Corporate taxation refers to the tax that companies must pay on their income. Corporate tax is calculated on the basis of the company’s taxable income after deduction of allowable expenses and depreciation. In Denmark, corporate tax is a fixed percentage of the company’s taxable income.
Frequently Asked Questions About corporate taxation
What is the corporate tax rate in Denmark?
Corporate tax in Denmark is 22 percent and is calculated on the company’s taxable income.
The calculation is based on the accounting result, adjusted according to tax legislation.
Tax-exempt income is deducted, while non-deductible expenses are added back, and tax depreciation follows special rules that often differ from accounting rules.
When is a company fully or limited tax liable to Denmark?
Companies registered in Denmark are fully tax liable, regardless of where they conduct business.
Foreign companies are limited tax liable and are only taxed on income connected to Denmark, such as income from a permanent establishment, real estate or payments subject to withholding tax (dividends, royalties and certain interest).
How is taxable income calculated for companies?
The starting point is the annual report, but the result is adjusted under the tax rules.
Certain expenses, such as fines and non-deductible representation expenses, cannot be deducted, and certain income, including tax-exempt group dividends, must be excluded.
Special rules apply to tax depreciation, so the taxable result will often differ from the accounting result.
How and when is corporate tax paid?
Corporate tax is paid as on-account tax twice a year in March and November, based on the expected annual result.
Voluntary payments are possible to avoid interest surcharges.
After the income year, the tax return is filed, and any residual tax or excess tax is calculated.
Can tax losses be carried forward?
Tax losses can be carried forward without time limitation.
Losses can be fully offset against the first approx. DKK 9.6 million of the year’s profit, while only 60 percent of the profit above this amount can be offset.
The rule ensures that companies with large losses still pay corporate tax when they achieve significant profits.
How is dividend income taxed for companies and individuals?
Dividends are taxed differently depending on the type of shares and the status of the recipient.
Dividends from subsidiary shares are tax-exempt when the recipient company owns at least 10 percent of the distributing company.
Dividends from group shares are also tax-exempt when the companies are covered by joint taxation or meet the conditions for it.
For portfolio shares, dividends from unlisted portfolio shares are tax-exempt for companies regardless of ownership share, while dividends from listed portfolio shares are taxable.
Dividends to foreign owners are generally subject to 27 percent withholding tax, which can be reduced under a double taxation treaty or the EU Parent-Subsidiary Directive.
For Danish individuals, dividends are taxed as share income at progressive rates of 27 and 42 percent.
How does group taxation affect corporate taxation?
Danish group companies must be jointly taxed, so profits and losses can be offset across companies.
International joint taxation can be chosen to include foreign companies, allowing foreign losses to be offset against Danish income.
However, such losses must be reversed when the foreign companies later achieve profits.
When is a foreign company limited tax liable due to a permanent establishment?
A foreign company is limited tax liable to Denmark if it has a permanent establishment in Denmark.
This includes offices, branches, factories and construction sites that exceed the time threshold.
A permanent establishment can also arise if a dependent agent in Denmark conducts business on behalf of the company and performs core activities that are an integral part of the business model and not merely preparatory or auxiliary.
Foreign companies are also taxed on income from real estate in Denmark and on certain payments subject to withholding tax, including dividends, royalties and certain interest.
What are the rules on interest deduction?
Interest and financing expenses are generally deductible, but the deduction can be limited by the interest deduction rules in the Corporation Tax Act.
The rules include requirements for capital structure, a cap on the deduction in relation to income and special corrections for loans to or from group-related companies in low-tax countries.
The purpose is to prevent companies from reducing taxable income through excessive debt financing or internal group loans.
What is transfer pricing, and why is it important?
All transactions between group-related companies must be on arm’s length terms, corresponding to what independent parties would have agreed.
Large companies must prepare transfer pricing documentation every year.
The Danish Tax Agency can adjust income if they find that the terms are not at market conditions.
What are hybrid mismatches, and how are they handled?
Hybrid mismatches arise when differences between countries’ tax rules are exploited so that a payment or structure is treated differently in the jurisdictions involved.
This can lead to deductions without corresponding taxation or double deductions.
Special rules implementing the EU Anti-Tax Avoidance Directive (ATAD) allow Denmark to deny deductions or impose taxation where a mismatch arises.
The aim is to prevent unintended tax advantages through hybrid entities, financial instruments or permanent establishments.
How does relief for foreign tax work for companies?
If a Danish company has paid tax abroad on income that is also taxable in Denmark, the foreign tax can be credited against Danish corporate tax.
The company then pays only the difference if Danish tax is higher.
The scheme applies to income from countries with which Denmark has a double taxation treaty and is subject to limitations on how much foreign tax can be credited and how it is documented.
If foreign tax exceeds Danish tax, full relief is normally not possible, and excess tax cannot be refunded.
Disclaimer
As the above is for guidance purposes only, we accept no liability for decisions that may be made based on the above without prior individual advice. We accept no liability for errors and omissions.