Permanent Establishment in Denmark

What is a permanent establishment, and when does it arise?

A permanent establishment can arise in many different situations, but what they all have in common is that a foreign business carries out some form of business activity from Denmark. The classic example is a foreign company establishing an office, warehouse, or workshop in Denmark. In practice, however, we now see far more complex and modern scenarios, where the assessment becomes more complex.

A permanent establishment can also arise if the company has one or more employees who work permanently from Denmark – for example from a home office. The decisive factor is not whether the employee works from home of their own free will, but whether the company’s management has approved it, and whether the employee performs significant tasks with business importance for the company. This could be sales work, contract negotiations, customer support, advisory services, marketing, or project management.

If this type of activity takes place regularly and generates income for the company, there may be a risk that a permanent establishment is created in Denmark – with the resulting Danish tax liability. This can happen even if the company does not have any official address, branch, or registration in Denmark.

There have already been several specific cases, both in Denmark and internationally, where a permanent establishment has been established solely on the basis of one employee’s working from home. This is therefore a real risk that many overlook – and which can ultimately have major financial and tax consequences.

The consequences of a permanent establishment

If a company has a permanent establishment in Denmark, this means that it must pay tax on the income that can be attributed to the Danish establishment. This means that the company must prepare separate accounts and calculate the result of the Danish activity, submit information to the Danish Tax Agency, and register as a taxable entity in Denmark.

If the company has not filed correctly – either because it did not know it had a permanent establishment, or because it has failed to do so – the Danish Tax Agency may issue an additional assessment. This will typically include claims for corporation tax, interest, tax surcharges and fines. In some cases, there will also be a requirement to register for VAT and calculate VAT for previous years.

The consequences are therefore not only financial, but also administrative. The company risks having to recreate several years of accounting information, submit documentation, and participate in meetings with the authorities. For international groups, this can also create issues in relation to transfer pricing, internal allocation of income and local financial reporting.

Risk areas for permanent establishment

As a business, it is crucial that you not only have control over your formal presence in Denmark – but also your actual, operational presence. If you have employees working in Denmark – whether from their home, a customer address, or a co-working office – you should consider whether this could trigger a permanent establishment.

The same applies if your company sends consultants, technicians, project managers or installers to Denmark for shorter or longer periods. The duration, the nature of the work and the degree of control over the work assignment can all play a role in the Danish Tax Agency’s assessment.

We therefore recommend that you obtain a specific assessment of whether your company structure and activities in Denmark – or abroad, if you are a Danish company – involve a risk of permanent establishment. It is sensible to address this proactively and take a position on it in good time.

Contact us about permanent establishment

At SkatteInform, we are specialists in permanent establishment and international tax matters. We advise both Danish and foreign companies and have solid experience with the complex assessments that form the basis for permanent establishment.

We offer a thorough review of your business model, contractual relationships and international structure. We assess whether a permanent establishment exists and what it specifically means for you. In addition, we help with registration, tax calculations and communication with the authorities, so that you are always compliant with the legislation – and avoid unpleasant surprises.

Are you in doubt whether your business risks having – or already has – a permanent establishment in Denmark? Then contact us today. We are ready to help with clarification, advice and, if relevant, contact with the authorities.

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Permanent establishment in Denmark – FAQ on tax, rules and consequences

Get answers to the most frequently asked questions about permanent establishment in Denmark. Read about the rules, tax consequences and how to avoid unintended tax liability. See more in the text below.

What is a permanent establishment in Denmark?

‍A permanent establishment is a physical place in Denmark from which a foreign company carries on business, e.g. an office, workshop, shop or construction site. It can also arise through a dependent agent with authority to conclude agreements. Even a home office can trigger a permanent establishment if it is a permanent part of the business.

When does a permanent establishment arise?

‍There must be a fixed place of business that is used regularly, and the activity must have a certain duration (typically more than 6 months – however, international agreements may set other thresholds). Even temporary projects can create a permanent establishment if they exceed the time limits.

Which activities can trigger a permanent establishment?

‍Offices, warehouses, workshops, construction sites, installation projects and fixed sales locations can create a permanent establishment. The same applies to employees or agents in Denmark who conclude agreements or perform core business tasks.

What does a permanent establishment mean for tax?

‍The company becomes taxable in Denmark on the profit that can be attributed to the establishment. This requires registration, submission of a tax return and payment of corporation tax. Failure to register can lead to large additional assessments, interest and fines.

How do you avoid unintended permanent establishment?

‍By carefully planning activities, contracts and physical presence in Denmark, you can reduce the risk. A legal assessment of the entire business model is often required.

Can a home office create a permanent establishment?

‍Yes. If the home office is used regularly for core business and is approved by management, it can trigger a permanent establishment. In addition, sales work carried out from the home office can also contribute to establishing a permanent establishment if the work is an integrated part of the company’s business operations. A legal assessment is recommended, as permanent establishment depends on an overall assessment of the nature, duration and importance of the activities.

When is there not a permanent establishment?

‍A permanent establishment normally does not exist if the activity is solely of a preparatory or auxiliary nature. Likewise, there will typically be no permanent establishment if the work is carried out by an independent agent acting in their own name and not subject to the company’s management. There is also no permanent establishment when the activity does not constitute a fixed place of business with duration and regular conduct.

How can SkatteInform help?

‍SkatteInform can assist with a thorough review of the company’s activities to assess the risk of establishing a permanent establishment. We ensure correct registration with the relevant authorities and advise on how tax obligations should be handled in accordance with applicable laws. The aim is to minimise the risk of tax claims and avoid potential fines.

Call us on 33 32 10 10Write to info@skatteinform.dk

SkatteInform State-Authorised Audit Partnership CompanyFrederiksborggade 54, 1st floor, left1360 Copenhagen K

Disclaimer‍

We do not accept liability for dispositions that may be made on the basis of this article without prior individual advice. Likewise, we do not accept liability for any errors and omissions.

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