Starting a danish sole proprietorship

How do you start up a sole proprietorship, popularly called a one-man company, in Denmark?

Registering a sole proprietorship is simple.

There’s no cost, and you don’t have to pay to register.

Dania Accounting will walk you through the registration process, along with all other relevant details regarding operating a sole proprietorship.

Registering your business

To register your business, first and foremost, you must choose a unique company name. To check that the name you came up with hasn’t already been taken, you can use this website:

https://datacvr.virk.dk/data/

Ensuring your company name is unique before you start your application is important; otherwise your application will be rejected, and you’ll need to start all over again.

Secondly, an address is required to apply. Many clients use their private address in the beginning, since they often start from home without an outside office.

You also must designate a date for the commencement of business activities. Choose a strategic date. For example, if you start your business on December 31st, you’ll have a VAT declaration for the fourth quarter, and you’ll have to submit an annual report for the whole year. So, in this example, January 1st would be a more strategic start-date, since you’ll then have a year-and-a-half until you must submit your annual tax report. Dania Accounting recommends that you consider picking the first day in the next quarter to optimize planning and also reduce your costs.

Additionally, you must find the branch code for your application. This is a code for the type of business you’re conducting, and the website:

https://indberet.virk.dk/myndigheder/stat/ERST/Branchekode

will direct you in finding the code you’ll need to register.

When you have this information – the company name, the address, the start date, the type code – then you log into:

https://indberet.virk.dk/myndigheder/stat/ERST/Start_virksomhed?nm_extag=Link%3D%2Cforside%2Cmest-anvendte-start-virksomhed%2C

where you’ll find the application and additional forms you must fill out to register your business.

To login you need a Danish NemID. If you’ve just moved to Denmark, you probably don’t have this yet, and you must obtain it before registering your company. There are many guides to help you apply for your NemID – you can order it here:

https://www.medarbejdersignatur.dk/produkter/nemid_medarbejdersignatur/bestil_nemid/index.html?execution=e1s1

After you submit your application, it may take a few days to obtain your business number, which in Denmark is called your CVR number. Your CVR number is a unique 8-digit sequence that identifies your business. This will be used when you go to the bank or purchase something from other companies.

Establishing your bank account
When you have your CVR number, you must establish your company bank account. This will likely be a difficult process, and you may face rejection from many banks. Be prepared. This is normal and happens to everyone, even Danes with brilliant company ideas. For a better shot at success, do your homework before you go to the bank by making a business plan: a cashflow budget, a results budget, a balance budget, and a budget for your private expenses. This will provide the bank a clear idea about your financial needs, and if you ask for a credit, naturally they need a budget to feel safe issuing a loan to you. Here are some templates to guide you:

Budget for starting a company:
https://startvaekst.virk.dk/opstart/laeg-virksomhedens-budgetter/etableringsbudgettet

Result (P&L) budget:
https://startvaekst.virk.dk/opstart/laeg-virksomhedens-budgetter/driftsbudgettet

Cashflow budget:
https://startvaekst.virk.dk/opstart/oekonomi/likviditetsbudgettet

Private budget:
http://www.raadtilpenge.dk/da/Gode-raad/vaerktojer-til-din-okonomi/laeg-et-privatbudget/Budgetberegner.aspx

Registering the business and preparing these budgets are all services Dania Accounting provides. We charge 500 DKK for registering a company in the CVR registry and 1.500-3.000 DKK to prepare the budgets that are typically needed when you present to banks. Normally, it’s a lot easier to get a bank account when you’ve had the business for 3-6 months, and you have a balance that demonstrates your business’ potential to the bank.

Registering a NemID & communicating with the government
After you’ve been to the bank, you must order a NemID for the business as well. Danish people have two NemIDs – one private and one business. In order to obtain a NemID, you log into:

https://www.medarbejdersignatur.dk/produkter/nemid_medarbejdersignatur/bestil_nemid/index.html?execution=e1s1

and enter your CVR number. They’ll deliver the password by snailmail and email, and you’ll need this password to create your NemID.

