Complete Guide to VAT in Denmark: Rates, Rules & Registration Thresholds

VAT in Denmark - Two Types of Rates

There are two types of VAT rates in Denmark:

1. Standard VAT rate,

2. Zero VAT rate.

How Much is VAT in Denmark’s Regions?

The Kingdom of Denmark consists of three parts - Denmark, Greenland, and the Faroe Islands. However, Greenland and the Faroe Islands are self-governing regions that are not subject to Denmark VAT rules and regulations.

VAT Registration Threshold

VAT Denmark law, official guides provided by the Tax Administration, and data available on government websites offer essential information on the VAT registration threshold.

The regulations state that the VAT registration threshold for domestic taxable persons is DKK 50,000 in 12 months. On the contrary, the VAT Denmark rules and regulations do not include any threshold for foreign taxable persons.

EU harmonized VAT rules are implemented in the Denmark VAT legal framework, thus setting the EUR 10,000 VAT registration threshold for intra-Community distance sales of goods and B2C supplies of services. As in other EU Member States, no registration threshold is provided for suppliers outside the EU suppliers of electronically supplied services.

Types of Taxable Activities in Denmark

Several economic activities are taxable under VAT Denmark law if performed independently by natural or legal entities. These activities include supplying goods and services on Denmark's territory for a fee, receiving reverse-charge services by a taxable person in Denmark, and exporting and importing goods.

VAT Registration Process

The VAT registration process in Denmark is completed before the Danish Tax Agency (SKAT). It includes several steps, which slightly differ for domestic and foreign taxable persons, such as US businesses.

Denmark VAT Registration for Domestic Businesses

For businesses to be considered domestic, they must either be incorporated there, have essential management or central business administration, or have sufficient human or technical resources.

Once domestic businesses exceed the DKK 50,000 VAT threshold in Denmark, they must register for VAT. However, they can also register for VAT in Denmark voluntarily. The process is completed in three steps. 

The first step is to register the business for VAT on the government portal Virk. Once registered, the business must complete the registration form and finally accept using the government service MitID Erhverv or MitID for businesses.

Denmark VAT Registration for Foreign Businesses 

The registration process for foreign businesses is similar to that for local businesses. However, foreign businesses, especially those outside of the EU, may need to provide additional documents to complete this process.

In addition, non-EU businesses usually must appoint a tax representative to complete the VAT registration process and for other VAT compliance-related matters.

VAT Returns in Denmark

All taxable persons involved in VAT taxable activities and registered for VAT in Denmark must submit monthly, quarterly, or semi-annual VAT returns. VAT returns are submitted even if there are no VAT transactions. This is known as zero declaration or nulindberetning.

Mostly, taxable persons submit quarterly or every six months. Which type of VAT return must be submitted depends on the annual VAT taxable revenue. Therefore, a semi-annual VAT return is due if the revenue is less than DKK 5 million. Newly established businesses and those whose revenue is between DKK 5 to 50 million file VAT returns quarterly. Taxpayers whose annual revenue is more than DKK 50 million submit monthly returns.

Semi-annual VAT returns are submitted at the beginning of  September and March, whereas quarterly are submitted at the beginning of March, June, September, and December.

The filing deadline for monthly VAT returns is the 25th of the month following the reporting period.

Penalties for Failure to File Tax Return

Taxable persons who fail to register for VAT, submit a late VAT return, or altogether avoid this obligation will face penalties and fines imposed by the Danish Tax Administration.

Those who fail to submit their VAT returns within the deadlines receive an estimated report from the Tax Administration on their due VAT. The penalty for this, or the cost of the Tax Administration's work on estimation reports, is DKK 800 for each period the taxpayer is late.

In addition, employees who receive public benefits may lose them and be refused further if they apply. Other penalties include forced deregistration of businesses and criminal proceedings.

VAT Rules for Electronically Supplied Services 

Electronically Supplied Services (ESS) are defined at the EU level by the EU VAT Directive 2006/112/EC as services provided through the Internet or other digital networks. Another critical component of ESS is its explicit reliance on automatization and minimum to non-human input.

As an EU Member State, Denmark implemented the definition of ESS in its national regulatory framework. By doing so, Denmark adheres to the EU principle of a single market and helps all market players more easily reach tax compliance.

