Value Added Tax (VAT) is the main type of indirect taxation in Denmark and in other European Union (EU) countries.
It is a tax on consumption which is applied during the production and distribution process to most goods and services. It is also applied to goods, and certain services, entering the country. Although VAT is ultimately borne by the consumer by being included in the price paid, the responsibility for charging, collecting and paying it to the tax authority at each stage of the process rests with the business making the supply, ie the sale.
A business registered for the tax will charge VAT (output tax) on its sales and incur VAT (input tax) on its purchases (including any VAT paid at importation). The difference between the output tax and the deductible input tax in each accounting period will be the amount of VAT payable by the business to the tax authority. Where the input tax exceeds the output tax, a refund can be claimed.
A transaction is within the scope of Danish VAT if the following conditions are met:
There are three rates of VAT that are applied to goods and services in Denmark; the standard rate, the reduced rate, and the zero rate. In addition, some goods and services are exempted from the tax.
Businesses that make exempt supplies are unable to claim all the input tax that they incur, so the VAT paid to suppliers will be a ‘real’ cost.
Most goods imported into Denmark from outside the EU are subject to VAT. The tax will have to be paid by the importer at the time of importation. Where the importation is for business purposes and the importer is registered for VAT, it may be possible to reclaim the tax (subject to certain rules).
It is also important to note the interaction between VAT and Customs duty. Customs duty is levied across the EU at the place where goods are imported into the community. It is levied in order to bring the cost of goods produced outside the EU up to the same level as those produced within it.
Once duty (and VAT) has been paid by the importer, the goods are in ‘free circulation’ and they can then be released for use in the home market. Unlike other indirect taxes, such as VAT, once duty has been paid it is not usually recoverable by the importer. It therefore represents a bottom line cost to the importing business if it cannot be passed on in higher prices.
It is therefore very important to ensure that the correct rate of duty is applied. VAT is charged on the value of the importation, including any custom duty.
A ‘person’ who either makes or intends to make taxable supplies of goods or services in the course or furtherance of a business must register for VAT if the value of its taxable supplies in Denmark exceeds the annual registration limit of DKK 50,000 (approximately €6,700), or is expected to exceed the limit in the near future. A business can register on a voluntary basis even if the registration limit has not been exceeded.
For these purposes, a ‘person’ includes any legal entity. Therefore, once a person is registered for VAT, all his business activities will be covered by the registration – even if the nature of some of those activities is very different.
Two or more taxable persons (corporate bodies) can be registered together as a VAT group if:
A corporate body cannot be treated as a member of more than one VAT group at a time.
The main advantage of VAT group registration is that any supply of goods or services by a member of the group to another member of the group is disregarded for VAT purposes. This reduces the risk of VAT being accidentally omitted on supplies between separately registered connected companies.
However, there are some disadvantages and any decision on whether to group register should be taken with care. For example, all VAT group members are jointly and severally liable for the VAT debt of the group during the period of their membership.
The Danish tax authority must give permission to form a VAT group. The application must be submitted one month before the start date.
The normal VAT registration limit does not apply to businesses who are not established in Denmark, but for the purposes of the tax are making taxable supplies there. Those businesses will need to register for VAT as soon as they commence trading in Denmark, irrespective of the level of turnover.
Registration for VAT in Denmark may also be required where a non-established EU business is involved with distance selling. Distance selling occurs when a taxable supplier in one EU country supplies and delivers goods to a customer in another EU country who is not registered or liable to be registered for VAT.
Such customers are known as non-taxable persons and include private individuals and businesses and other organizations that are not registered for VAT (either because of their size, or the fact that they are exempt from having to register due to the nature of their activities). The common examples of distance sales are goods supplied by mail order and via the internet.
Each EU country has the option of applying a distance selling threshold of either €35,000 or €100,000 per calendar year, or the equivalent in its own currency. Denmark has adopted an annual threshold of DKK 280,000 (about €37,500), which almost equates to the lower threshold in Euros.
Distance sales from another EU country to non-taxable persons in Denmark will be subject to VAT at the appropriate rate in the suppliers’ country. However, once the value of those distance sales to Denmark exceeds the Danish threshold of DKK 280,000 (about €37,500):
Suppliers can choose to make Denmark the place where the goods are supplied by registering for VAT voluntarily before the threshold is reached.
With effect 1 January 2015, Article 58 of Directive 2006/112/ EC was amended. The rules determining the place of supply of electronically supplied services supplied to private consumers (B2C) changed from the Member State where the supplier belongs (ie where established) to the Member State of the consumer.
The result of this is that local VAT is chargeable at the applicable rate in each of the Member States in which electronically supplied services are made (ie where the customer belongs). To ensure compliance with this, suppliers have the choice to either register for VAT in each Member State where their customers reside or elect to register under the EU VAT MOSS simplification scheme in a single Member State (where they are established).
Businesses with multiple establishments in the EU can choose which Member State to operate MOSS (the Member State of Identification). However, the MOSS cannot be used to report local sales to customers in a Member State in which suppliers of electronically supplied services have a fixed establishment. Non-EU suppliers without an establishment in a Member State are free to select a Member State of their choosing to operate MOSS and become their Member State of Identification.
