Corporate Taxes in Denmark
Denmark has a friendly tax environment and a vast structure of tax treaties, and advantageous tax regulations for international residents. The corporate tax rate in Denmark is 22%, which is lower than the average rates in the OECD and the European Union. Any business that is established must pay corporate taxes in Denmark.
This article will talk about the various Denmark corporate taxes. Along with that, it will describe the Denmark corporate tax rate that firms have to pay in the country.
Various business taxes in Denmark
If you register a company in Denmark, then you must register with the tax authorities in order to pay the various corporate taxes. The same tax law and corporate tax rate in Denmark apply to branch offices and permanent establishments of international corporations as they do to Danish resident corporations. This section of the article will briefly discuss the various corporate taxes in Denmark, that have to be paid by a resident as well as international firms.
1. Corporate Income Tax (CIT)
The Denmark corporate taxes must be paid by businesses on all of their revenues, and they can only exclude expenditures that are directly relevant to running their business. Danish corporate entities as well as foreign businesses with real estate or permanent establishments are subjected to pay a Denmark corporate tax rate of 22% on the net business revenue generated. Only earnings from income received in Denmark are subject to taxation for non-resident businesses.
2. Value-added tax (VAT)
The standard value-added tax rate is 25%. A small number of goods are exempted or subject to a special 0% charge.
There is no discounted VAT rate in the nation. As a result, only the standard-rated rate of 25% and the 0%, and the exemption from VAT rates are in effect throughout the nation.
3. Special payroll taxes
Only businesses that engage in particular VAT-exempt services are subject to special payroll taxation, which is computed primarily on the payroll for workers engaged in these services. Depending on the form of VAT-exempt operation, like finance, import, and media publication, different taxing techniques and rates apply.
If the corporation’s economic earnings that are exempt from VAT account for greater than 50% of overall revenue, the corporation will be considered a supplier of financial products and will be subject to a special payroll tax of 15.3% on the wages employed for such services.
4. Property taxes
Non-residential building proprietors are required to pay yearly land taxes. The amount of property taxes is determined by the municipalities and should range from 1.6% to 3.4% of the land’s worth. Municipalities could also impose a specific coverage fee of up to 1% of the worth of specified non-residential assets. Taxes on land and insurance are deducted from CIT.
5. Stamp tax
A certificate of transfer of property investment is one of the few documents that are subject to stamp tax. Share transfers are free of stamp duty.
6. Controlled Foreign Company Taxation (CFCT)
An international permanent establishment and a non-resident subsidiary of a Danish residential parent firm are subject to taxation on its profits if:
- The subsidiary’s assets are acceptable as group shares.
- The primary line of operation for the subsidiary or PE is financial.
The total tax revenue determined in accordance with Danish tax laws must be included in the parent firm’s taxable income for the year. Nevertheless, credit relief for settled international corporate taxes in Denmark may be requested.
7. Withholding Taxes
- Dividends- Dividends given to a parent business in some other European Union member state or a region with a double tax treaty with Denmark are exempted from WHT, provided that the stocks meet the criteria for subsidiary stocks. The same holds true for dividend payout on group stocks, as long as the beneficiary business is based in the EU or EEA. The standard withholding rate for dividends on portfolio shares to an international stakeholder is 27%. Business stockholders who are non-residents are typically entitled to a 22% dividend tax rate.
- Interests– Interest is often not liable for withholding taxes except when it is given to an overseas group member firm that is a tax resident outside of the EU as well as outside of any of the nations in which Denmark has negotiated tax treaties. Interest WHT is charged at a rate of 22%. There are some further exclusions, mostly in relation to CFC taxation.
- Royalties– A WHT rate of 22% is applicable on royalties. Most of the time, the WHT rate can be lowered in compliance with the payee’s relevant tax convention. Additionally, if the contributing firm and the beneficiary business are related as that term is described in the European Union Royalty Directive, WHT may be exempted from it.
Capital Gains in Denmark
When these items are sold, capital gains are typically not subject to tax:
- Danish business stockholders’ non-listed shares.
- The stock of a listed group and subsidiary.
Only stocks of nongroup and non subsidiary companies that have been listed for sale will result in a 22% corporate tax rate in Denmark being applied. Typically, these capital gains are taxable yearly on a mark-to-market approach. While selling stock in a Danish firm to a 3rd party, overseas stockholders are exempt from Danish capital gains tax.
Also, liquidation and redemption revenues must be viewed as capital gains that are not subject to taxes. Nevertheless, if the requirements for exclusion are not satisfied, liquidation and redemption earnings for some non-qualified stockholders could be considered taxable dividends. In relation to the intra-group transfers of stocks, additional anti-avoidance rules are applicable.
Mandatory joint taxation in Denmark
All Danish group firms, comprising Danish real estate and international group businesses’ permanent premises, are required to pay joint taxes.
The following guidelines are applicable:
- Under the joint taxes arrangement, liabilities in one Danish firm may be offset towards taxable revenue in some other Danish business, permanent establishment, or estate development. A group business that uses a loss from one of its subsidiaries should provide the administering organization a sum equal to the tax savings if the loss was previously incurred by another group corporation. The loss-making corporation must subsequently receive a return from the administering organization for the exact amount.
- Only revenue from linked firms in Denmark may be used to offset liabilities from a Danish permanent establishment, provided that no revenue from the overseas company headquarters is also used to compensate for the loss.
- The payment of shared global corporate taxes in Denmark with overseas affiliates and subsidiaries is optional. The choice to establish a foreign consolidation group, though, is legally enforceable for ten years.
Additionally, under the shared tax structure, group firms are both jointly and severally responsible for tax contributions and withholding taxes.
Advantages of corporates taxes in Denmark
Important benefits of business taxes in Denmark are:
- The corporate tax rate in Denmark is 22%.
- Deduction of R&D costs.
- The expense of employee benefits paid for by the business is the minimum in Europe.
- There are no double taxes for Danish businesses having overseas branches.
- Key personnel and researchers are eligible for a special 27% ex-pat tax system.
- Neither a capital tax nor a share transfer tax.
- Full tax credit for interest earned from purchases.
- Business taxes in Denmark are paid upon expenditure deductibility.
- Unlimited carryover of losses.
- Enticing holding company tax plan.
Conclusion
The above article discusses the Denmark corporate taxes that resident and non-resident firms are liable to pay in the country. The standard Denmark corporate tax rate is 22%.
You can speak with our experts at Odint Consulting if you have any additional questions about corporate taxes in Denmark. Your questions will be answered by our professionals.
FAQ’s
Yes, however, only earnings from income received in Denmark are subject to taxation for non-resident businesses.
The corporate tax rate in Denmark is 22%, which is lower than the average rates in the OECD and the European Union.
In addition to the employer’s taxes, there are no additional payroll taxes.
When these items are sold, capital gains are typically not subject to tax:
- Danish business stockholders’ non-listed shares.
- The stock of a listed group and subsidiary.
Interest WHT is charged at a rate of 22%. A WHT rate of 22% is applicable on royalties.
