Value-added tax (VAT)
The general VAT rate is 25% of the price charged (exclusive of VAT).
Exemptions or a special reduced rate of 0% apply to a limited range of supplies (e.g. newspapers; hospital treatment; insurance and reinsurance services; most financial activities, including deposits of money and granting of loans).
Denmark was one of the first countries to introduce a VAT system. Since then, the VAT legislation in Denmark has undergone several changes. The most important changes have been modifications to bring the legislation in line with the Sixth EC VAT Directive (which, since 1 January 2007, is officially named the Council Directive 2006/112/EC on the common system of Value Added Tax) and the so-called EU VAT Package that entered into force on 1 January 2010.
The present Danish VAT Act (Momsloven) entered into force with effect from 1 July 1994. Compared to the Directive, the Danish VAT legislation includes minor deviations and the use of various discretionary provisions.
All supplies of goods and services by so-called ‘taxable persons’ (entrepreneurs who independently carry out economic activities) are subject to VAT, unless specifically exempted. Although the VAT exemptions are restricted to a limited range of services and goods, they are subject to a considerable number of binding rulings and administrative guidance with respect to their interpretation and application.
Transactions are subject to Danish VAT only when they are deemed to take place in Denmark. For the sake of tax neutrality, VAT is also levied on (i) imports (i.e. receipt of goods from non-EU territories), (ii) intra-Community acquisitions (i.e. receipt of goods from EU member states), and (iii) purchases of most services from foreign suppliers.
In order to avoid VAT being borne by anyone other than the final consumer, those who qualify as taxable persons can, with some exceptions, recover VAT charged by their suppliers according to the invoice/credit method, provided that the purchases relate to VATable transactions. VAT is recovered either via the periodical VAT return (as a deduction in VAT payable) or by filing a special application.
In principle, it is the supplier’s responsibility to collect and report VAT on the supplies of goods and services in Denmark. However, a taxable customer/recipient is responsible for reporting VAT on the import or acquisition of goods from abroad as well as the purchase of most types of services from foreign suppliers.
Special payroll tax (Lønsumsafgift)
Companies that provide VAT-exempt services may be liable to pay special payroll tax (in Danish ‘lønsumsafgift’) in Denmark, which is calculated on the total payroll, including any type of wages and bonuses that the employee has received. There are four different calculation methods; which method should be applied depends of the activity and organisational structure. The method and percentage applied to calculate the special payroll tax depend on the ratio between VATable and VAT-exempt services supplied.
In case the VAT-exempt financial revenue is more than 50% of the total revenue, the company will be qualified as a financial services provider and the special payroll tax is then 14.5% (2018 rate) of the payroll used for the VAT-exempt activities. Please note that the rate will increase every year and end up at 15.3% in 2021.
This tax is deductible for income tax purposes.
Denmark is a member state of the European Union, and, according to EU’s Common Customs Tariff, many goods imported into Denmark from outside the European Union are subject to customs duties. The rates of duty vary widely between goods.
According to Danish tax law, several excise duties are levied on different products. Some of the excise duties are enacted based on EU regulations while others are enacted according to domestic law only.
Excise duties are chargeable on a long list of goods, including hydrocarbon oil products, certain packaging, alcoholic drinks and tobacco, chocolate and sweets, coffee, etc.
The excise duty rates depend on the type of goods (e.g. chocolate, packaging) as well as, in some cases, the category of the goods (e.g. plastic bags, paper bags). Furthermore, many of the excise duty rates are regulated every year.
Only goods sold in Denmark (or taken into Denmark) are liable to the Danish excise duties. Companies importing goods into Denmark or companies producing goods in Denmark must be registered with the Danish tax authorities to settle the excise duties. This will often also be the case even though they are selling the goods on to other companies in Denmark.
The type of registration is decisive for when the companies must pay the excise duties. Companies just storing goods must register and settle excise duties in Denmark in spite of the fact that the goods are not being sold in Denmark.
As excise duties are a tax for national consumption in Denmark, a company can, in principle, obtain a reimbursement of the excise duties on products sold outside of Denmark. Companies are entitled to a reimbursement even if the company is not registered for the excise duties in question and even if the excise duties have been paid by previous resellers, etc.
Owners of non-residential property must pay land tax annually. The land tax rate is set by the municipalities and must be between 1.6% and 3.4% of the value of the land. Municipalities may also levy a special coverage charge on certain non-residential properties at a maximum of 1% of the value of the property minus the value of the land and minus a property value threshold of DKK 50,000. Land tax and coverage charge are deductible from CIT.
Stamp tax is payable on a few documents, such as a deed of transfer of real estate (DKK 1,660 plus 0.6% of the transfer sum). There is no stamp duty on transfer of shares.
There are no payroll taxes other than employer’s tax (see below).
Employer’s tax (social security charges)
The employer’s contribution to Arbejdsmarkedets Tillægspension (ATP) (i.e. old-age pension) charges is DKK 2,272.20 (2018) per annum for a full-time employee.
Based on the ATP contribution, derived contributions will be due. Also, a mandatory Danish accidents at work insurance must be taken out. The total annual employer social security costs are approximately DKK 12,000 per employee depending on industry.
Employers that pay ATP contributions are also liable of making contributions to the Danish Labour Market Fund for Posted Workers, although this is not a social security contribution.
Companies that provide VAT-exempt services are liable to pay the employer’s tax, which is calculated on the total annual salary cost. The rate can be as high as 14.5%, which is the rate for 2018 for banks and other financial institutions, the most significant sector paying the employer’s tax. The rate will increase to 15.3% by the year 2021 for banks and other financial institutions. This tax is deductible for income tax purposes.
Environmental taxes/Energy taxes
Danish companies must pay environmental taxes, which were introduced to reduce companies’ energy consumption, discharges of fluids with an environmental impact, and emission. These taxes are paid to the companies that provide the energy, who then pay the taxes to the Danish tax authorities. Most of the environmental tax rates are regulated every year.
In general, almost all VAT-registered companies in Denmark can obtain a reimbursement of some of the environmental taxes on energy (also called energy taxes). The size of the reimbursement of the energy taxes depends on the type of energy used and to what extent the companies can deduct VAT.