Apart from the NemID, you also need something called a NemKonto. This account is used when the government owes you money. If you’ve declared a VAT and you want a refund, for example, the money will be refunded to this account. Normally, your bank will register your account automatically, but just to be sure, you can ask your bank do so. If this is not set up, the first time you have a tax return or VAT return from the government, they’ll have no account info to send the money. As a result, you can expect a delay of 4-6 weeks to get it sorted. So, again, confirm with your bank that they’ve made your business account your company’s NemKonto.

You can read more about NemKonto here (English link):
https://www.nemkonto.dk/da/Servicemenu/Engelsk

Communication with the government also occurs through a site called e-boks. The government requires a mandatory registration with this site, and you need your name ID to login and create it. e-boks is an inbox for all the emails you’ll receive from the government. If the tax office wants to email you, for instance, it’s going to be sent to your e-boks instead of your normal inbox.

You can read more about e-boks here:
http://www.e-boks.dk/

Registering with the tax office website “SKAT Erhverv”
When you have your NemID, you also have access to the tax office website SKAT Erhverv. This is the site used to declare VAT:

http://skat.dk/data.aspx?oId=2167569&vId=0

in other words, it is the tax office portal for businesses, and there is a separate one for private tax called SKAT Borger:

http://skat.dk/data.aspx?oId=2166790&vId=0

which is for citizens.

Dania Accounting recommends that you give your account or auditor access to both sites.

To give us access to your SKAT Erhverv, here is what to do:

We will need to have access to your “SKAT Erhverv’ using our CVR: 35816321

Follow this procedure:

1: Log into TastSelv Erhverv on www.skat.dk (you need to have an employee NemID – your private NemID does not work here – if you do not have an employee NemID for the company, then order here first: www.medarbejdersignatur.dk)
2: Choose “Profil” in the top menu
3: Choose “Rettigheder til TastSelv”
4: Choose “Autoriser revisor m.fl.”
5: In the dropdown menu “Indberetningsområde” choose one access at a time – start with VAT (moms)
6: Write our CVR: 35816321 in the space next to the dropdown menu
7: Click on the arrow to the right
8: Click “GEM” on the lower part of the page

This procedure needs to be repeated for all the access options you see in the dropdown menu called “Indberetningsområde”.

Normally there is 10 access options, but it depends on how your company is registered.

When authorizing a new access option, your screen should look like this:
https://www.dropbox.com/s/wx8pqjmsebsmkzu/Sk%C3%A6rmbillede%202015-04-14%2019.56.22.png?dl=0

When you are done and all access options are given, your screen should look like this:
https://www.dropbox.com/s/7cav9ge3jklbaca/Sk%C3%A6rmbillede%202015-04-14%2020.01.04.png?dl=0

If you provide your accountant access, they can declare your VAT online, help you with your tax declaration, and retrieve information they need – information you might not have or understand.

To give us access to SKAT Borger here is what to do:

We need to have access to your “SKAT Borger” using our CVR: 35816321

Follow this procedure:

1: Log into TastSelv Borger on www.skat.dk (use your private NemID)
2: Choose “Profil” in the upper right part of the page
3: Choose “Giv adgang til rådgivere eller andre”
4: Choose “Opret ny”
5: Write our CVR 35816321 in the field “Jeg giver adgang til”
6: Write our CVR 35816321 in the field “Bekræft adgang”
7: Check the box “Adgang til alle informationer”
8: Then press “GODKEND” on the lower part of the page

When you press GODKEND, your screen need to look like this:
https://www.dropbox.com/s/9flluu5ndq7wc8p/Sk%C3%A6rmbillede%202015-04-14%2019.37.44.png?dl=0

When you are done and all access options are given, your screen should look like this:
https://www.dropbox.com/s/du5q6gxtl5sxp3b/Sk%C3%A6rmbillede%202015-04-14%2019.40.52.png?dl=0

Registering Alcohol Permissions
If you’re selling alcohol – beer, wine, liquor, etc. – then you also need permission from the police. This can be difficult if you don’t speak any English, and many clients have to hire a manager in the restaurant who speaks fluent Danish in order to receive permission; so be aware of the limitations for foreigners, due to language barriers. Dania Accounting can help you register with the nutrition database and can also help you apply to sell alcohol in your restaurant.

Setting Up a Company Website and Telephone Number
After all of these formalities, you might set up your company website, using your company name if possible. To check if your company name is available, Dania Accounting uses a site called:

https://www.unoeuro.com/

which supplies internet domains. While there are many suppliers of domain names, this is our preferred site, due to their reliability and ease of use.

