Bootstrappers guide for Denmark

Published February 2nd, 2006 edit replace rm!

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:

Ok, now we have weeded the wimps out from the machos and lets get started.

Legal structures

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.

Sole Proprietorship

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.

Partnership

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.

Tax

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:

CVR Registration form

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.

MOMS

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.

Income Tax

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.

Business environment

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.

Government

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.

Banks

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.

Partners

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.

Investors

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.

Immigration

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.

Why not write your own guide like this for your own country and be a part of the Global Bloggers Bootstrap Guide .

Posted February 2nd, 2006

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Comments

Luis Enrique November 29th, 2006

BEFORE MARRIED

Hi,my name is Luis and I knew a sweet dane woman,can anybody give me advices or tips to effort all the procedures to get married and maybe some websites of information.Thanks a lot.I write from Italy and I am from Peru.Wating your news,arrivederci

Laurence Alter/[email protected] April 12th, 2007

Dear Staff,

I just want to know about opening a bank account (savings). I am American and I understand the interest rates are quite high in your country.

Thanks for your interest.

Yours,

Laurence

sina_323@yahoo.com

sina October 14th, 2007

dear all
I recently have been offered a job from a danish company. I am 28 with master degree which falls under " positive list". I already have applied for residency and submitted my documents to the danish embassy. I am from a non EU country. does any body have any information about how easy would be the processing of my application and how long it may takes?
the other question is that " what are the criteria that may lead to rejection of an application(for work permit) in Denmark?
It is very essential to me… thanks

daniel.doe@gmail.com

Daniel October 18th, 2007

Nice guide, it really gives you a good overview of setting up a business in Denmark. Im Mexican and Im trying to establish a business here in Denmark, QUITE HARD!, information is always in Danish and people arent very friendly at the moment of illing up the forms. If anybody wants to talk about the process of setting up a business in denmark please write me an email :).

patrickpstokes@hotmail.co.uk

Patrick December 15th, 2007

Hi All. my wife of 2 years is danish and we are resident in the rep. of ireland. My wife wants to move back some time soon. I have have a basic education and dont speak danish yet. If she moves back can i kiss good bye to my marriage? would it be possible to get any kind of job to fill the criteria, that you must be able to support yourself financially to stay in the country. Is it possible to get any kind job that does not require a degree. I hear even the cleaners in demark need to be well educated. Is there any hope???

admin@itcontractor.dk

Alan January 4th, 2008

I’m a Brit and I will say that as a fellow EU citizen, you do not get treated as fairly as my Danish partner did living in the UK. There are still criteria to be met as as an EU citizen, including having a firm written job offer or, in my case, proving I had enough in the bank to support myself AND my family, even though they are all Danes. Oh and don’t expect to get the chance to vote on anything like the elections, which I thought was strange since Denmark is supposed to be big on citizen equality, and in theory you’re paying the same taxes so should have the same say.

Compare that to the UK, which allows EU citizens to come without any savings, and allows them to claim unemployment benefits from day one (foolishly perhaps, considering the way it is abused, even my partners sister once took advantage of a free 3 month holiday at the British taxpayers expense), although as a result it definitely attracts an awful lot of hard-working immigrants too. Also my partner had the same voting entitlements as me the whole time she lived in the UK.

Anyhow, you can read more about living and working in Denmark at my website, http://www.itcontractor.dk.

But to sum up, I never earnt as much here as the UK, paid twice as much tax each year and found everything bar wood products to be much more expensive, then I had a dodgy Danish recruitment agent steal two months of my money. Thankfully I’m leaving soon, although my partner and children aren’t, which probably tells you all you need to know about how it’s worked out for me.

I urge anyone to think very carefully before moving to Denmark, there is a strange underculture in the country that you only fully understand once you move there. Especially If you’re from an Anglo-Saxon country, or of a more libertarian view, as a lot of IT Contractors are, it probably isn’t for you.

stephanie@stefanee.org

Stephanie Madsen April 9th, 2008

Hi,

I moved to Denmark a little less than 3 months ago and before i lived in San Diego, CA where I started getting consulting jobs. It looks like it might be an option for me here and i wanted to know if registering a business for consulting as a sole proprietor woula allow me to be in a lower tax bracket than if i was an indiviidual. from what i read from you it seems to be the case but where do i get my CVR nummer? from the skat? how do i register/start a new business? I am not sure if you have time to answer my questions but it would be appreciated.

Thanks,

Stephanie

nyskov@hotmail.com

Stephan November 27th, 2008

I feel that the guide is too harsh and old. There are new rules in many of the areas.

I would imagine that it is hard to start and register your own business anywhere in the world…especially if you’re doing it by yourself.

In Denmark, that’s why there are agencies who can help you for free with services regarding startups and registration. For companies ranging from 1 person to 1000+ persons. One example is www.copcap.com
They have been doing this for more than 15 years but few are aware of this.

ik2m72q02@sneakemail.com

BadDog December 17th, 2008

Good advice Stephan. The government pays for consulting for new business, so take advantage of it. Might as well use a major consulting firm since the government is paying. I used Toilet and Douche myself—great advice, and the business plan they develop will enable to you to get a bank loan.

To anyone who has fallen in love with a Danish girl and hopes to move to Denmark—DON’T!!!

Even if she’s an angel, as soon as you have kids she will kick you out. And now that you have to be together 7 years before you can get permanent residence (and no one makes it 7 years), Denmark will kick you out as soon as she divorces you.

Sad and unjust that Denmark kicks out the fathers of so many children, but the politicians are cruel when it comes to foreigners, even if it’s Danish kids and Denmark they hurt.

Btw, the politicians don’t like Denmark either, and are hurrying to surrender their sovereignty to the EU so there will be no more Denmark.

So have fun with the beautiful Danish girls when they vacation in your country, but don’t expect a life together.

anthony.chandler@live.com

Anthony Chandler March 10th, 2009

I’m having a great time here, been back forabout 3 months, heaps of works, and the money compared to getting paid in Australia ROCKS. I make more in 1 day sometimes then i used to make in a week at home. Quick question, when you first applied for you CVR nummer, how long do they take to process this and get your number back to you? And can you send out an invoice before you get your CVR nummer?

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