You must be self-employed to apply the company scheme, see section 1. In addition, there are a number of accounting requirements that you must be able to meet, as we have described in section 2.
When are you self-employed?
The company scheme can be used by both fully and limited taxpayers to Denmark, who are considered self-employed. However, only those undertakings which are considered to be commercial undertakings may be included in the enterprise scheme.
A self-employed person can easily run several self-employed businesses, some of which are considered commercial enterprises and others are considered non-commercial enterprises (including, for example, hobby businesses).
Self-employment is not defined in any specific provision of the tax code at all.
Therefore, for the definition of this concept, one must look exclusively at practice through time.
As a rule, self-employment is characterised by the fact that activities of an economic nature are carried out at their own expense and risk with the aim of obtaining an economic profit. The business must not be of limited circulation, must be operated on a fairly regular basis and must not be of a very short duration.
The definition of whether an undertaking is regarded as a commercial or non-commercial enterprise is based on practice through an overall concrete assessment of, inter alia, profitability and intensity.
In this context, consider, inter alia, the following:
- Whether there is a prospect that the company will sooner or later make a profit (profitability)
- Whether the company's deficit is transient
- Whether the company's prospects “require” the owner to have stable income from the other side in order to neutralize a deficit
- Whether the profitability assumptions have been examined before the establishment of the company (operating and cash budgets have been set)
- Whether the company has the necessary intensity and seriousness
- Whether the owner has the necessary professional qualifications to run the business and whether the company has a natural relationship with the taxpayer's other revenue-generating occupations, if any.
- Whether there are other business purposes of the company
- Whether the taxpayer has been prevented from using the company's assets for private use
- Whether the scope/duration of the enterprise is of a certain size
- Whether the mode of operation is usual for undertakings of the type concerned
- Whether the company meets the professional standard applicable to the profession in question
- If so, whether the company could be sold to a third party (i.e. whether, despite previous losses, a third party sees profit potential in the company) or whether it has no profit prospects at all if it is detached from the property, person or organization in which it has previously operated.
2. Conditions and accounting requirements for the application of the corporate scheme
When you have chosen to use the company scheme, you should be aware that it is a requirement that you prepare, among other things, an annual financial statement that complies with the requirements of the Accounting Act. In addition, a tax accounting must be prepared that complies with the minimum requirements ordinance for your type of company (Decrees No. 1295 and 1296 of 14/11/2018 for larger and smaller companies, respectively).
The accounting of the enterprise must be organized in such a way that there is a complete separation of the company's finances and the private economy. This separation is due in particular to the fact that it would otherwise not be possible to make a correct disposition in the company scheme (see the section on the extended tax order) and thus correct tax calculation.
In the corporate scheme, accounts must be kept with a deposit account, an interim account with the owner of the company, an account for retained profits, a capital return basis both at the beginning and at the end, and the return on capital and interest correction must be calculated each year.
In the case of several commercial enterprises under the enterprise scheme, these are treated as one enterprise
- in relation to the requirement of complete separation of business and private economy; and
- in relation to the statement of a joint deposit account, account for retained profits, capital return base, etc., and capital returns, as well as, where applicable, intermediate bills and private withdrawals.
As a rule, you opt-in to/opt out of the company scheme when submitting your tax return. Typically no later than 6 months after the end of the income year. However, you have the opportunity to conduct by-elections until 30 June of the second year after the end of the income year cf. VSL §2, para. 2.
If, for example, in the summer of 2018 you self-declared for 2017 without applying the company scheme, you have until 30 June 2019 to conduct by-elections.
The tax return selection does not apply to simple dispositions, such as, for example, changing the statement of withdrawals to the holder of the company.
We do not accept responsibility for any dispositions that may be made on the basis of the above without prior individual advice. Likewise, we accept no responsibility for any errors and omissions.
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