Steps to Establishing a Business in Denmark
Company in Denmark – why is it worth it?
Denmark is an attractive destination for foreign investors due to many factors. Denmark boasts one of the highest GDPs in Europe and the world. The Danish economy is stable, open, and flexible. Danish inflation is very low compared to other European countries. The country has minimal bureaucracy, and all political, legal, and tax issues are transparent and clear, even for foreigners. Denmark is also a member of several international organizations, including the EU, the Council of Europe, and the OECD.
Setting up a business in Denmark is attractive because the labor market is abundant with highly-qualified specialists. English is widely spoken, making it easy for foreign investors to conduct business in Denmark. The process of setting up a company is fast, easy, and inexpensive, and foreign companies have the same privileges as Danish companies. Denmark actively supports the development of entrepreneurs, including small and medium-sized businesses, through grant, loan, and credit opportunities.
When establishing a business in Denmark, there are several legal forms to choose from, including sole proprietorship, limited liability company (ApS), limited partnership (K/S), public limited company (A/S), general partnership (I/S), limited liability company (IVS), representative office of a foreign company (Salgskontor), foreign branch office (Filial af udenlandsk selskab), and cooperative association (Andelsforening/Brugsforening).
Denmark has a low income tax rate for companies (28%) and low costs for social and health insurance premiums. Double taxation is avoided in most cases thanks to agreements with numerous countries.
Sole proprietorship (Enkeltmandszirksmhed)
The legal form of sole proprietorship is quite popular in Denmark as it is the simplest and requires only an online registration with the Erhvervsstyrelsen. However, a person wishing to run a sole proprietorship must complete certain formalities such as submitting a business plan for the company to the relevant municipality and a certificate that proves the person's qualifications. No share capital is required to establish a sole proprietorship, but you should be prepared for the registration costs, which are around DKK 10,000, or approximately PLN 5,000. A sole proprietorship can operate under the name of the owner or an assumed name, but it has no legal personality, meaning that all liabilities and assets of the company belong to the owner. This legal form allows the employment of employees and permits the owner to grant power of attorney to other persons. If the company's income does not exceed DKK 50,000 per year, there is no requirement to register for VAT.
Limited liability company (Anpartsselskab – ApS)
The limited liability company is a popular legal form for businesses in Denmark. This form is suitable for entrepreneurs who want to maintain tight control over the company's activities. To establish this type of company, it is necessary to have at least one partner and raise a minimum start-up capital of DKK 125,000. The process of registering this type of company is cheaper and simpler than for other Danish companies. To register the company, in addition to paying the initial capital, it is necessary to draw up the company's articles of association and memorandum of association and register the company with the Agency for Enterprise and Trade within two months after signing the memorandum of association. The average cost of setting up a limited liability company varies between DKK 3,000 and DKK 5,000.
A Danish limited liability company has its own legal personality, separate from that of its owners. This form of company requires separate management, and it is possible to appoint a supervisory board of three members, but it is not legally required. The company can have only one shareholder.
Limited partnership (Kommanditselskab – K/S)
The legal form of limited partnership is available in Denmark and requires a minimum of two partners, one of whom must be a general partner and the other a limited partner. The general partner can be either an individual or a legal entity, while the limited partner's liability is limited to the capital invested. The registration process involves drafting a memorandum of incorporation that specifies how the partnership will conduct business, and the partnership must be registered with the Trade and Companies Agency within eight weeks of the signing of the agreement. The partnership name must include at least one name of the entering general partners.
Public Limited Company (Aktieselskab – A/S)
The joint stock company is the most complex and developed legal form available in Denmark, suitable for medium and large companies that want to sell their shares on the Danish stock exchange. Registering a joint stock company involves a more complicated process and several conditions that must be met. These include having at least one partner, gathering share capital of DKK 500,000, preparing and signing the incorporation agreement, preparing Articles of Association, issuing share capital, and registering the company with the Companies and Trade Agents within six months of signing the incorporation agreement. The cost of registering a Danish limited company ranges from DKK 4,500 upwards, depending on the law firm chosen. A joint-stock company is required to have internal bodies such as an executive board, a directorate, or a supervisory board, established at the general meeting, composed of at least three persons, and responsible for the resolution of the company's affairs. Both co-owners and shareholders are not obliged to be responsible for any debts of the company with their private assets, except in cases where the bank requires giro in case of loans. The process of converting an existing joint stock company for a specific business is much more time-consuming and costly than setting up a new company from scratch.
