Representation of VAT in Denmark
Value Added Tax (VAT) is a distinct form of taxation enforced within the European Union. Under EU law, companies must have a registered presence in the EU to carry out VAT-related processes with customs offices.
What is the meaning of tax representation?
Tax representation services cover the preparation of VAT declarations, remittance of applicable taxes to the authorities, and the submission of required EU sales reports like Intrastat, if applicable.
Tax representation involves one company operating on behalf of another to facilitate the import of goods into the European Union. With the assistance of a Danish tax representative, your business can gain a robust competitive edge in the EU marketplace.
A tax representative's duties encompass:
- Submitting VAT returns,
- Managing VAT remittances,
- Requesting VAT reimbursements,
- Performing tax audits.
Tax representation is typically categorized into two primary types: restricted and comprehensive.
I. Restricted Tax Representation
Restricted tax representation facilitates the importation of goods into the EU without requiring upfront payment of import VAT, offering considerable advantages for financial liquidity. This form of representation is confined to assisting non-resident businesses exclusively with import activities and the resulting sales benefits. With restricted tax representation, we serve as tax agents for firms bringing goods into the EU.
A limited tax representative’s scope is confined to assisting non-resident companies with importing goods VAT-free and managing their eventual sale. This approach is advantageous across numerous sectors. Furthermore, limited tax representation operates under a single license, making it easier to incorporate new clients into the current licensing framework.
II. Comprehensive Tax Representation
Comprehensive tax representation serves as an essential option for businesses importing goods into Denmark, particularly when restricted tax representation is unavailable. It generally pertains to trade with EU member states or goods imported from non-EU countries. Danish tax authorities issue permits under Article 23, enabling businesses to utilize reverse charge VAT on imports. This arrangement allows VAT to be reported in VAT returns instead of being paid upfront during import. This permit is exclusively available to foreign companies that designate a general tax representative.
A general tax representative is a Danish entity that manages all VAT matters on behalf of a foreign company operating in Denmark. This function is commonly carried out by logistics firms, customs brokers, and accounting offices, as their responsibilities include both logistics services and ensuring compliance with Danish tax laws. The representative is required to provide the Danish tax authorities with a guarantee, typically equal to the VAT amount the foreign business should pay for a particular quarter. However, the representative’s liability extends beyond this amount, as tax authorities have the right to review VAT settlements for the past five years, potentially leading to responsibility for up to five times the original guarantee. To reduce this risk, general tax representatives often require their foreign clients to secure appropriate collateral.
Under what circumstances is a company required to register for VAT in Denmark?
The obligation to have a VAT representative in Denmark is determined by the company's location. If the company's business requires VAT registration in another country, it may be necessary to designate a local tax representative.
If a foreign business engages in VAT-exempt transactions in Denmark, it may be obligated to designate a tax representative within the country. This representative, located in Denmark, will handle the company's VAT duties with the Danish tax authorities.
A tax representative must be appointed in Denmark if a company is located outside the EU but conducts sales of goods or services in Denmark. The representative will manage VAT-related issues in Denmark and will bear joint responsibility for the company's VAT liabilities in the country.
Due to the harmonization of VAT rules across the European Union, the VAT registration procedures in Denmark closely align with those in other EU countries.
A company must register for VAT in Denmark if it:
- Imports goods via Denmark to other EU countries.
- Conducts business involving the sale and purchase of goods in Denmark or exports goods from Denmark to other countries.
- Provides services subject to VAT.
- Receives services under the reverse charge mechanism without VAT registration.
- Stores goods in Denmark.
- Organizes live events.
Furthermore, foreign companies conducting Business-to-Consumer (B2C) transactions that surpass the intra-community sales threshold and do not utilize the VAT One-Stop Shop (OSS) system for VAT compliance must register for VAT in Denmark.
Foreign businesses can register for VAT in Denmark through the form provided on the virk.dk website. Upon successful registration, they will receive a Danish VAT number (DK-nummer) at their designated mailing address. If a business operates outside Denmark and sells taxable goods or services within Denmark, it may be obligated to register for VAT as a non-resident. This obligation is based on the EU VAT directive, which requires foreign companies to register for VAT in certain situations to report taxable transactions and declare VAT owed.
Companies with annual revenue under 50 000 DKK in the past 12 months are not obligated to register for VAT in Denmark, though they may do so voluntarily. If revenue exceeds 50,000 DKK and the company is not yet VAT-registered, it must complete the registration as soon as possible. Furthermore, companies anticipating reaching this revenue should register for VAT at least 8 days before commencing operations.
Companies or individuals whose activities are exempt from VAT under Danish law do not need to register for VAT. This includes businesses offering services in areas such as:
- Education,
- Finance,
- Culture, including certain forms of art and entertainment,
- Healthcare,
- Social services, like charitable organizations.
