(This blog was updated: 29.3.2021)
How to start a sole proprietorship in Denmark?
Starting a sole proprietorship in Denmark is relatively simple.
We also call a sole proprietorship for a “one-man company” or a “one-person company”.
You need to be a resident of Denmark to start a sole proprietorship in Denmark.
In this blog, Dania Accounting will walk you through the process of starting a sole proprietorship in Denmark, how to register the sole proprietorship with the government, along other relevant details regarding setting up and operating a sole proprietorship in Denmark.
Are there situations where you are not considered a sole proprietor?
Yes, there are situations where the tax office will decide that you are an employee or a freelancer instead of being a sole proprietor.
Different tax rules apply to these types of income.
Can you convert a sole proprietorship in Denmark to a limited liability company later?
Yes, you can convert your sole proprietorship in Denmark to a limited liability company later.
There are different types of limited liability companies in Denmark, but most clients will opt-in for an “ApS”.
This is the smallest type of limited liability company in Denmark.
Check that you have found a unique company name for your sole proprietorship
To start your sole proprietorship in Denmark, first and foremost, you must choose a unique company name.
You can use this website below to search for existing company names already in use:
Ensuring your company name is unique before you start your application is important; otherwise, your application to register the sole proprietorship will be rejected, and you’ll need to start all over again.
You need a company address for your sole prietorship
Secondly, you will need a company address to start your sole proprietorship.
Many clients use their private addresses in the beginning since they often start from home without an outside office.
In general, this use of a private address is approved by the business authority.
Starting date for your sole proprietorship
You also must designate a date for starting your business activities.
Choosing a strategic starting date can save you money on accounting and annual reports.
For example, if you choose a starting date for your business on December 31st, you’ll have to submit a VAT declaration for the fourth quarter, and you’ll have to submit a tax declaration and make an annual report for the whole year.
Even though you only had 1 day of business in the first year.
So, in this example, using the 1st of January would be a more strategic smart starting date.
Dania Accounting recommends that you consider picking the first day in a quarter to optimize planning and also reduce your costs for accounting; 1st of January, 1st of April, 1st of July or 1st of October.
Be aware, that if you submit your application to register your sole proprietorship with a future date, you will have to wait to apply for a bank account etc. until the starting date.
Activity code for your sole proprietorship
Additionally, you must find the activity code (called “branchekode” in Danish) for your sole proprietorship.
This is a code describing the type of activities your sole proprietorship is conducting.
Submit the application to register the sole proprietorship on VIRK
When you have collected the required information then you need to submit the application on VIRK.
To log in, you will need your personal Danish NemID.
If you’ve just moved to Denmark, you probably don’t have this NemID yet, and you must obtain it before registering your company on VIRK.
We can help you prepare and submit the application to register the sole proprietorship
We charge 500 DKK + VAT to prepare and submit the application to register the sole proprietorship.
Expect 1-2 days of processing time by the business authority after submitting the application to register your sole proprietorship
After you submit your application to register your sole proprietorship on VIRK, it may take a few days to obtain your business registration number, which in Denmark is called your CVR number.
This number also serves as the company’s VAT number.
The CVR number is a unique 8-digit sequence that identifies your company.
When we trade with other EU countries, we add a “DK” in front of the VAT number: DK12345678
Opening a company bank account for the sole proprietorship
When you have received the CVR number, you are able to apply for opening your company bank account.
This will most likely be a difficult process, and you may face rejection from many banks at first.
So be prepared for some difficulties here.
For a better shot at success, do your homework before you go to the bank by preparing:
– Business plan;
– Profit and loss budget;
– Cashflow budget;
– Balance budget;
– Budget for your private expenses.
This will provide the bank with a more clear idea about your company.
We can help you prepare the budgets for the bank
We charge 1.500-3.000 DKK + VAT for preparing a budget for the bank.
Apply for a company bank account with 3 of the largest banks in Denmark
The large banks in Denmark will always ask you to apply for the company bank account online.