In terms of business telephone numbers, in Denmark, many companies have numbers that start with ‘702’, and this is through a smart service called ‘702 number’ offered by TDC, one of Denmark’s main telephone companies. When you register with TDC here:

https://erhverv.tdc.dk/

your primary number will start with ‘702’, while the last five digits are chosen by you. You can then program the number to forward all calls to your mobile. The cost for registering this number is around 50 DKK per quarter. Dania Accounting recommends you do this from day one, so that you can print this ‘702’ number on all marketing material, including printed material and your website. The ‘702’ number looks a bit more professional than your personal mobile number.
Additionally, if your business involves a lot of travel, Dania Accounting recommends a mobile phone company called “3”. They offer international telephone services for the same cost as calling locally in Denmark. You can speak from Sweden, Great Britain, Germany, Norway, France, Italy, and more, so if you travel a lot, this will save you a great deal of money.

https://www.3.dk/business/

Choosing your accounting system
When you start conducting your business, you’re going to accumulate many documents and expenses which you must book. Many small companies start off simple by registering everything in an Excel spreadsheet and declaring everything themselves, but at some point, you’ll need to choose a real financial accounting system, termed an ERP system.
There are three popular systems in Denmark:

e-conomic
https://www.e-conomic.dk/

Dinero
https://dinero.dk/

Billy’s Billing
https://www.billy.dk/

Prices for these systems are similar;

e-conomic charges 99 DKK/ month for a ‘startup edition’. When you get a little bigger, they have a ‘small business edition’ for 159 DKK/month and a ‘professional edition’ for 349 DKK/month, with additional charges if you also want scanned invoices.

Dinero on the other hand has a free version called a ‘starter’. The ‘starter’ has many limitations in terms of storing invoices and PDFs, etc. and is primarily offered to test-drive the system. Eventually, you’ll have to upgrade to a pro version, which costs 147 DKK/month if you buy it one year in advance and pay in advance; otherwise it costs 177 DKK/month.

Billy’s Billing charges 99 DKK/month if you pay in advance for twelve months; otherwise it costs 129 DKK/month. They also have a free version with limited functionality.

Dania Accounting favors e-conomic, as it has great functionality for accountants, such as reporting and controlling facilities not offered by Dinero and Billy’s Billing. That being said, both Dinero and Billy’s Billing offer exceptional user interfaces for business owners, so you might find them easier to use.

Choosing your accounting system is really a matter of preference. All three systems are online systems, which means you can book online, store all invoices digitally in PDF, and business owners can provide access to the system so that accountants can work remotely and simultaneously with the client. You can find out more information on how to choose a system here.

Sole proprietorship – services offered by Dania Accounting

Division of tasks
When Dania Accounting works together with small business clients, we normally share the tasks, in order for our small clients to save a little money. This differs from large companies, where we, more or less, do everything. But if you want a lighter bill, here are some things you can do yourself.

First, you can prepare the sales invoices. If you prepare the sales invoices every time you provide a service or sell a product, this saves a lot of time; you won’t have to explain to us what you did, the product you sold, who you sold it to, etc. In all the accounting systems, invoices are generated by PDF which can then be sent directly to the client. The process is quite simple.

Another thing you can do yourself is to pay your own invoices – phone bills, insurance, etc. Additionally, you can remind your clients to pay, especially if you don’t have many invoices. Again, removing the middle man (us) where you can will likely save you time and money.

Invoicing & VAT
A fixed routine for invoice prep should occur every week or two. For this, you must scan all hard copies and save them as PDFs. Depending on your agreement with Dania Services, you can either email all the invoices directly to us or directly to the system. Another option is to save all the invoices in a shared Dropbox:

https://www.dropbox.com/

Once the invoices have been delivered, the client can log into their internet bank and save all the transactions that have occurred. The function is called ‘save CSV’ (comma separated file), and it allows the client to save the transactions from their bank and email the file to us. This provides us with all the information we need from the bank and can be done in nearly every Danish internet bank.

