned by shareholders different from those that held control at the beginning of the income year in which the tax loss was incurred. Certain exceptions apply regarding intra-group transfers.
Similarly, under certain circumstances, tax losses may be cancelled if a Danish company receives a debt forgiveness or comparable transaction. However, there are numerous exceptions (e.g. inter-company transactions).
Tax losses may not be carried back for utilisation in previous income years.
Payments to foreign affiliates
A Danish corporation can claim a deduction for royalties, management fees, and similar payments made to foreign affiliates, provided that such amounts are made on an arm’s-length basis and reflect services received. Interest at normal commercial rates paid to foreign affiliates will generally be allowed as a deduction but is subject to very complex thin capitalisation and interest relief limitation rules (see Thin capitalisation and interest relief limitations in the Group taxation section).