General partnership (Interesselskab – I/S)
The general partnership is a company type that doesn't require share capital to be established, and it lacks legal personality, but it's still capable of entering into contracts and participating in legal proceedings. To register a general partnership, it's necessary to draft a memorandum of incorporation that defines the relationship between the partners who established it. The memorandum of incorporation and the registration application must be sent to the DBA within eight weeks after it's been signed. If all partners in the company have limited liability, it will also be necessary to register it with the DBA. The name of the general partnership must include the abbreviation I/S, indicating the legal form of the company. Shares of a general partnership are typically divided equally among the partners, unless otherwise specified.
Representative office of a foreign company (Salgskontor)
The representative office of a foreign company is a suitable option for companies that already have operations in another country and would like to expand them to Denmark. It is a cost-effective option that does not require share capital. Companies that are engaged in business activities with legal forms similar to those available in Denmark can apply to open a foreign company representative office. To qualify, at least one person who manages the company must reside in one of the Member States of the European Union. The name of the representative office should include the name of the parent company, the country of its registered office, and the word "filial" or branch. The representative office does not have a separate legal personality, and the parent company is responsible for all obligations of the foreign company’s representative office.
Foreign branch office (Filial af udenlandsk selskab)
The process of establishing a branch of a foreign company in Denmark is more time-consuming than setting up a company. However, it is still possible for companies whose legal forms are similar to those in Denmark. The company needs to submit an online registration form which includes the name of the main company, KRS number, legal form, object of activity, total share capital, latest financial statements, name and address of the Danish branch, personal data, and address of entities responsible for Danish branch activities. In addition to submitting the registration form, it is necessary to contribute share capital, the minimum amount of which is DKK 80,000. The cost of setting up a Danish branch of a foreign company is approximately DKK 8,000. The Danish branch should include the word "filial" in its name, the name of the parent company, and the country of origin. The director of the Danish company is responsible for the liabilities of the foreign company branch. It should also be noted that the company branch is subject to Danish law and is obliged to send copies of the monthly accounts of the entire year to the Trade and Companies Agency.
Co-operative association (Andelsforening/Brugsforening)
The legal form of a cooperative association is not very common in Denmark. It can be established based on an agreement made by individuals, which allows the association to engage in activities related to buying, selling, and processing products. Members of a cooperative association have limited liability. The name of a cooperative association must include the abbreviation A.m.b.a., which indicates the legal form of the company.
Other formalities related to registering a company in Denmark
The process of registering a company in Denmark is influenced by the chosen legal form, but some elements remain the same. As a member of the European Union, Polish citizens can easily start a business in Denmark by submitting the required documents to the Trade and Companies Agency along with an EU citizen’s residence certificate. A company in Denmark also requires a bank account, which must be registered in the NemKonto system. Opening a new Danish account is recommended and requires documents such as the passport, residence permit, identification code, driver’s license, Articles of Association, personal documents of the founders, documents proving ownership of Danish and foreign real estate, profit and loss account, statement of cooperation with other banks, and possible licenses if required for the business. Obtaining an electronic signature or NemID/MitID can also be useful for easier access to Danish online banks and government websites. Additionally, some types of businesses may require relevant licenses or approvals, which can slow down the registration process and require applications to relevant Danish authorities.
The process of registering a company in Denmark includes obtaining necessary licenses and permits that depend on the type of business. Authorities such as the Police, the Food Base or the municipality may issue relevant licenses and permits related to activities such as selling alcohol, providing transport services, operating in the food market and medical or pharmaceutical activities. The average costs associated with registering a company in Denmark include start-up capital, cost of registering the form of business ownership, digital signature processing, logo and trademark registration, services of a translator, notary, consultancy firms and company registration done by a specialist organization. If the registration passes, several documents such as a certificate of incorporation, an extract from the DCCA register, the original certificate of participation, the company seal, the original articles of association under apostille and a power of attorney are issued.
Purchase of an existing company
The process of purchasing an existing company is a faster and easier alternative to starting a new one in Denmark. Ready-made companies are readily available for sale and the entire process can typically be completed remotely in about three weeks. These companies are often registered for a few months with a generic name that can be used for various types of businesses. Buying an existing company can also be advantageous because if it has been registered for a long time, has no outstanding debts, and has experience with accounting, it is viewed as a reliable and stable entity by banks, government agencies, and business partners. Once the purchase is complete, the buyer must open a bank account for the company.
