Setting up a business in Denmark: navigating the danish accounting landscape

Denmark is an attractive destination for entrepreneurs, offering a stable economy, a highly educated workforce, and a business-friendly environment. However, understanding the danish accounting system is crucial for any foreigner planning to start a business in Denmark. This guide from atrum.dk will help you navigate the key aspects of danish accounting, tax obligations, and financial reporting requirements.

1. Understanding the danish accounting framework

When setting up a business in Denmark, it’s essential to familiarize yourself with the local accounting framework. The danish financial statements act (årsregnskabsloven) is the primary legislation governing accounting practices in Denmark. This law dictates how companies must maintain their financial records, prepare annual reports, and conduct audits.

One of the first things to know is that Denmark follows european accounting standards, but with its own specific regulations. For instance, companies in Denmark are required to keep their accounting records in danish or english, and these records must be stored for at least five years. The annual financial statements must be prepared following either the international financial reporting standards (ifrs) or danish accounting standards, depending on the size and type of the business.

For foreigners, understanding these requirements is key to ensuring compliance and avoiding potential legal issues. It’s often advisable to seek local accounting expertise or services to help navigate these regulations effectively.

2. Taxation in Denmark: what foreign entrepreneurs need to know

Denmark is known for its high tax rates, which fund the country’s extensive welfare system. As a business owner, you will need to understand the various taxes your company will be subject to, including corporate income tax, vat, and social contributions.

The corporate tax rate in Denmark is 22%, which is relatively competitive compared to other european countries. However, Denmark’s vat rate stands at 25%, one of the highest in europe. This vat must be added to most goods and services sold within Denmark, and businesses are required to submit regular vat returns to the danish tax authorities (skat).

As a foreign entrepreneur, it’s crucial to set up an efficient accounting system from the start, which can handle the complexities of danish tax reporting. Many businesses use digital accounting platforms that integrate directly with danish banks and tax systems, simplifying the process of tracking income, expenses, and tax obligations.

3. Hiring an accountant and using digital solutions

For many foreign entrepreneurs, hiring a local accountant or using an accounting service is the best way to ensure compliance with danish laws. A professional accountant will not only help you with day-to-day bookkeeping but also ensure that your financial statements are prepared correctly and submitted on time.

Additionally, Denmark is at the forefront of digital innovation, and this extends to the accounting sector. Many danish businesses, especially small and medium-sized enterprises (smes), use cloud-based accounting software that automates many tasks, such as invoicing, payroll, and tax reporting. These tools are particularly useful for foreigners who may not be familiar with the danish language or accounting practices.

Utilizing such digital solutions can provide peace of mind and allow you to focus on growing your business rather than getting bogged down in administrative tasks. Moreover, these systems often include features that help with compliance, such as reminders for tax deadlines and automated generation of financial reports in the required formats.