You can find direct links to the 3 largest banks here to apply for a company bank account:
What if you cannot get a company bank account in Denmark for your sole proprietorship?
We hear this more often than we hear about a new company actually getting a bank account.
So you are not alone with this problem.
Normally, it’s a lot easier to get a bank account when you’ve had the business for 3-6 months, and you have the first financial report to show.
Then it is easier for the bank to understand what transactions they can expect.
Their reluctance mainly relates to anti-money laundering concerns.
So once you can show what transactions your company has, the banks tend to be more interested in opening the new company bank account.
How can you start your sole proprietorship without a company bank account?
Using your private bank account is a really bad idea.
We have seen many clients getting their private bank accounts shut down when using them for a company.
Usually, you will only get 1 warning from the bank.
And they will eventually shut down the bank account.
Instead, we recommend using Revolut for the first 3-6 months.
They tend to be much more flexible in the beginning.
Keep in mind however that Revolut is NOT a Danish bank.
It is an online bank that offers banking services internationally.
So it is not a perfect solution.
F.ex. your clients will need to make an IBAN or SWIFT transfer of money to your bank account.
But, it will get you started.
And you also will get a MasterCard that can be used to pay for company costs.
If you need a payment solution for a website integrated with Revolut, or maybe a credit card terminal for a shop, that is possible also.
You need a NemKonto for your sole proprietorship
You will need something called a NemKonto.
A NemKonto is basically just your normal company bank account, that is used when the government makes refunds of VAT.
Normally, your bank will register your company bank account automatically as your NemKonto, but just to be sure, you can ask your bank if they did this.
You can use Revolut as a NemKonto also by submitting the information relating to using a foreign bank account as shown on the website.
Communication with the government in Denmark occurs through a website called e-Boks.
The government requires mandatory registration with this website, and you need your personal NemID to log in and create an account.
e-Boks is basically just 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:
Access to the tax office website for your company called “SKAT Erhverv”
When you have the company CVR, you also automatically will have access to the tax office website for companies called “SKAT Erhverv”.
This is the government website used to declare VAT, employee taxes etc.
If you are a client with Dania Accounting we can handle the declaration of VAT, employee taxes etc.
Access to the tax office website for your personal income tax called “SKAT Borger”
There is a separate website where you need to declare your personal income tax called “SKAT Borger”.
If you are a client with Dania Accounting we can handle your personal income tax.
Choosing your accounting system
When you start your business, you are also going to start accumulating invoices which you must keep in order.
Many small companies start off simple by registering everything in an Excel spreadsheet.
But you should be aware that Excel is not a valid accounting solution.
You will need to use real accounting software.
What is our recommendation for accounting software?
Dania Accounting strongly recommends e-conomic for smaller sole proprietorships, as it has great functionality for accountants, such as reporting and controlling facilities.
It is also by far the most widely used accounting system by accountants in Denmark.
Price for e-conomic
e-conomic charges 129 DKK/month (2021 rate) for a ‘startup’ license.
This license is sufficient for a smaller sole proprietorship.
e-conomic invoice their subscription on a quarterly basis.
Also, we recommend getting the scanning module that cost 59 DKK/month (2021 rate).
With the scanning module, you can simply scan all your receipts and invoices to e-conomic using your mobile phone and/or mail.
What tasks should you do yourself in relation to the accounting?
When we work with small business clients, we normally split the tasks, in order for our small clients to minimize the cost of accounting in the beginning.
This differs from large companies, where we, more or less, do everything.
But if you want a smaller accounting 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.
We do not recommend that you try to do the accounting yourself, since it almost always ends with a lot of corrections neeeded at the end of the year unless you are an experienced accountant.
What can you deduct as costs in the sole proprietorship?
To put it simply, every cost you have that relates to the company can be deducted.
Ensure that all invoices are issued to the company name, not in your personal name.
For all EU purchases remember to provide your VAT number, so the invoice is issued without VAT (called “reverse charge”).
How do you pay tax for your sole proprietorship in Denmark?