The Start-up Denmark program is a joint initiative between the Danish Ministry of Business and Growth and the Ministry of Immigration, Integration and Housing that aims to encourage foreign investors to start their businesses in Denmark. Successful applicants of the program are provided with a residence permit for up to two people for two years. To be eligible for the program, the entrepreneur must have an innovative business idea that will bring added value to the Danish economy and must not plan to open a restaurant or grocery shop. The entrepreneur must be a shareholder in their country of nationality and not receive dividends, and must have sufficient savings to cover their living expenses in Denmark for one year. The program involves submitting a business plan, awaiting a decision, submitting relevant applications, and awaiting final approval. Successful participants in the program receive privileges equal to Danish citizens doing business, such as access to state subsidies and support programs, free consultations at business development facilities, and social guarantees including health care and education.
Right of residence in Denmark
Residence without parking documents
According to Danish law, Polish citizens can reside in Denmark for up to three months without a residence permit. However, if the planned stay is longer than three months, then they must apply for registration of their stay as an EU citizen, even before the three months have expired. This registration is done by obtaining an EU citizen's registration certificate, which is an official confirmation of legal residence in Denmark. Each registration certificate requires a specific reason for the person's stay, and it is necessary to apply for a new certificate if the reason changes. Scandinavian citizens are exempt from this requirement, but citizens of Switzerland, Norway, Iceland, and Liechtenstein must follow the same rules as EU citizens.
The EU-opholdsbekendtgørelsen is a set of rules that regulate the residence of EU citizens in Denmark. People who have lived in Denmark legally for a minimum of 5 years can apply for permanent residence. They need to visit the citizens’ service office (Borgerservice) in their municipality with a current certificate of residence of an EU citizen. After visiting the Borgerservice, they will receive a registration number (CPR), a health insurance card and address registration.
The process of obtaining a business visa in Denmark is simple and involves applying for a Schengen visa. An invitation from a Danish company or business partner must be obtained that includes details such as the purpose of the visit, date, confirmation of stay, and proof of financial security. The visa application should be submitted no earlier than three months and no later than two weeks before the planned visit. Biometric data and a digital photo are required, which can be provided in person or by a travel agent. A decision is usually made within 10 days, and the cost of obtaining a business visa is €27. The fast-track option is also available, which costs €35 and takes three days.
The process of applying for a business visa to Denmark is similar to that of a Schengen visa. Applicants must have an invitation from a Danish company or business partner and provide additional documents such as a bank statement and confirmation of hotel reservation. The cost of obtaining a business visa is €27 and the waiting time for a decision can range from 10 days to one month, depending on the situation. Additional documents may also be required, such as a tax service extract or commercial register extract, and a detailed itinerary may be necessary for stays longer than two weeks. Visitors who need to stay in Denmark for legitimate reasons can apply to extend the validity of their business visa for an additional 90 days. Multiple-use visas are also available for persons conducting business in Denmark.
Taxation in Denmark
The Danish tax system is progressive, meaning that the amount of taxes owed is based on a person's income. Taxpayers can deduct expenses such as transportation to work, insurance premiums, pensions, food costs, and child support, but these deductions must be documented. The Danish Tax Administration can perform an audit on a taxpayer's taxes paid for up to seven years in case of any doubt. A person's tax liability status (full or limited) is determined based on factors such as their residency status in Denmark, length of residency in Denmark, type and amount of income, place of employment, and permanent establishment of the employer or business. Those who are fully taxable must pay taxes on all of their income, while those with limited tax liability are only required to pay taxes on income earned in Denmark. It is important to register a company with the Enterprise and Trade Agency at least eight days before starting operations, and there are no tax breaks or holidays for entrepreneurs in Denmark.
In Denmark, individuals are required to pay taxes, including income tax and progressive tax. The income tax rate is a fixed 32%, while the rate for progressive tax varies based on income. Those who earn less than DKK 42,000 annually are subject to a progressive tax rate of 5.64%, while those who earn more than this amount are subject to a 15% rate. Both work income and capital income are considered when calculating progressive tax. Income tax is paid to local authorities, while progressive tax is paid to the treasury.
When a sole proprietor generates income through their business operations, this income is considered the income of the business owner. As a result, the taxes for the business and the owner's other income are paid together in a single tax return. The frequency of filing tax returns depends on the company, with quarterly or semi-annual filings required. These returns can be submitted online through the Danish Tax Authority's website. Sole proprietors in Denmark are entitled to health and pension benefits, similar to those who are employed. There are two advance payment due dates for income tax: March 20th and November 20th. If the payment is made earlier, the tax can be refunded with higher interest rates than those offered by banks. However, if the payment is made after the November deadline, the interest rate is reduced by 0.4, resulting in lower interest.
