I am Danish (well nearly ) and am currently operating my business out of Denmark. I have also had businesses in a variety of other countries, so I think I have a pretty good perspective of what you need in Denmark both for Danes, but also for foreign residents here. There is very little good information in English about setting up business here, which is really embarrasing.
Should you even start a business in Denmark?
Why don’t I just start with the conclusion. The honest and maybe controversial to some Danes answer is: Only if you really, really have to!
- If you are Danish and quite happy with that fact as well as living here, thats a pretty good reason.
- You feel in love with that hot tall Danish blonde (you know how you are) and just had to follow her here. Thats a pretty good reason as well.
- You are a first or second generation immigrant. It can be hard working here as a foreigner (even if you were born here), so business is often the only real satisfying option to foreigners here.
Why shouldn’t you start here? There are plenty of good reasons not to, but the top ones are:
- Looking to cut costs. You wont!
- Saving on my taxes. Ha ha ha ha!
- Thinking you can make a difference (I wish you luck elsewhere Sean)
Ok, now we have weeded the wimps out from the machos and lets get started.
Denmark has many more options here than you first think of:
- Sole proprietor (Enkeltmansfirma)
- Partnership (Interessentskab or I/S)
- Private Limited Company (Anpartsselskab or ApS)
- Public Limited Company (Aktieselskab or A/S)
- Limited Partnership (Kommanditselskab or K/S)
- Limited Liability Cooperative (Andelsselskab or AMBA)
- Branch of Foreign Company (Filial af udenlandsk firma)
The only ones I can really recomend to startups (at least bootstrappers) are Sole proprietor, Partnership or Foreign Company.
Whatever you do DO NOT INCORPORATE IN DENMARK, unless of course you enjoy quiet nights alone with large Hawaiian pineapples in the back of your closet with the lights out (or you really, really need venture capital from Danish sources).
Where Danish law has made it really difficult to incorporate in Denmark the 3 other options are easy and cheap to do to get started.
Recent Danish tax law changes has given you the option of the same tax benefits that only companies had before to sole proprietorships and partnerships, but only if you plan on staying in Denmark for the long term.
To do this you basically just need to get a CVR number (like the US Federal Employers Tax ID). I will explain this process a bit later. If you aren’t planning on making lots of money I think you classify as a hobby business and you don’t need to register. I do recommend doing so anyway.
You have full legal liability for whatever mischief your business gets up to and the income is liable for personal income tax. Basically like anywhere else in the world.
The cool new tax twist is that you can file your taxes at the end of the year under the Business Rule (Virksomhedsordningen), which allows you to pay the much lower corporate tax rate on your profits as long as you keep these in the business. However when you take money out for personal reasons such as food, Carlsberg etc, you do have to pay the difference between the corporate tax rate and the personal tax rate. It’s a pretty good deal though and you and your account can decide at the end of the year which one makes sense for you that year.
The big hitch if you are a foreigner is that if you plan to leave Denmark at some point, you will be taxed again on the difference between the corporate and personal taxes on whatever profits you have saved up in the business.
It’s pretty much the same deal as the Soleproprietorship. It’s easy to get started and you have pretty much the same pitfalls and benefits as elsewhere in the world. This means full legal liability with solidarity between partners. Like anywhere else in the world this means that if one of your partners runs up a big debt in the name of the partnership you can be held personally liable for all of it. Needless to say, write up a partnership agreement.
The same cool tax rule is available to partnerships as to sole proprietorships. From what I understand, each partner decides how he or she wants to file.
Branch of Foreign company
I will explain why Danish companies are bad news for entrepreneurs, just bear with me. More and more Danish entrepreneurs are incorporating elsewhere in Europe and registering a branch locally in Denmark.
Try googling uk company formation to see why the UK in particular has become the favorite corporate domicile for Danes. It’s cheap and it’s quick to do. Once you have your UK company registered all you have to do is file the same form for a CVR number as you would for a sole proprietorship.
Tax wise you are taxed as a company and you would need to pay yourself salary on which you would get taxed in Denmark. For all intents and purposes you abide by the same rules and laws as Denmark. Due to double taxation and other things I don’t understand you don’t get taxed in the UK on money earnt in Denmark. However you still have to file your annual tax return in the UK. But compared to the Danish hassle it’s a nobrainer.
Branch of a US LLC
I have written about LLC’s before and think they are great. While I have zero experience with this, I believe you could probably register this as either a branch of a Foreign Company or as a partnership. But seriously get some legal opinion first. You might even be able to ask the company registry directly. (I will ask and report back)
With this you have limited liability as well as partnership like taxation.
Why not be an A/S (or ApS)?