Additionally, some small agricultural businesses may opt for a simplified VAT scheme instead of standard registration. This option would streamline their tax obligations. However, it's important to note that while these entities are not required to register for VAT, they can choose to do so voluntarily if it benefits their operations.
Failing to appoint a VAT representative in Denmark results in severe penalties imposed by the Danish tax authorities and prevents businesses from claiming VAT refunds.
Furthermore, it's important to note that European partners (such as suppliers, customers, and e-commerce platforms) often refuse to collaborate with businesses outside of Europe that do not have a VAT representative in Denmark, as they consider it too risky for their operations.
Companies based in the EU, as well as in Norway, Greenland, the Faroe Islands, and Iceland, have the option to register directly with the local VAT authorities. While they are not required to appoint a Danish tax representative, businesses outside of Denmark may choose to delegate the time-consuming and often complex task to a local representative.
Non-EU companies are required to appoint a tax representative in Denmark. Since the representative shares joint liability with the non-resident company, the client may be obligated to provide a bank guarantee or a security deposit in favour of the representative.
It is important for all companies operating in Denmark to carefully assess their compliance obligations and, if necessary, register before engaging in any taxable transactions.
Any company engaging in taxable transactions in Denmark is required to register for VAT, report transactions, and pay VAT. EU-based companies can manage these procedures on their own or with the assistance of a tax agent. However, non-EU businesses must use the services of a tax representative to fulfill their administrative obligations.
What services are included in tax representation?
The regulations regarding intra-community and Danish VAT are complex and frequently change. The requirements for VAT filings are periodic and vary in frequency. Failure to comply with regulations, delays, or errors in assessing financial flows can quickly result in significant financial penalties.
The responsibilities of a tax representative include:
- Assisting foreign businesses in the VAT registration process in Denmark.
- Acting as an intermediary between the foreign company and Danish tax authorities.
- Ensuring compliance with VAT regulations in Denmark.
- Preparing and submitting VAT returns to the Danish tax authorities (SKAT).
- Handling VAT payments to Danish authorities on behalf of the foreign company.
- Supporting the recovery of Danish VAT on local purchases, including preparing and submitting VAT refund claims for non-resident businesses.
- Ensuring compliance with local invoicing, VAT handling, accounting, and VAT reporting and settlement regulations.
- Providing required reports and documentation to Danish tax authorities, including annual returns or other reporting obligations.
- Managing audits and tax inspections conducted by local VAT authorities.
- Transferring VAT responsibilities in Denmark to a tax representative, a common practice for foreign companies operating in a country where they have no physical presence or lack sufficient knowledge of local VAT regulations.
Assigning VAT responsibilities to a tax representative in Denmark is essential for:
- Ensuring business security,
- Reducing the company's administrative burden,
- Effectively managing tax risks in the country.
Save yourself unnecessary risk and stress by entrusting tax compliance to experts.
What are the benefits of a Danish tax representative?
A tax representative in Denmark offers several benefits beyond just the registration of a foreign supplier. Primarily, it helps reduce the burden of VAT handling on imports and lowers administrative costs for the foreign supplier.
A Danish tax representative acts as the supplier's proxy, ensuring the protection of their rights and obligations. Additionally, the representative takes on responsibility for some VAT settlements related to the flow of goods. Working with a VAT representative can lead to cost savings, faster deliveries to European customers, and many other benefits.
The key benefits of tax representation include:
- Reducing the burden of VAT handling during importation and its settlement.
- The tax representative acts on behalf of the foreign supplier.
- The representative takes on partial or full responsibility for VAT.
- This can lead to cost savings and faster deliveries to customers in Europe.
- By appointing a tax representative in Denmark, even foreign companies can benefit from the reverse charge mechanism on imports. The foreign company remains responsible for its tax obligations but can delegate these responsibilities to the representative.
- Tax representation offers a simple and cost-effective alternative to establishing a physical presence through a branch or subsidiary. Foreign companies can access the Danish market without the costs associated with setting up a business, creating a corporate structure, and managing separate accounting procedures.
- A foreign company appointing a tax representative in Denmark will not be subject to corporate income tax in the country. All operations are managed remotely from abroad by the tax representative, who handles VAT compliance, including obtaining a VAT number, submitting periodic returns, and making VAT payments.
- European companies are not required to appoint a Danish VAT representative, but they may choose to do so to simplify tax formalities with local authorities on their behalf. In such cases, no bank guarantee is required. However, the company still retains full responsibility for settling its VAT obligations.
We provide an address at our location, handle all formalities in Danish, and manage communication with local authorities. Additionally, the cost of this service is lower for companies from the EU, as they will not bear joint liability.