Companies – CIT
All companies operating in Denmark are obligated to pay corporation tax at a fixed rate of 28%. The tax system for companies is based on the principle of consolidation, which means that not only the parent company but also its branches and any subsidiaries are included in the tax calculation. In the case of partnerships, taxation is only applied to the partners of the company, rather than the company itself.
In Denmark, companies with an annual turnover of more than DKK 50,000 must register and pay value-added tax (VAT). VAT is a tax that is included in the price of goods or services offered and the rate is set at 25% for companies whose activities are based on the sale of goods or services. However, some activities are exempt from VAT or are subject to a 0% rate, such as medical care, real estate sales or rental, education, cultural activities, banking and insurance transactions.
Danish law allows foreign companies selling goods or services to Danish entrepreneurs or companies to use the reverse charge procedure. This means that foreign companies are not required to pay Danish VAT and do not include VAT on their invoices. Instead, the purchaser is liable for paying the VAT, which must be calculated based on the net value of the goods or services received. The reverse charge procedure is only applicable to certain types of businesses such as construction work, sports events, cleaning, employee leasing, maintenance and repair work, entertainment, exhibitions, and conferences.
Excise duties are a type of tax that is imposed on certain categories of products when the end purchaser buys them. The products that are subject to excise duties include mineral water, beer, wine, and strong alcohols, tea, coffee, chocolate, ice cream, tobacco, motor fuels, video cassettes, phonograph records, and electric light bulbs. It's important to note that excise duties only apply to specific products, and not to all goods.
Employment of employees
In Denmark, labor law is divided into two categories, depending on the type of workers employed: manual workers and white-collar workers. However, regardless of the nature of the work, employers who hire workers in a company operating in Denmark are required to provide their employees with health and safety training, fair wages, and insurance coverage for occupational illnesses and accidents. If these requirements are not met, labor conflicts, strikes, lockouts, or solidarity industrial action by trade unions may occur.
In Denmark, there is no single piece of legislation that regulates the relations between employees and employers for different occupational groups. The primary reference document for these relations is the agreement between the Danish Federation of Trade Unions and the Danish Confederation of Employers, which covers topics such as working hours, notice periods, minimum holiday entitlement, and maximum retirement age.
All agreements between employers and employees must be in writing; verbal agreements are not recognized. Danish law does not specify the length of time for which contracts must be concluded, so this is determined on an individual basis. However, it is generally accepted that salary increases can be negotiated every two years or so, while employment contracts can be negotiated, on average, once every four years.
All persons who take up employment in Denmark are covered by the Danish social security system. As part of this system, employers are obligated to deduct social security contributions from their employees' salaries. The annual amount of these contributions is approximately DKK 1,080 per employee. It is estimated that the average Danish employer pays around DKK 10,000 to 12,000 per year in social security contributions in connection with the employment of their workers.
Denmark does not have any minimum wage regulations established in law. Instead, specific collective agreements set the conditions for both work and pay. Although there is no general minimum wage for the labor market, collective agreements bridge this gap by setting minimum wages for specific industries and professions. Depending on the nature of the work, wages can be set as an hourly, daily, or monthly rate. The payment of wages can occur once or twice a month, depending on the agreement. Additionally, wages for specific industries are renegotiated annually.
Employees working for a Danish company are required to work a standard 37 hours per week. Overtime is considered to be the first three overtime hours or the first three hours worked at a time when the employee would normally be off-duty. It is agreed that the overtime bonus is set at 50%. However, if the number of overtime hours worked exceeds three on a given day or if the employee works on Sundays or holidays, the bonus rate increases to 100%. The employee has the option to choose between a bonus payment or additional time off. Part-time employees are entitled to the same benefits and privileges as full-time employees.
The Danish laws regulate leave entitlements for employees. Each employee is entitled to a total of 30 days of holiday leave each year, including Saturdays. In addition, employees who work second or third shifts receive an additional two hours of holiday for each week worked. However, at least 18 continuous days of holiday leave must be taken by the employee between May 1st and September 30th. If an employee has not worked the entire previous calendar year, their holiday entitlement is calculated based on the number of months worked in full. The calculation is based on 2.08 days of holiday for each full month worked.