Once we’ve received the invoices and the CSV file from the bank, we start to book the invoices. We look at everything and ask the questions that need to be asked; like, are you allowed to deduct a VAT? If something is missing – for instance, you’ve made a payment to the bank, but we don’t have the invoices – then we’ll contact you to ask you to submit the missing paperwork. We’ll also reconcile the bank in the system and, once we’ve received all the missing invoices, we’ll login to the tax office website and declare the VAT. The client will receive confirmation and a receipt, usually via email. The confirmation also contains all the details about how to pay the VAT on your internet banking system, including the payment ID details. In Denmark, companies normally pay the VAT every quarter. If you’re going to claim money from the tax office, you’ll receive the VAT declaration receipt from Dania Accounting and then you’ll receive the VAT on your NemKonto.

Deductions
Most questions received by Dania Accounting are about deductions – what can be deducted? To put it simply, every cost you have that relates to the business can be deducted. Typically, if you’ve bought goods to sell, any costs related to selling, marketing, production, administration, including phone bills, internet, insurance – each of these costs are deductible. Ensure that all invoices are made in the company name, not in your personal name. Provide your CVR number where applicable.

Deductions for company vehicles
If you have a vehicle that you use for the business, you have two options when it comes to preparing your taxes. You can either gather all the bills – including the gas bills, insurance, road tax, etc. – or you can choose to be paid per kilometer. In 2017, the rate was 3,53 DKK/km and in 2018 it is 3,54 DKK/km. You simply keep a record of your driving from one location to the next, the date, who you drove to and why, and the amount of kilometers you drove, which you multiply by 3,54 DKK (if calculating for 2018). The maximum deductible at this rate tops out at 20.000 kilometer/year, and after that, you’ll receive a reduced rate for the exceeding kilometers.

When choosing between the fixed rate or invoices, Dania Accounting suggests you consider what kind of car you have. If the car is very expensive, sometimes it’s a better idea to submit the invoices, while you’ll likely get a better deal opting for the fixed rate, if it’s a cheap car with good mileage.

Deductions for travel expenses
If you travel a lot with airlines and hotels, the same rules apply, more or less. You can ask the hotel or airline to issue you company invoices, or you can take the standard rates offered by the Danish tax office. In Denmark, the deductions allow 487 DKK/day (2017 rate) / 498 DKK/day (2018 rate) for food and 209 DKK/day (2017) / 214 DKK/day (2018) for accommodation. But if you visit London, for instance, 214 DKK won’t get you far. In this case, ask for a receipt and book the invoice to the company instead.

Deduction for a home office
If you have a home office and you want to deduct something, you literally need to be able to close the door to the office. It’s not enough that you work from the kitchen counter, for instance; you must make an office dedicated to your company with a closing door. The room must be for business only, otherwise you won’t get a deduction.

If you’re leasing an apartment, you’ll get a deduction for the amount of office space and all the costs that come with it. Let’s say you have a 20 square meter office in a 100 square meter apartment, then your office is 20% of your apartment, so you can deduct 20% of the rent, heating, electricity, etc. you’re paying on the flat as a company cost. If you’re the owner of an apartment or a house, you can also receive a deduction, but it’s calculated differently. You’ll receive a reduction in the taxes you pay, and in some situations, you can also deduct utilities. But it depends on the business and the size of the office.

Other deductions
Other costs can be deducted, such as representation. If you take clients out for dinner, for instance, write the name of the client you went to dinner with on the back of the receipt. Also, keep in mind, you receive only a 25% deduction off a restaurant bill.

Employee information
Though it’s called a ‘one-man company’ (sole proprietorship), you can also hire employees for your business. All employees must have a contract agreement. If you fail to make a contract, and the employee takes issue with you to a union, you can receive huge fines for not having the contract (10.000+ DKK). So it’s important to ensure that you establish employee contracts with all employees.

Dania Accounting recommends the following templates for use in producing employee contracts (just look at the employee section “Contracts for employees”:

Download

Employee types
In Denmark, there are two types of employees: waged employees (per hour), which in Danish is called “Ikke-Funktionær”. The other type of employee that is typically a full-time employee is called “Funktionær”. Waged employees don’t have many rights when it comes to termination of employment, while with the full-time employees, you must follow certain protocols for termination, or you can be fined. Be aware of these differences when you make employee contracts.
The type of work your employees do will determine which contract to use, and Dania Accounting recommends that you consult a lawyer to determine which type is appropriate. It’s better to spend the 1000-2000 kr on a lawyer to review the contract templates and discuss employee types than to pay the huge fines that may result from mistakes in employment.

