A variety of tax incentives are available in the form of deductions for certain capital expenditures.
Danish tax law allows for an immediate write-off of capital expenditures for R&D. Alternatively, the taxpayer may choose to take tax depreciation in the same year and the following four years on a straight-line basis. Costs incurred in connection with the exploration for raw materials may also be fully deducted in the same year.
Companies in a loss making situation may not benefit from an immediate write-off of R&D costs. However, companies have been granted the opportunity to apply to the Danish tax authorities for a payment equal to the tax value (22%) of negative taxable income. It is a condition that the negative taxable income relates to R&D costs. The rule does not cover costs incurred in connection with exploration for raw materials. The negative taxable income is calculated on the total negative income of the companies participating in the joint taxation, thus the company incurring the R&D costs does not need to have negative taxable income to request for the payment, as long as the joint taxation income is negative.
Tax payment according to this rule cannot exceed an amount of DKK 5.5 million, corresponding to a tax loss relating to R&D expenditure of DKK 25 million. For companies participating in joint taxation, the limit applies for all companies in total.
Costs related to purchase of patents and know-how (including rights/licences to utilise patents or know-how) may either be fully expensed in the year of acquisition or amortised over a seven-year period on a straight-line basis.
Furthermore, the Danish Parliament has introduced an increased deduction for R&D costs gradually increasing from 100% to 110% over a period of eight years.
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In relation to the above-mentioned tax incentive scheme, only the actual incurred R&D costs may be included in the request for the cash payment from the Danish tax authorities. The remaining deduction exceeding the 100% will be a negative taxable income that will increase the net operating loss carried forward.
The rate for 2020 to 2022 is 130% for qualifying R&D expenses within certain limits. See the Significant developments section for information about the increased deduction for income years 2020 to 2022.
Foreign tax credit
According to Danish tax law, relief is generally available to credit foreign tax paid on non-Danish source profits against the Danish tax on the same profits. As Danish companies are not taxed on income from foreign PEs or properties, the rules have limited application.