The tax authority in Denmark may direct a person to appoint a VAT representative to act on his behalf for VAT purposes where the person is established in a country or territory which is not an EU country (or part of such a country) and where it appears to the Danish tax authority that there is no provision for mutual assistance similar to that which provided between Denmark and other EU countries.
However, this does not apply to persons established on the Faroe Islands or in Greenland (which are parts of the Kingdom of Denmark, but not part of the EU) or in Iceland or Norway.
Traders established in the EU, Greenland, the Faroe Islands, Iceland or Norway can elect to be registered directly at their home address.
VAT returns normally cover an accounting period of three months, ending on the last day of a calendar month.
As a main rule, a newly registered business must declare VAT electronically on a quarterly basis unless the expected annual revenue is more than approximately €7,333,333 (in which case the VAT period is a month).
A business with annual revenue of less than DKK 5,000,000 (approximately €666,667) must file an electronic VAT return bi-annually. The VAT must be declared and paid at the latest on the first day of the third month after the expiry of the tax period.
The VAT period is a calendar quarter for a business with annual revenue of between DKK 5,000,000 and DKK 50,000,000 (approximately €666,667 – 6,666,667). The VAT must be declared and paid at the latest on the first day of the third month after the expiry of the tax period.
For businesses with annual revenue of more than DKK 50,000,000 (approximately €6,666,667), the VAT period is a calendar month. VAT must be declared and paid at the latest on the 25th day of the following month. However, VAT for June should be reported and paid by a specific date indicated by the tax authorities each year (around 17 August) as that is the main summer holiday period.
If the payment is late, the tax authority will charge fees and interest. Interest will be added to the outstanding VAT amount for each day the business exceeds the deadline. Therefore, the outstanding amount will increase for each day the businesses do not pay.
Businesses that are registered for VAT in Denmark and make supplies of goods or services to traders registered for the tax in other EU countries are required to complete and submit EC Sales Lists (ESLs) electronically. The ESLs must show details of the recipients of the goods and services.
The reports (ESLs) must be submitted monthly by the 25th of the next month. There is also an option to file the reports on a quarterly basis if the business’s revenue remains below a certain threshold and if the company is not reporting VAT monthly.
In addition, if the value of the intra-EU trade in goods dispatched or arriving from other EU is above an annual threshold, a supplementary declaration (referred to as an Intrastat declaration) must be submitted for either or both. These declarations must be submitted monthly.
Yes. A range of penalties can be imposed where businesses do not comply with the VAT rules.
Civil penalties and interest can be applied for errors and omissions made on tax returns, or where the tax is paid late. Penalties can also be applied where the business has failed to maintain adequate records, provide information (including additional declarations), or makes repeated mistakes.
Criminal proceedings may be brought in the case of more serious matters.
Notifying the Danish tax authorities of an offence may reduce (or even avoid) sanctions, provided that the violation of the VAT provisions is not due to willful intent. If a violation of the Danish VAT Act occurs in a field with especially complex VAT rules, the fine may also be reduced (unless it can be proved that the violation was committed intentionally).
Yes, it may be possible to reclaim the VAT incurred in certain circumstances.
Two schemes exist, one for businesses established in the EU and another for businesses established elsewhere.
The EU cross border refund scheme is available in all EU member States, and enables a business established in an EU country to recover VAT incurred in another member State. To be eligible to make a claim, the claimant must be a taxable person established in an EU member State other than the one from which the claim is to be sought. In addition, the claimant:
The amount that is refundable is determined by the deduction rules that apply in the country making the refund. The claim is submitted electronically to the tax authority from whom the repayment is being sought.
The refund period must not cover more than one calendar year or less than three calendar months – unless it is covering the remainder of a calendar year. The claim must be made by 30 September of the year following that in which the VAT was incurred.
Businesses established outside of the EU can, subject to certain conditions, also reclaim the VAT incurred on imports into Denmark or purchases of goods and services used in Denmark. The scheme is available to any person carrying on a business established in a third country, ie outside the EU, provided that the following four conditions are met:
The claim period in Denmark is from 1 July to 30 June each year. Claim forms must be submitted to the Danish tax authority no later than six months from the end of the relevant designated year, ie by 31 December each year.
A VAT invoice must show:
For each different type of item listed on the invoice, the following must be shown:
Where a VAT invoice includes zero-rated or exempt goods or services, it must:
Where a business makes retail sales and makes a sale of goods or services for DKK 3,000 or less exclusive of VAT, a simplified VAT invoice can be issued. This applies if the sales amount is small or if the purchaser is a private person.
In some cases, there must always be issued a full invoice.
This applies, for example, if the buyer is another VAT registered business that asks for a full invoice. This applies, for example, also from the sale of services to private individuals, if the invoice amount incl. VAT is DKK 5,000 or more.
VAT invoices can be issued, received and stored in electronic format in Denmark and there is no need to tell the tax authority.
Electronic invoices must contain the same information as paper invoices. The method used to ensure the authenticity of origin, the integrity of content and legibility of the invoices is a business choice and can be achieved by any business controls which create a reliable audit trail between an invoice and a supply of goods or services.
Electronic invoices may with regard to VAT be stored abroad, provided that:
For further information on indirect tax in Denmark please contact:
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Dennis J. Larsen |
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