Employee registration
You must also register your employees with the Danish tax website, the same website you used to register your business. You must pay taxes for all employees, called A-taxes in Denmark. There’s also a fixed rate 8% tax called “AM-bidrag”. Additionally, you must contribute to public pension, called ATP, as well as holiday money. The company must be registered for all these things before paying out the salaries for their employees.

Employee salary and payroll
Next, in order to make the salary payout, we must produce an actual payroll, calculating everything – the gross salary, the taxes, the net salary, etc. And to do so, there are two popular systems:

Danløn
http://www.danlon.dk/

Bluegarden
https://www.bluegarden.dk/

The difference, again, is a matter of preference.

Danløn has a 20 DKK + VAT fixed rate per payslip, and Bluegarden varies a little, depending on how many prints they send; but price is more or less the same, especially if you only have one or two employees.

Note in your employee contracts that salaries won’t be paid by calendar month. The reason for this is when you order the payrolls from Dania Accounting, you must send an email with all employee names, their working hours, their wages, and the gross salary. Naturally, it will take a few days to make the salaries before the month ends, so if you use the calendar month as a salary period, then you’ll have a problem every month. So choose another day, for instance the 23rd, to be the last day of the salary month. This gives you two days to submit the information to Dania Accounting, and it gives us two days to make the pay slips. The salaries are normally transferred automatically from the business account to the employee, and taxes are paid automatically from the business account to the tax office. The payrolls are done in PDF, so you can distribute them to your staff.

Additional costs when having employees
Besides the salary, additional costs of employment include holiday money and ATP. There are two types of holiday money, one calculated for “funktionærer” (full-time employees) and is called “Ferietillæg” and another one for “Ikke-funktionærer” (part-time employees) canned “Feriepenge”. “Ikke-funktionærer” is the type of employees that don’t get paid a normal salary during vacation, and it’s normally hourly employees. They instead receive 12,5% of the gross salary as holiday money (“Feriepenge”, and they use this holiday money when they go on vacation in lieu of a salary.

If your employees are not working per hour, but full-time with a fixed salary each month, you must pay them salary when they have vacation. Danish are allowed 25 holiday days per year. In addition to paying salary, you must pay 1% of the employee’s annual salary as a holiday contribution, so to speak (“Ferietillæg”).

ATP
On top of that, there’s the pension fund called ATP:

https://www.atp.dk/

The amount is 284 DKK each month for a full-time employee. The employee pays a third, so that’s 94,65 DKK, and you pay two-thirds, or 189,35 DKK. This is only for full-time employees, and you’ll receive an invoice every quarter to pay it into the bank.

Other types of costs are:

Finansieringsbidrag
The cost for a full-time employee is 136,50 DKK/quarter (2018 rate).

AFU
The cost for a full-time employee is 1,80 DKK/quarter (2018 rate).

Barsel.dk
The cost for a full-time employee is 237,50 DKK/quarter (2018 rate).

AUB (Arbejdsgivernes Uddannelsesbidrag)
Being agreed by law in 2018, rates unknown as of writing this.

AES
Rates here depends on the type of business. Rate can be seen here:
https://erhverv.atp.dk/AESSatser/fri/virk/AESSatser.do?formularId=30333&forloebId=48041743-436c-4096-92a5-db1622ef190b

Taxes
After we’ve done all the accounting and are aware of your income and expenses, then Dania Accounting will know a little about your revenue or your deficit, so we can start talking about taxes. In Denmark, company tax is called B-tax, while for employees, it’s called A-tax. At the beginning of the year or from the date you start your business, you must make an estimate on how much money you expect to earn that year. The figure will never be 100%, but nevertheless, if you hire our services, we’ll be able to estimate it.

In order to estimate it, Dania Accounting would ask how many sales you expect and how much the expected costs will be from those sales. The idea here is to estimate what your salary will be. Once we agree on the revenue, we log into SKAT Borger which is the Danish tax website, and we submit this expected revenue on what we call the “Forskudsopgørelse”, the preliminary tax registration. Once this has been done, the Danish tax company calculates how much tax you need to pay. They split this into ten installments.
Payments are to be made on the 20th of each month from January to May, with no taxes to be paid in June, and from July to November, with none due in December. Normally, this is paid automatically through your internet bank account. Manual bank transfers can also be made by ordering a payment ID from the tax website.

