Taxes in Denmark for Businesses in 2024: What You Need to Know

Denmark has a transparent and efficient tax system that has undergone several updates in 2024 to maintain its position as one of Europe’s leading business hubs. The Danish government has focused on increasing transparency, promoting compliance, and offering strategic incentives to support key industries like renewable energy and technology. This article provides a comprehensive overview of the tax landscape in Denmark, recent reforms, and strategic approaches for optimizing tax efficiency.

Historical Context and Evolution of the Danish Tax System

Denmark’s tax policies have evolved over the decades, driven by the need to balance welfare funding and economic competitiveness. The country has consistently adopted a high-tax model to finance its comprehensive welfare system while implementing various measures to attract foreign investment.

• 1970s-1980s: Focused on increasing tax revenue to support the welfare state, Denmark raised corporate and personal tax rates, introducing several new social taxes and duties.
• 1990s-2000s: Tax reforms focused on reducing the corporate income tax rate and aligning Denmark’s tax system with EU standards. The government introduced simplified VAT compliance and reduced corporate tax rates to stimulate business activities.
• 2010s-Present: The Danish tax system has seen increased alignment with international standards, particularly with the adoption of OECD’s BEPS measures and EU directives. Recent changes include stricter transfer pricing rules and enhanced anti-tax avoidance measures.

Current Structure of the Corporate Tax System in Denmark

The Danish corporate tax system is designed to promote business growth while ensuring compliance with international standards. Key elements include:

• Corporate Income Tax (CIT):
  The standard CIT rate in Denmark is 22%, one of the lower rates among Nordic countries. Resident companies are taxed on their worldwide income, while non-residents are taxed only on Danish-source income. This rate is designed to balance revenue generation with business competitiveness.
  • Deductions and Credits: Companies can deduct expenses related to R&D, employee training, and environmental sustainability. Accelerated depreciation is allowed for certain types of capital investments, and R&D tax credits can be claimed to support innovation​(skat.dk | skat.dk).
  • Loss Carryforward: Businesses can carry forward tax losses indefinitely, allowing them to offset future taxable income and reduce their tax liabilities.
  • Dividend and Withholding Taxes: Dividends paid to non-residents are generally subject to a 27% withholding tax, but this can be reduced under Denmark’s extensive network of double taxation treaties (DTAs)​(skat.dk | skat.dk).

Value Added Tax (VAT) and Compliance Requirements

Denmark’s VAT system is in line with EU directives and is a significant source of government revenue:

• Standard VAT Rate: The standard VAT rate is 25%, one of the highest in the EU, and applies to most goods and services. This rate ensures that Denmark can support its comprehensive welfare system and fund public services.
• Zero Rate and Exemptions: Exports, intra-EU supplies, and certain sectors like healthcare, education, and financial services are exempt or zero-rated. This encourages exports and supports sectors with high public benefit.
• VAT Compliance Requirements: VAT-registered businesses must submit monthly or quarterly VAT returns, depending on their turnover. Penalties for non-compliance include fines and interest charges on overdue amounts​(skat.dk | skat.dk)​(skat.dk | skat.dk).

Transfer Pricing Regulations and International Tax Compliance

Denmark has robust transfer pricing regulations aligned with the OECD’s guidelines:

• Documentation Requirements: Companies must maintain detailed transfer pricing documentation, including a master file and local file, to demonstrate that all intercompany transactions are conducted at arm’s length. Non-compliance can lead to significant penalties.
• Anti-Tax Avoidance Measures: The government has implemented several anti-tax avoidance measures, such as controlled foreign company (CFC) rules and thin capitalization rules, to prevent base erosion and profit shifting.
• Double Taxation Agreements (DTAs): Denmark has over 80 DTAs, providing mechanisms to reduce withholding taxes on cross-border payments and avoid double taxation, making it an attractive location for international businesses​(skat.dk | skat.dk).

Industry-Specific Tax Incentives and Support Schemes

Denmark offers various tax incentives aimed at promoting investment in key sectors such as renewable energy, technology, and R&D:

• R&D Tax Incentives: Businesses engaged in research and development can benefit from a tax credit of up to 50% of qualifying R&D expenses, promoting innovation and supporting high-tech industries.
• Environmental Tax Incentives: Companies investing in green technologies or energy-efficient equipment can benefit from accelerated depreciation and tax credits, encouraging sustainable business practices​(skat.dk | skat.dk).

Recent Developments and 2024 Tax Reforms

The 2024 tax reforms in Denmark include several key changes aimed at enhancing compliance and promoting sustainable economic growth:

• Increased Reporting Requirements: New reporting obligations have been introduced for multinational enterprises (MNEs), particularly those involved in cross-border transactions. These changes include updates to the transfer pricing rules and enhanced disclosure requirements.
• Adjustment to Environmental Tax Rates: The government has adjusted tax rates on carbon emissions, plastic production, and water usage to align with its sustainability goals.
• New VAT Compliance Rules for Digital Services Providers: Digital services providers must comply with stricter VAT reporting and registration requirements, reflecting the government’s focus on taxing the digital economy​(SKAT).

Strategic Considerations for Businesses

To optimize tax efficiency and ensure compliance in Denmark, businesses should consider the following strategies:

1. Leverage Double Taxation Agreements (DTAs): Utilize DTAs to minimize withholding taxes on cross-border transactions and reduce the risk of double taxation.
2. Comply with Transfer Pricing Requirements: Ensure that all intercompany transactions are documented and compliant with local and international regulations to avoid adjustments and penalties.
3. Take Advantage of R&D and Environmental Incentives: Businesses engaged in R&D or sustainability initiatives should explore available tax credits and deductions to reduce their overall tax burden.
4. Monitor Changes in VAT Compliance: Stay informed about new VAT regulations, particularly for digital services providers, to ensure compliance and avoid penalties.

Conclusion

Denmark’s tax system offers numerous opportunities for businesses, particularly those engaged in R&D and sustainability initiatives. Companies must navigate a complex regulatory environment, stay informed about recent developments, and strategically plan their operations to optimize tax efficiency and ensure compliance.