How do you pay tax in Denmark as a sole proprietor in 2023?
When you run your own business as a sole proprietor, also called a sole proprietorship, you make partial payments of tax during the year in ten equal instalments.
The ten partial payments are estimated by you and not based on your actual profit.
We call this estimate a “self-assessment” since you have to estimate your profit yourself-
The reason for making an estimate is that nobody knows your profit for 2023 until the year has finished.
The self-assessment you declare on a particular online form.
The online form is accessible from SKAT Borger, which is the website of the Danish Tax Authority.
The tax you pay from normal employment is called “A-tax”.
The tax you pay from the profit of your sole proprietorship is called “B-tax”.
Tax summary for 2023
When 2023 is finished, you pay your final tax in Denmark as a sole proprietor based on your actual taxable profit.
The taxable profit comes from the accounting and financial reports done by your accountant, with some adjustments made according to the tax rules.
The information about your taxable profit is submitted to the tax office on your tax return each year.
The tax return your accountant submits to the tax office at the latest six months after the year ends.
This final tax summary we call “årsopgørelse” in Danish.
It is essential to submit the tax return on time.
Being late with the tax return can get you a fine of up to 5.000 DKK.
Sometimes you will end up getting a tax refund (when having overpaid income tax); other times, you will need to pay more in tax (when having paid too little income tax).
It all depends on how accurate your self-assessment was.
To avoid being charged interest on paying your tax late, you want to make the self-assessment as precise as possible.
And remember to update your self-assessment during the year if needed.
How to pay B-tax
The ten payments relating to your B-tax, which comes from the expected profit in your sole proprietorship, will be split into ten equal instalments.
Payments are made on the 20th of each month from January to May, with no taxes paid in June.
And also from July to November, with no tax due in December.
Automatically bank transfers can be set up through your bank.
Manual bank transfers are done using the payment ID shown on the tax office website “SKAT Borger”.
If you transfer the tax from a foreign bank account abroad, e.g. a REVOLUT bank account, you pay the tax using IBAN/SWIFT.
Changing your estimate throughout the year
Since the tax is based upon an estimate, the self-assessment, the reality may not reflect your assessment later on.
Things often change during the year – you might acquire new clients and increase your profit or lose some clients and make less profit than expected.
At any given time, you can alter the previously estimated profit and thus regulate the tax.
What happens if you did not change your self-assessment and paid zero in tax during the year?
Even though you did not change your self-assessment during the year, your tax return will still need to be submitted six months after the end of the year.
The tax return for 2023 should be submitted latest on 1.7.2024.
Once the tax return for 2023 is submitted, your final tax will be calculated and added interest.
Tax is then either transferred to 2024 if the amount is small, or paid in three instalments in August, September and October 2024.
Do you want to learn how to register your sole proprietorship and get a CVR?
You can read our blog here, which will give you more information on how to register your sole proprietorship on VIRK and get your CVR number.
Do you want to learn about the special tax scheme for sole proprietors that will lower your tax to 22% on profits not withdrawn from the business?
You can read our blog here about the business tax scheme which will give your more information on how to lower your tax to 22% on profit not withdrawn from the business.
(last update of this blog: 8.1.2023)