Small Business Tax in Denmark

What is the Danish corporate income tax rate for small businesses?

Danish corporate income tax (selskabsskat) stands at a flat 22% for limited companies (ApS and A/S). This rate has applied since 1 January 2016 and is confirmed by Skattestyrelsen for 2026. [1] It applies to the taxable net profit of the company after allowable deductions. The rate is assessed and settled via the TastSelv Erhverv online portal; companies must file their corporation-tax return (selskabsskatteopgørelse) within six months of the fiscal-year end. An optional third voluntary prepayment can be made by 1 February of the following year to reduce interest charges. [2] The 22% rate places Denmark among the more competitive corporate jurisdictions in the EU and has remained stable for a decade, providing meaningful planning certainty for small-business owners choosing an incorporated form.

How does the Personal Tax Act default work for sole traders?

A sole trader (enkeltmandsvirksomhed) who does not elect a special scheme is taxed under the Personal Tax Act (personskatteloven) default: all business profit is personal income subject to the full progressive stack. The 2026 national rates are a bottom tax of 12.01%, middle tax of 7.5% above roughly DKK 696,956, and top-bracket tax of 7.5% above roughly DKK 845,543, plus an average municipal rate of 25.05% and the 8% AM-bidrag -- an effective marginal rate that can exceed 55%. [3] Interest on business loans deducts only as capital income, at a lower value than under the VSO. Losses can offset other personal income, which helps new ventures. The simplicity of the default suits very small operations with negligible debt and steady, modest profits.

What is the Business Tax Scheme (virksomhedsordningen, VSO)?

The VSO is an elective regime that taxes retained business profits at a provisional 22% -- the same rate as a corporate entity -- deferring full personal income tax until the money is actually withdrawn. [4] In a high-profit year the owner deposits surplus in a savings account (opsparet overskud), pays 22% immediately, then withdraws gradually in lower-income years, topping up only the difference between 22% and that year's personal rate. Two additional advantages make the VSO especially compelling: (a) interest on business loans is fully deductible against personal income, yielding higher deduction value than under the default rules; and (b) the AM-bidrag and bracket taxes are reduced because the retained amount leaves the personal-income base. The VSO requires strict separation of personal and business finances, a dedicated CVR-registered business bank account, and a supplementary annual return (field 147). Skattestyrelsen guidance on elections is entered via TastSelv Borger field 184 in the forskudsopgørelse. [5]

What is the Capital Return Scheme (kapitalafkastordningen)?

The Capital Return Scheme (kapitalafkastordningen, KAO) is a lighter-touch alternative to the full VSO. Under the KAO, a portion of annual profit is reclassified as a return on capital (kapitalafkast) and taxed as capital income rather than personal income. Capital income is generally taxed at a lower effective rate than personal income because it is not subject to the top-bracket taxes. The capital return is calculated by multiplying the net value of business assets at the start of the year by the official kapitalafkastsats (capital-return rate) set annually by the tax authorities. The KAO still allows loss offsetting against personal income and reduces AM-bidrag and bracket-tax exposure on the reclassified portion, but unlike the VSO it does not permit deferral via a savings account or full interest deductibility enhancement. [4] Skattestyrelsen describes the KAO as "a good alternative to the business tax scheme as it is easier to manage" -- it requires no separate business accounts and far less bookkeeping overhead than the VSO. The scheme suits owners who want some tax-rate reduction on capital-return income without the administrative complexity of the full VSO, and those who do not intend to retain significant profits inside the business from year to year.

How does Danish VAT (moms) apply to small businesses?

Denmark levies moms at a standard 25% -- the highest VAT rate in the EU, with no reduced rates. [6] Registration with Skattestyrelsen via Virk.dk is mandatory when annual taxable turnover exceeds DKK 50,000; voluntary registration before the threshold allows input-VAT recovery on startup costs. From 1 January 2026, previously exempt activities -- fitness instruction, mental-sports clubs, and adult leisure courses -- became moms-liable once turnover crosses DKK 50,000 (an "age 30" exemption applies for services to under-30s). Filing frequency depends on turnover: semi-annual below DKK 5 million; quarterly between DKK 5 million and DKK 50 million; monthly above DKK 50 million. [9] From 2026, VAT-registered businesses with turnover above DKK 300,000 must use a certified digital accounting system (SAF-T capable). Nil returns must be filed on time -- a missed filing costs DKK 800.

What are AM-bidrag and B-skat instalments?

The labour market contribution (arbejdsmarkedsbidrag, AM-bidrag) is an 8% levy on all earned and business income. [7] For employees it is withheld automatically before other taxes; for sole traders with B-income it is included automatically in the B-skat instalment calculation when the expected profit is entered in the preliminary income assessment (forskudsopgørelse). The AM-bidrag is deducted from gross B-income before the remaining amount is subject to personal income tax. Self-employed individuals do not have an employer to withhold tax, so they pay through the B-skat system: 10 instalments spread across the year, every month except June and December, with each instalment due on the last banking day of the month. [8] The expected profit for the year is entered in the forskudsopgørelse and Skattestyrelsen calculates the monthly B-skat amount automatically. Direct debit (Nets/Betalingsservice) registration requires MitID confirmation and bank details at least six banking days before the first instalment date. Underpayment throughout the year results in a residual tax balance (restskat) due the following spring, potentially attracting interest surcharges; overpayment generates a refund. The annual tax return (selvangivelse) for sole traders is available from 23 March and must be filed by 1 July; late filing incurs a DKK 400 per-day penalty.

For a fuller picture of Danish personal income thresholds, bracket taxes, and international aspects, see the Denmark country overview. The interaction between the VSO savings account, AM-bidrag reduction, and the marginal bracket rates is complex. Consulting a qualified tax professional before electing or exiting a scheme is strongly recommended -- the wrong election, or a mid-year exit from the VSO, can trigger unexpected taxable withdrawals.