However, there are some differences between EU Member States regarding the ESS, which are mainly terminological. That is why, across the EU, several terms are used for ESS, such as digital services, digital products, and electronic services. This may cause some confusion, but refer to the same services.

It is also important to note that taxability rules related to the ESS are the same as those at the EU level.

Taxability Rules for ESS:

The 2021 E-commerce package reformed the EU e-commerce and ESS landscape, uniforming rules for all EU countries. It brought significant changes and taxability rules for B2B and B2C supply of ESS and distance sales of goods.

Rules relating to the business-to-business or B2B supply of the ESS state that the place of supply is determined based on the general place of supply rules. For the B2C supply of the ESS, also known as a business-to-consumer transaction, the place of supply is determined based on the consumer's residency.

Regarding the distance sales of goods and ESS, the E-commerce reform introduced the EUR 10,000 threshold to determine which VAT rate is applicable.  Suppliers whose annual turnover on the EU level is above the threshold must apply the VAT rate following the destination principle. More precisely, the VAT rate of the country where the buyer is located is applicable, e.g., VAT rate Denmark.

When the suppliers remain below the threshold, they can either apply the VAT rate of their own country or register for one of the One-Stop Shop (OSS) schemes.

How much is VAT in Denmark on ESS?

The Denmark VAT rate for ESS is 25%.

E-Commerce Rules

The EU e-commerce framework immensely transformed in 2021 when the EU governing bodies implemented new rules stipulated in the EU VAT Directive. By design, these rules redefined the rules of the EU e-commerce market, influencing not only the businesses from the EU but also businesses from third countries and territories.

One of the most notable changes is the introduction of the EUR 150 threshold for imported goods from non-EU countries in consignments. Additionally, eliminating the threshold regarding Intra-Community distance sales significantly reduced financial and administrative burdens for e-commerce businesses. 

Before the single EU threshold was introduced, every EU country had its threshold. This represented a considerable challenge for all businesses since they had to pay attention to the threshold of each EU country. That is why the EU regulators decided to abolish this practice and establish the single EU-wide threshold.

On July 1, 2021, EU regulators adopted essential revisions to the VAT Directive, specifically to the sections relevant to the E-commerce sector. These changes were designed to reduce the challenges surrounding VAT compliance for businesses involved in cross-border activities.

The new rules also affected online marketplaces and digital platform operators. The EU governing official imposed new obligations and responsibilities on these operators, who became subject to the deemed supplier rules. Under this rule, the platform operators are, in specific situations, responsible for collecting and remitting VAT from the underlying supplier.

Also, the Mini One Stop Shop (MOSS), established in 2015, has undergone significant changes, thus creating a more efficient uniform reporting system known as the One Stop Shop (OSS) system. Besides redefining the two existing schemes, the Union and Non-Union, the third Import One Stop Shop (IOSS) scheme was introduced.

Therefore, the OSS with a broader reporting scope has three schemes:

• Union Scheme,

• Non-Union Scheme,

• Import Scheme.

VAT EU Reporting

Taxable persons in Denmark must submit recapitulative statements, known as EC Sales List and Intrastat reports.

EC Sales List

The EC Sales List (ESL) is a type of tax return that contains all information on the supply of goods and services to another VAT-registered taxable person in one of the EU Member States. It includes information about each VAT-registered customer.

The ESL is submitted electronically monthly or quarterly. If filed through the Tax Administration portal IDEP.web, it can be submitted with an Intrastat report.

The usual filing frequency is monthly, and the ESL must be submitted by the 25th month following the reporting period.

Intrastat

Intrastat reports are statistical reports on the supply of goods to and from another EU Member State. The data collected through the Intrastat reports are shared with European and international institutions such as Eurostat, the United Nations, and the International Monetary Fund.

Taxable persons are required to file Intrastat reports if their imports from or exports to another EU Member State are above DKK 41 million.

Digital Reporting

Local Businesses

Currently, only mandatory B2G e-invoicing requirements are defined in Denmark. This means no B2B or B2C e-invoicing rules and regulations are in place.

The B2G e-invoices are exchanged through the government portal NemHandel.

Non-Resident Businesses

The same e-invoicing rules apply for non-resident taxable persons, e.g., businesses, as they do for locals.