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 business”.
You need to be a resident of Denmark to start a sole proprietorship in Denmark.
If you are a non-resident, you can incorporate a limited liability company instead called an ApS.
In this blog, we 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 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?
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”.
The ApS is the smallest type of limited liability company in Denmark.
Check that you have found a unique name for your sole proprietorship
To start your sole proprietorship in Denmark, first and foremost, you must choose a unique name for the business.
You can use this website below to search for existing business names already in use:
Ensuring your business 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 business address for your sole prietorship
Secondly, you will need a business 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 one day of business in the first year.
So, in this example, using the 1st of January would be a more strategic smart starting date.
We recommend 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 on a future date, you will have to wait to apply for a bank account 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 code describes 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, you must apply to register the business using the VIRK website.
To log in, you will need your personal Danish digital signature.
In the past, we called the digital signature “NemID”, but in 2022 it changed its name to “MitID”.
If you’ve just moved to Denmark, you probably don’t have this MitID yet, and you must obtain it before registering your business 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 applying 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 your CVR number.
This number also serves as the VAT number.
The CVR number is a unique 8-digit sequence that identifies your business.
When we trade with other EU countries, we add a “DK” in front of the VAT number: DK12345678
Opening a business bank account for the sole proprietorship
When you have received the CVR number, you can apply to open your business 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 business bank account with 3 of the largest banks in Denmark
The large banks in Denmark will always ask you to apply for a business bank account online.
You can find direct links to the three largest banks here to apply for a business bank account:
What if you cannot get a business bank account in Denmark for your sole proprietorship?
We hear this more often than we hear about a new business 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 should expect.
Their reluctance mainly relates to anti-money laundering concerns.
So once you can show what transactions your business has, the banks tend to be more interested in opening the new business bank account.
How can you start your sole proprietorship without a business 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 business.
Usually, you will only get one 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 money transfer to your bank account.
But, it will get you started.
And you also will get a MasterCard that can be used to pay 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 business bank account that is used when the government makes refunds of VAT.
Normally, your bank will register your business 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.
Mails from the government to the business will be sent to a digital inbox
Communication with the government in Denmark occurs through a website called Digital Post.
This digital inbox was formerly known as e-Boks.
At the time of writing this blog, both e-Boks and Digital Post were operational.
But in 2022, almost everyone will be asked to migrate to Digital Post.
You can access the digital inbox using your private digital signature from MitID.
Access to the tax office website for your business called “SKAT Erhverv”
When you have the business CVR number, you also automatically will have access to the tax office website for your business 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 income tax, 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 also can handle your personal income tax.
Choosing your accounting system
When you start your business, you will also start accumulating invoices which you must keep in order.
Many small businesses 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.
Your receipts and invoices should be scanned as either PDF or JPG and stored in the accounting system and backed up regularly.
The legislation has been tightened with regards to this from 1.7.2022.
What is our recommendation for accounting software?
We recommend 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 199 DKK/month (2022 rate) for a ‘Basis’ license.
This license is sufficient for a smaller sole proprietorship.
e-conomic invoices their subscription every quarter.
With the scanning module provided with e-conomic, 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 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 many corrections needed 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 business can be deducted.
Ensure that all invoices are issued to the business 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?
(This blog was updated last time: 31.8.2022)