How much tax do you have to pay as a sole proprietor (“B-tax”)?
Progressive tax system
The Danish tax system is progressive, so the more money you make, the more you will be taxed. The tax we pay from our total personal income, is paid through the year on payslips (if you have a normal job with an employer), and, if you have a sole prioprietorship, also via a special partly payment system in 10 installments (called “B-skatterater”). The payments we do throughout the year, is based upon a pure estimate, since nobody knows their exact personal income tax, until the year is actually over. The estimate we do in the beginning of the year, is done on a special form called the “Forskudsopgørelse”. The form is accessible from “SKAT Borger”, which is the website of the Danish tax office “SKAT”. In English it would be translatted into something like the “self-assessment of tax”. The estimate made here, tells the Danish tax office SKAT, how big a tax you are to pay on you job (if you have a job and an employer), as well, as how much tax is to be paid relating to your sole proprietorship. But initially, you are the one who decides, how much tax is to be paid, since it all comes down to your own estimate. When the year is finished however, a final tax statement is made by SKAT, showing exactly how much tax is to be paid. This we call the “årsopgørelse” or in English, the tax statement. Sometimes people then get a tax refund, other times they need to pay more in tax. It all depends on your initial estimate, and the actual tax, when the year has ended.
How is tax calculated?
Make an estimate of your income
At the beginning of the year, or from the date you start your sole proprietorship, you should make an estimate, on how much money you expect to earn that year. The figure will never be 100% correct, but nevertheless, if you hire our services, we’ll be able to help you estimate it. In order to estimate it, Dania Accounting would ask how much sales you expect and how much the expected costs will be. Costs may include production, marketing, salaries to staff, rent, transportation or maybe a home office, as these can be deducted. The idea here is, to estimate what your “salary” will be from the sole proprietorship, or what we also call: the revenue of the company. If you do not expect a revenue, then there is no tax to pay of course.
A-tax and B-tax
When you work as an employee (meaning that you get a payslip from an employer), then we call the tax you pay from the salary your “A-tax”. When you have your own sole proprietorship, we call the the tax you pay from a revenue “B-tax”. If you have both a job and a sole proprietorship, then you will pay both kinds of tax.
Make an estimate of your personal taxable incomes and tax deductions
In the beginning of a new year, or from the day you commence activities in your sole proprietorship, then you should make an estimate, of how much money you expect to make in revenue during the year. The amount naturally will never be 100% correct, since it is only an estimate, but nevertheless, you should try and be as precise as possible. This will ensure, that you do not need to pay unexpected extra tax later.
Self-assessment of tax
Once we have received your estimate, of your expected personal taxable incomes (salary, revenue from your sole proprietorship, interests to banks, transport etc.), then we log into the tax office website “SKAT Borger”, and change the self-assessment, so it match that of your estimates. Once this is done, the tax office will tell us, how much tax you need to pay during the year. But remember, this is only an estimate at this time, based upon your own estimates.
How to pay tax as a sole proprietor?
Paying your A-tax
If you expect to earn a salary during the year from an employer, then the tax you pay is called “A-tax”. This tax is withdrawn directly from your payslip by your employer, and then paid directly to SKAT by the employer.
Paying your B-tax
Your payments relating to B-tax, which comes from the expected revenue in the sole proprietorship, will be split into 10 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 then payments again from July to November, with no tax due in December. Normally, this is paid automatically through your bank (the tax office use “BetalingsService”). Manual bank transfers can also be made, by ordering a payment ID from the tax office website.
Change your estimate throughout the year
Being that the taxes are based upon an estimate, the reality may not reflect your estimate later on. Things can change during the year – you might acquire new clients and increase your revenue, or you might lose some and make less revenue than expected. But at any given time, we’re able to alter the previous estimatem and thus regulate the tax. If, for instance, you acquire new business that will double your income, then you can simply contact us at any time, and Dania Accounting will change the tax to match the new situation.
When a year has ended, we are all obliged to submit what is called a tax declaration (“selvangivelse”). On the tax declaration, we declare the actual money we made, in salary, in revenue from the sole proprietorship, interests and so on. Based upon the tax declaration, the tax office SKAT, makes a final tax calculation for the year, which is then compared, to the taxes you paid during the year previously. The taxes which was based upon the estimates in your preliminary tax registration (“forskudsopgørelse”). If you paid too litlle in tax, then you will need to pay the extra tax now (called “restskat” – or remaning tax). If you paid too much in tax, then you will now receive a tax refund (called “overskydende skat”).