Company income tax and dividend tax
Company income tax
Limited liability companies pay a company income tax of 22% (2019).
Company income tax is paid on the taxable revenue, which means that in order to estimate how much you’ll pay in tax, you must take your company turnover (sales) and subtract the company costs, including depreciations and interest etc.
In addition to this, a few tax regulations are done, and the remaining amount, which is either a revenue or a deficit, will be subject to a 22% company income tax if it is a revenue, or if there is a deficit, then no company income tax is to be paid of course.
Deficits can be brought forward
A deficit in the taxable company income, can be brought forward to future years, where it is offset in revenues, before the company needs to pay any company income tax.
If you have a deficit in the first year, for instance, you can offset the deficit with the following year’s revenue. You may have a deficit of 100.000 DKK in 2019, but if your revenue in 2020 is 100.000 DKK, you can then offset the deficit you had in 2019, so that your taxable income in 2020 is 0 DKK.
Dividend tax is paid, when dividends are paid out to the shareholders.
The company needs to have produced a revenue, in order for dividends to be paid.
Holding companies that owns more than 10% of a company, does not have to pay dividend tax, when the holding company receieves a dividend from a company where it holds shares.
For dividends that are taxed, then the first 54.000 DKK (2019) will be taxed with 27%.
If the dividend exceeds 54.000 DKK, then the amount above 54.000 DKK is taxed with 42%.
Read more below about company income tax and dividend tax.
Payment of company income tax
Company income tax is due for payment 20 March and 20 November each year.
These 2 payments will naturally be based upon an estimate, since nobody knows the actual revenue before the year has ended.
In addition to the these 2 payments, there is an optional extra third payment the 1st of February, in the year after the fiscal year ends. This enables the company to adjust the payments of company income tax, once the accounting is done for the fiscal year that has ended. By paying more company income tax here, the company can save money on later interests for late payment of company income tax.
If you have a limited liability company, then the first time you receive a letter from the tax office about having to pay company income tax, then it will almost always state, that you have estimated to pay 0 DKK in company income tax.
This is because the tax office doesn’t know yet, how much you’re supposed to pay, so they’ll send a letter, informing you that these partial payments are due in March and November, but they won’t state the payment amount;
You must estimate your payments on your own.
In Danish language the 2 payments of company income tax done in March and November is called “ordinære aconto selskabsskatterater”.
How do you estimate your payments?
Let’s say you’re in the month of January, and you already know, that you are going to have revenue this year.
Make an estimate for the entire year, as precisely as you can. After interest and depreciation, take 22% (this will be the company income tax) of the revenue and divide by two – this will be the 2 payments for 20 March and 20 November.
You need to regulate the payments on the tax office website “SKAT Erhverv”.
Here you will also find the payment details for your internet bank.
If the amount isn’t precise, it’s no big deal, because when the year is finished, you’re required to make an annual report and submit a tax declaration.
Then in the following year, you’ll pay the remaining tax or receive a refund, depending on whether you over- or underestimated your payments.
Annual reports needs to be submitted 5 months after the fiscal year has ended.
Company tax declarations needs to be submitted 6 months after the fiscal year has ended.
The tax statement is received in November, in the same year the tax declaration is submitted.
If there is any remaining company income tax due for payment, then it needs to be paid 20 November the same year.
Split fiscal year
Limited liability companies don’t necessarily have to follow the calendar year.
They’re allowed to have a split year, which means you may have up to 18 months in your first fiscal year.
For instance, if you start the company on 1 July 2019, then your first year can run from 1 July 2019 to 31 December 2020, which is 18 months.
Another option is for the first year to end on 31 December 2019.
It’s completely up to you, but the maximum is 18 months in the first fiscal year.
The following fiscal years will always be 12 months.
If you choose to have 18 months in the first year, then the tax gets more complicated.
You will then have a partial payment on November 20th in the first year and also in March and November in the second year (all payments belonging to the first fiscal year).
The fiscal year has to be finished, before we submit the tax declaration, so in this example with a 18-month fiscal year, then the fiscal year would start on 1 July 2019 and finish on 31 December 2020, after which the tax declaration would be submitted on June 30th 2021.
Company income taxes are declared 6 months after the fiscal year ends.
In this example with a 18 months fiscal year, after we submit the tax declaration on June 30th 2021, then the tax office will calculate the actual company income tax, which will be 22% of the taxable revenue (2019), plus some interest.
This tax will be due on 20 November 2021, and any tax you might already have paid in November (first year) and March and November (second year), will be offset in the total company income tax due.
You’ll receive an annual company income tax statement that will show all this information, including your revenue from 1 July 2019 to 31 December 2020, as well as the 22% in company tax and added late fee interest, which is around 4% (2019).
You can also receive a comapny income tax refund.
This happens if you paid too much in company income tax.
Companies that don’t follow the calendar year
A company can decide when they’d like their fiscal year to end, but only 10% of our clients choose something other than the calendar year. Most companies choose 31 December, because it’s easier to produce an annual overview, if it follows the calendar year.
But some people prefer ending the year on 30 June or 31 January.
For those who do not follow the calendar year, the company income tax can get tricky.
Let’s assume that you have June 30th as the end of your fiscal year, for example.
You’re still allowed to have 18 months in your first fiscal year, but if you start a company on 1 July 2019, and your fiscal year ends on 30 June 2020, then your first fiscal year will only be 12 months.
The partial company income tax payments make this a bit complicated.
In the first year, 2019, as is normal, that you most likely will not pay anything in November.
Then in 2020, you’ll make a partial payment in March, and even though the year finishes on 30 June 2020, the partial payment you make in November 2020, still counts toward your first fiscal year, despite being paid after the first fiscal year has finished.
