Direct taxation of businesses
Companies resident in Denmark for tax purposes are as a general rule taxed on their worldwide income, however excluding income from foreign permanent establishments and foreign real estate. Companies resident outside Denmark for tax purposes are taxed on income derived by a permanent establishment (PE) in Denmark as well as income from certain sources in Denmark.i Tax on profitsDetermination of taxable profit
Corporation tax is imposed on company profits consisting of business income, passive income and taxable capital gains. Income is taxed on an accrual basis and is, as a general rule, considered accrued when the taxpayer has a legal right to the income under the relevant agreement or law. The taxable profits are determined on the basis of figures reported in the company's annual accounts, with adjustments according to the tax regulations, including deductions and depreciations. The basic principle is that the taxable income comprises gross income less the expenses of acquiring, securing and maintaining that income, whereas expenses necessary to establish or expand income sources are not deductible. Interest paid on loans and royalties qualify for deduction with certain limitations. Dividends are not tax-deductible.Depreciation
For the purpose of encouraging investment, depreciation is allowed at a rate exceeding the economic decrease in value of the asset in question. The rate and method of depreciation for tax purposes depends on the class of the asset.
Most operating equipment used for business purposes is depreciated as a single asset pool up to 25 per cent a year. The taxpayer is free to apply lower rates between zero and 25 per cent, and may change the rate every year. For operating equipment with a long economic life, such as certain vessels, aircraft, drilling platforms and offshore equipment, the depreciation rate is, however, reduced to 15 per cent (from 2016 onwards). Further, depreciation is only allowed at a rate of up to 7 per cent for certain infrastructure facilities. These assets are stated on separate balances.
Assets with an estimated lifetime not exceeding three years and assets with a value below 13,500 (2018) may be fully written off in the year of acquisition.
With respect to commercial equipment and some vessels, advance depreciation is permitted provided that a binding contract has been entered into; the contract is for delivery or completion of assets within four years of the award of the contract; and the contract price exceeds 1,539,100 Danish kroner (2018).
Buildings and installations are generally depreciated at a rate of up to 4 per cent, and goodwill and other intangibles may be depreciated on a straight line over seven years.
Recaptured depreciations or losses are taxed as income in the year of sale.Capital and income
Corporate taxation applies to both income and taxable capital gains.Losses
Tax losses may be carried forward indefinitely. Tax loss carry-forwards from previous income years may only be fully deducted in the taxable income up to a base amount of 8,205,000 Danish kroner (2018). Further tax loss carry-forwards can only reduce the remaining taxable income up to 60 per cent. Tax loss carry-forwards in excess hereof can be applied in subsequent income years.
The rules on tax losses carried forward apply at a consolidated level for companies subject to joint taxation in Denmark. Companies subject to tax consolidation share the threshold of 8,205,000 Danish kroner after setting off against income losses internally within the tax group.
Danish companies might consider whether voluntary depreciation and amortisation for tax purposes should be made if this leads to higher carry-forward losses that the company is not in a position to utilise. In certain situations, these rules may also lead to a strain on liquidity for companies with large carry-forward losses. To counter such strain on liquidity, companies can consider trying to convert tax losses into depreciable amounts, as the rules do not set up any restrictions on tax depreciations. One way to convert tax losses would be to make an intra-group transfer of assets leading to a higher depreciable amount in the purchasing entity.
Restrictions apply in the case of direct or indirect changes to more than 50 per cent of the share capital or voting rights during an income year. In addition, a subsidiary's tax loss carry-forward may be restricted if a change of ownership takes place in the parent company. The restrictions do not apply to listed companies, and special rules exist for financial companies.
Carry-back of tax losses is not permitted under Danish tax law.Rates
The corporate income tax rate in Denmark is 22 per cent.Administration
The Danish Tax Authority (SKAT) is responsible for the administration of legislation on all kinds of taxes, including excise taxes and duties. Information concerning the tax system is available on the SKAT website and the Danish Ministry of Taxation website.
Complaints against decisions made by the tax authorities may be filed with the Danish Tax Appeals Agency, which will either refer the cases to a regional appeals board or the National Tax Tribunal, which decides on leading cases. Decisions by an appeals board or the National Tax Tribunal may be brought before the courts of law.
Corporations pay taxes on account twice a year, and must file a tax return with the tax authorities no later than six months following the end of the relevant income year. The actual taxable income for the year is calculated on this basis, and results in either a tax refund or payment of remaining tax.
The statute of limitations for an assessment is three years and four months after the end of the income year (five years and four months for transfer pricing adjustments). In addition, an extraordinary assessment may be made in certain specific situations, including in the event of a taxpayer's gross negligence.Tax grouping
There are two types of consolidated tax grouping in Denmark: mandatory joint taxation, which applies to all Danish consolidated companies and Danish PEs under common control; and voluntary international joint taxation, under which all foreign companies and foreign PEs (downstream as well as upstream) may opt for joint taxation with Danish entities. An election of international joint taxation is binding for 10 years.
A parent company and its subsidiaries constitute a group. Further, a company, foundation, trust or association will qualify as a parent company if it directly or indirectly holds the majority of voting rights in another company (the subsidiary) or if it controls the subsidiary in any other way.
Each entity encompassed by the joint taxation is, as a general rule, treated as a separate entity, and must calculate its taxable income in the same manner as any other entity. The jointly taxed income is made up as the sum of the taxable income for each company (i.e., the incomes are pooled). The entire income of a subsidiary will be included even if the subsidiary is not solely owned by the parent company. Only income relating to the period of consolidation will be included.
The ultimate parent company and wholly owned entities within the group are jointly and severally liable for the payment of income taxes and withholding taxes on dividends, interest and royalties from other companies within the tax group. Other entities within the group are liable on a subordinated basis.ii Other relevant taxes
The most important indirect taxes are VAT and payroll tax. The Danish VAT rate is 25 per cent. Other indirect taxes are energy duties, real estate taxes and stamp duties. Employees must pay a labour market contribution of 8 per cent of their salary.