In Denmark, collective agreements are established to protect employees in companies regarding their working conditions. These agreements regulate issues such as working conditions, pay, safety at work, working hours and location, holiday entitlements, settlement of overtime, and pensions, among others. Both employees and employers are included in these collective agreements, and employers can become members of a collective agreement if they choose to do so, particularly if they already belong to an employers' union. It is important to note that the presence of employees in a particular trade union does not necessarily mean that the company will adhere to the collective agreements established by the union.
Termination of an employee’s contract
The length of the notice period in Denmark varies based on the length of employment and can be negotiated by both the employee and the employer. The regulations on the dismissal of employees are established in collective agreements and vary depending on the sector and the employee's position. Generally, a widely accepted rule is that an employee who has worked for the company for at least nine full months and is at least 18 years old can only be dismissed if specific reasons are presented to justify the dismissal. If the employee feels that the dismissal was unjustified, they can take the case to court or an appeals tribunal. If the employer is found to be at fault, they are required to pay the employee compensation. However, there is an exception where the employer may dismiss the employee immediately, without notice, if the employee engages in grossly wrongful conduct.
Health and safety at work
Entrepreneurs who operate a business in Denmark are required to adhere to Danish health and safety regulations. These regulations can be found on the official website of the Danish Working Environment Authority. Additionally, if a company has at least 10 employees, it must establish a health and safety organization led by designated inspectors. The primary responsibilities of these inspectors include ensuring that the company's existing safety rules are implemented, even for companies with temporary or fluctuating workplaces. Failure to comply with health and safety regulations may result in fines and the suspension of work.
The employer's main obligations under Danish health and safety legislation include ensuring a safe working environment, paying attention to occupational hygiene, training employees in safety rules, providing personal protective equipment to employees, monitoring that employees carry out their work safely and in accordance with health and safety rules, and taking measures to prevent work-related injuries from occurrin
Tax identification number and tax card
In Denmark, individuals who earn small amounts of money are exempt from paying taxes and receive a frikort. However, this exemption does not apply to entrepreneurs and foreign investors, who are required to have a tax identification number and a tax card. The tax card is issued electronically and can be accessed through TastSelv. In order to obtain a tax identification number and tax card, an application must be submitted either electronically or by completing form 04.063.
Individuals can apply for a tax identification number and tax card no earlier than 60 days before their first planned day of work in Denmark. The application must be accompanied by copies of documents such as proof of identity (identity card or passport), a residence permit in Denmark, a signed employment contract if applicable, and a marriage certificate for married individuals.
Register of Foreign Service Providers
In order to establish a company in Denmark, it is necessary to register it in the Register of Foreign Service Providers (RUT), which provides Danish institutions access to important information about companies operating in the Danish market. Registration with the RUT should occur even before the company starts operating in Denmark, and any changes in the operation of the company should be notified at least one working day before they are implemented. The application for registration with the RUT is submitted digitally through the virk.dk website and can be completed in English, German, or Polish. The registration process requires information such as the name and address of the company, the type of services, location, date of activity, CVR number, VAT registration number, sector classification code, contact details of the registrant, and details of delegated persons in the case of delegations.
Upon completion of registration, a receipt is received with a personal RUT number, which is necessary when contacting any Danish authorities. Employees who have a RUT number and are employed by a Danish company, especially in gardening, cleaning, construction, agricultural and forestry services, should hand in their receipt to their employer.
Failure to register a company in the RUT or to notify changes can result in a fine or prosecution by the Labor Inspector, with the standard fine for such offenses being between DKK 10,000 to 20,000, calculated on the basis of each day of delay in some cases.
Termination of activity in Denmark
The process of terminating a company in Denmark involves completing certain formalities, one of which is amending the tax return. The country in which you will have to pay tax is determined by factors such as where you live and the type of work you do. There are two types of tax capacity: limited tax capacity and full tax capacity, which are determined by factors such as where you live and work, the center of your vital interests, and the residence of your partner or spouse. If a person's living situation differs from the requirements for limited or full tax capacity, other factors will be considered. In addition to amending the tax return, you must inform the tax office of your new address and deregister from the Danish national register.
The Danish economy has several major sectors, including food, renewable energy, information technology, maritime transport, and biotechnology, and companies operating in these sectors can receive significant amounts of state funding. Many foreign investors opt to open a restaurant or café in Denmark, which is a relatively low-cost investment and can be quite profitable, as Danes enjoy dining out. Other popular business choices include hair salons, travel services, hotels, banking, insurance, and transport. Jewelry stores are also becoming increasingly popular due to Denmark's negative interest rates, which have led many Danes to look for safe investment options, such as precious stones and metals.