One advantage of this is you can avoid paying interest, because you have more time to calculate the correct revenue, from which you can calculate exactly how much you must pay in additional tax for the last installment on November 2020.
Dividends & dividend tax
After you have paid the company income tax of a revenue, then the money that is left, which is basically the revenue after tax, is an amount that you can either keep in the company to increase your equity or pay it out as a dividend to the shareholders.
If you choose to pay a dividend to the shareholders, then sometimes dividend taxes needs to be paid.
If your company is owned by a holding company
If you have revenue in your limited liability company, and you want to transfer this revenue to your holding company, then it comes down to how many shares your holding company owns. If your holding company own more than 10% of the shares, then you are allowed to pay out a dividend to the holding company, which will be paid from the result after tax, without paying any dividend tax.
Why would you do that?
By transferring the revenue from the company to the holding company, then creditors will not be able to claim this money later, if something was to go wrong.
This is because the money has been paid out as a dividend to the holding company.
When the money is paid to the holding company, then you can use it for new investments, or just hold it there for safety purposes.
The tax office can in some situations claim the money again from the holding company, if f.ex. employee taxes are unpaid (but this requires a 50% or more shareholder stake by the holding company).
If you are the sole shareholder, then you are also allowed to pay out money to yourself.
There are three ways you can do this: through an invoice as a sole proprietor, getting a payslip or getting a dividend.
Some shareholders might own a sole proprietorship, and can then send an invoice to the limited liability company for their work, and then get paid this way.
You can also be hired as an employee in the company, and then receive a payslip from the limited liability company for your work.
You can also receive a dividend from the company, where up to 54.000 DKK is taxed at 27% (2019).
Dividends exceeding 54.000 DKK is taxed at 42% (2019).
Examples on calculation of dividend tax and total taxes
If the company income tax is 22%, and dividends up to 54.000 DKK is taxed at 27% (2019), and dividends exceeding 54.000 DKK is taxed at 42% (2019), then the calculation looks like this:
Dividend paid: 50.000 DKK
In order to pay the dividend, then the company already had to pay 22% in company income tax.
The 22% company income tax is: 14.102 DKK (revenue before tax: 64.102 DKK – company income tax of 22%: 14.102 DKK = the remaining amount is 50.000 DKK, which then can be paid as dividend).
You then need to pay an additional 27% in dividend tax from the 50.000 DKK. This will be: 13.500 DKK
In total you will have paid the following taxes: 14.102 DKK (22% company income tax) + 13.500 DKK (dividend tax) = 27.602 DKK in company income tax and dividend tax – or what equals 43,06% of the 64.102 DKK revenue before tax.
Dividend paid: 100.000 DKK
In order to pay the dividend, then the company already had to pay 22% in company income tax.
The 22% company income tax is: 28.205 DKK (revenue before tax: 128.205 DKK – company income tax of 22%: 28.205 DKK = the remaining amount is 100.000 DKK, which then can be paid as dividend).
You now neeed to pay 27% in dividend tax on the first 54.000 DKK (2019), which amounts to: 14.580 DKK.
Furthermore you need to pay 42% in dividend tax, on the dividend exceeding the 54.000 DKK (42% of 100.000 DKK – 54.000 DKK = 46.000 DKK * 42%), which equals: 19.320 DKK.
In total you will have paid the following taxes: 28.205 DKK (22% company income tax) + 14.580 DKK (dividend tax 27% up to 54.000 DKK) + 19.320 DKK (dividend tax 42% of the dividend exceeding 54.000 DKK) = 62.105 DKK in company income tax and dividend tax – or what equals 48,44% of the 128.205 DKK revenue before tax.
There are special rules, if you are married.
The amount you can pay as a dividend with the 27% dividend tax is doubled, so that instead of 54.000 DKK, you can pay out 108.000 DKK (2019).
So what is the better option – to send an invoice, to get a payslip or to get a dividend?
This is a very relevant question, what is actually better?:
– to send an invoice to the company from your sole proprietorship?
– to get a payslip from the company?
– to get a dividend?
The answer depends on the personal income tax you are paying.
Income from payslips and from sole proprietorships is in general taxed in the same way (when using the tax calculation method “personskatteordningen”).
If we look at the dividend option, then the first 54.000 DKK (2019) is taxed 27%. This seems pretty low, since the average personal income tax for sole proprietors and managing directors is 39-43%, and for normal employees around 32-38% (source: The Danish Ministry of Taxation, see link below), but keep in mind that this is after the company income tax was paid.
Here you can read the article by The Danish Ministry of taxation relating to the average tax in 2016 (2017 and 2018 is in the making):
In previous years it was usually the cheapest option to get a payslip, with an amount up to the limit of the maximum tax bracket (558.043 DKK before AM-contribution in 2019), instead of getting a dividend, but since 2016, then when living in some of the areas in Denmark with a higher local tax, then it is cheaper now to receive a dividend up to the 54.000 DKK (2019) and a payslip for the remaining amount.
Tax percentages however is not the only consideration you need to make.
Also other individual circumstances can have an influence, on what option is the cheapest for you.
In the calculations we did above with dividends, then the total taxes ended up being 43,06% and 48,44%.
These taxes you have to compare with the local personal income taxes in your area, in order to decide what is best for you.
Taxes in Denmark varies a great deal amongst different areas, and you also need to consider AM-contribution and church taxes.
When you have an idea on the expected revenue of your company, then you can calculate your personal income tax here below, by adding salary, revenue of sole proprietorship (if sending an invoice to the company) and dividend, giving you a better understanding on what is the best option for you:
We will be happy to assist you as well.