Tax systems
Being that the taxes are based off of an estimate, Dania Accounting will find the true revenue at the end of the year by making an annual report. Once we know how much money you’ve made or lost, we must decide what tax system to use.
There are three tax systems. One is called the personal tax system, in Danish “Personskatteordningen”. This is the simple tax system; you look at the sales and expenses, and the revenue is taxed as personal income. Personal income is taxed at 50-60% in Denmark. If you make very little, the tax could be 35-40%, but the tax system is progressive, so the more money you make, the higher the tax.

If you have a lot of interest in your business – for instance, you borrowed a lot of money to get started – then using this personal tax system can be a bad idea; the reason being, if you deduct interest in Denmark as a company and you use this personal tax system, while the interest will be deducted on your taxes, they won’t be valued at 100%. If you have 30.000 DKK in interest, for instance, at the end of the day, only 10.000 DKK will be counted; so you basically lose the tax deduction for two-thirds of your interest. If you don’t have any loans or big interest , then go with the personal tax system, but if you have a lot of interest, you should look at the two other options.

One is called the capital gains system, in Danish “Kapitalafkastordningen”, and the other is called the business system, in Danish “Virksomhedsskatteordningen”. The business system is more complicated, while the capital gains system is a simplified version of the business system. If you have a lot of interest and no high revenue, then you can use the capital gains system to ensure your interest is deducted 100% when your tax is calculated. If you have high interest and you also have a huge revenue – you make a million DKK, but you only needed to make 500.000 DKK, for instance – then it could be very beneficial to use the business system.

The business system not only ensures your interests are deducted 100%, but it also gives you the option to postpone some of your taxes. In Denmark, we have a top tax, a maximum tax you can pay. You start to pay a lot of tax when you make more than 400.000 DKK, so if you don’t need to take out that much money for your business, then you can save it up in the company instead by using this business system.

In practice, you just leave the money in the bank account, and when Dania Accounting does the annual report, we can see that you saved up the money in the business. So, for example, if you made a million, and you took 500.000 DKK as salary for yourself, leaving 500.000 DKK in the business account, then when we declare your tax, you’ll get taxed on the 500.000 DKK as personal income. If the tax is 50%, you’re going to pay 250.000 DKK on that personal income; then the remaining 500.000 DKK in the business account is only taxed at the rate of the limited liability company tax, which is 22%.

So by leaving the money in the company account, in 2016, you’d pay 22% on the savings. But when you take the money out in the future – let’s say, you take it out in three years’ time – then you’ll have another tax to pay. If you pay 55% in tax the year you to take out the 500.000 DKK, the tax office will make you pay 55% in tax minus the 22% you already paid in 2016. In this way, you’re postponing the due date of the tax. Although it’s not a real savings, you can make it one by leveling out your income between the years.

An example to illustrate: you make 600.000 DKK in year one, then instead of taking 600.000 DKK out as salary, take out 400.000 DKK, so that the maximum tax doesn’t kick in. Then save up the 200.000 DKK remaining in your bank account. And in year two, if you only make 200.000 DKK in revenue, you can take out the 200.000 DKK you saved up, because that will give you a personal income of 400.000 DKK, which is below the maximum tax. In that case, you’d actually save around 15% in revenue by avoiding the maximum tax.

Closing the business
If you’ve had the business for several years, and you want to shut it down, closing a one-man company in Denmark is very simple. Dania Accounting will log into a website, cancel your registration for VAT, and change your preliminary tax registration. That’s all. If you sell your company or acquire some assets, there could be some tax issues related to closing the business as well. But other than that, it’s simple.

When it comes to being unemployed, there are a few options for those who ran a business. There’s unemployment insurance that you can pay for. You won’t always get something paid out; it depends on how many years you were a member and how much revenue you generated in the last years. They’re called

ASE
https://www.ase.dk/

DANA
https://www.dana.dk/

The price for ASE is 556 DKK/month (2018 rate), and DANA is 585 DKK/month (2018 rate). They both pay out a monthly salary when you’re unemployed.

Do you have any questions?

Please send us an email: info@daniaaccounting.com

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