Easy. As a startup you need to have a cool DKK125,000 (~USD20,000) upfront in cash as share capital to be honoured with the ApS label and DKK500,000 (~DKK81,000) to be an A/S. Btw. A/S is pronounced “Ahh. Ess.” and not “Ass”, you would be suprised the amount of foreigners who make that mistake.
There are also lots of other annoying paperwork and rules and regulations and what have you. But the above upfront capital requirement makes it inaccessible for most bootstrappers.
Recommendation for bootstrappers
If your are a solopreneur stick with the sole proprietorship during the startup phase and do the UK company afterwards.
If you are a partnership talk to an account about the possibility of being a Danish branch of a US LLC. But only after you are getting to the point where you are ready for the extra costs.
People often say the Danish national sport is tax evasion. I’m not sure about that, but once you see our tax rates you know why.
Tax registration process
You need to register for a Tax ID called both CVR and SE. Nowadays they are basically the same. To to so is very quick and easy assuming you know Danish. Just fill out the following form, print it out and send it to the man:
If you don’t know Danish, you either need a Danish friend, an accountant or that hot blonde girlfriend of yours. Unfortunately Danish paperwork is not very friendly to foreigners.
You need to charge 25% Value Added Tax to your end users in the European Union. However you also get to deduct all the business related MOMS you pay. For example I use EasySpeedy as an ISP. They charge me 25% MOMS on top of what their actual price is. I in turn can deduct this from any MOMS that I might charge.
The good thing for the bootstrapper here is that before you are making sales enough to pay the government anything, they will refund your out of pocket MOMS. This is pretty handy as any business related expense or purchase becomes that much cheaper.
The reporting and payment cycle is quarterly. You can order a pin and report your MOMS here . If they owe you a MOMS refund they will deposit it in your bank account normally within a week. When you report your MOMS, they will tell you the last valid day of payment and a payment code you can use in your online banking system to pay it.
Most accounting programs in Denmark will tell you exactly what to put in the reporting form.
The tax rates are very complex and you will soon learn about municipal, bottom, middle and the dreaded top tax. Let the greedy monster explain it to you in their own words here . It seems like when they want to charge you they are pretty good to translate to other languages.
Rough tax rates
Now if you are American hang on to your seat here:
- MOMS (VAT or Sales Tax) %25
- Corporation Income Tax %30
- Personal income tax (%45 to %59)
There you have it. And believe me it does hurt. I know we supposedly get free health care and other services, but I could buy my self some pretty premium health care out of my pocket if I only paid the Estonian %24 income tax. Enough bitching.
While the government is bureaucratic and the majority of people haven’t got the least bit of a clue about entrepreneurs and business, it isn’t really a bad business environment.
Denmark constantly to my initial surprise rates high in the World Bank’s Doing Business Guide. It is rated an overall 8th best world wide.
I and most entrepreneurs I know have found that the people working in government have little understanding of our needs. There are lots of rules and strange little taxes to understand. At the same time though they are trying to stream line things and there are lots of e government initiatives to make things simpler.
Overall I have been very pleased with the banks here. It may be difficult to open an account here without being resident. But once you are in they seem flexible and have a very personal touch. My personal bank advisor here is probably the best I have ever had.
Denmark is a very trusting society, which also is reflected in the business environment. Businesses are normally open to partnering. However be aware that Danish businesses are very pragmatic in many ways. They may in other words have a lower threshold for BS than say in the UK and the US. But as I said if you are serious about something, this isn’t bad. Remember this also counts if you are running your business outside of Denmark.
I am a bit uncertain of the current investment climate. Many VC’s burnt their fingers on the whole .com crash. But many investors where also kicking themselves for not having gone into the Skype deal when they were offered it early on.
My sister used to work in this business and my impression is that they are pretty much like VC’s elsewhere.
Cost of living
Denmark is not cheap. While places like London and New York aren’t cheap either, just about everything from services to groceries will set you back more kroner than elsewhere in the world.
As a European Union country Denmark allows other EU citizens to move and live here. There is some sort of formality, but I’m not sure of what it is. My guess is that you need to register at your kommune (city hall).
If you are from outside of the European Union it is much more difficult. You basically need to be married to a Dane and fulfill the following:
- Your Danish spouse needs to have lived in Denmark for more than 28 years
- You and your spouse both need to be over 24
- Your spouse needs to be the owner of an house/apartment or have a 3 year rental contract
- Your spouse needs to have a fairly decent salary
- Your spouse needs to put up a bank guarantee for DKK54,000
If you can’t fullfil these forget it. There is also a serious amount of pain involved in the actual processing of this.
I intend to keep updating this so please come back.
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