VAT representation in Denmark

What does tax representation consist of?

 A specific tax, known as value-added tax (VAT), is applied within the European Union. To handle VAT procedures at customs, EU regulations require companies to have a designated presence in the region. The key tasks of the tax representation are to manage VAT returns and transfer the required amounts to the relevant authorities. In addition, relevant Intrastat sales declarations are also filed, if necessary.

The tax representation service involves one company representing another that plans to import its goods into the European Union. By working with a Danish tax representative, your company can gain a competitive position in the European market. It is worth noting that there are two basic types of tax representation: general and limited.

Limited tax representation
This type of representation focuses on activities on behalf of a non-resident company, with the sole purpose of importing goods and profiting from their sale. A variety of activities, such as sea and air freight, can benefit from this form of representation. Importing goods into the EU becomes simpler with the ability to avoid immediate payment of VAT, which provides a significant liquidity advantage. Limited tax representation involves obtaining a single license, which allows us to easily add new clients. This allows us to act as tax agents for companies importing goods into the European Union.

General tax representation
This is a key solution for companies importing goods into Denmark, especially in cases where limited tax representation is not sufficient. A general tax representative, which is a Danish entity, is responsible for managing all VAT-related transactions on behalf of a foreign company operating in Denmark. Typically, this role is filled by customs agents, logistics companies or accountants who handle logistics and ensure compliance with Danish VAT regulations.

The Danish tax authorities grant a license under Article 23, which allows companies to benefit from the reverse charge of VAT on imports. This means that VAT is not paid at the time of import, but settled in the VAT return. This authorization is only available to companies outside Denmark that have appointed their own general tax representative. This usually applies to transactions with other EU member states or imports from countries outside the European Union.

The Danish tax authorities' general tax representative is required to provide a surety, which usually corresponds to the amount of VAT that the foreign company should have paid in a given quarter. Note, however, that the representative's liability extends further than the value of the surety, as the tax authorities may reassess VAT payments for the past five years, which could result in liability of up to five times the amount of the surety. To minimize this risk, it is common for general tax representatives to require appropriate sureties from their foreign clients.

Scope of services under tax representation

Tax representation services include:

• Supporting foreign companies with VAT registration in Denmark.
• Ensuring compliance with domestic VAT regulations.
• Ensuring compliance with local regulations related to invoicing, VAT handling, accounting protocols and VAT reporting and payment.
• Manage VAT payments that the foreign company must make to the Danish tax authorities.
• Prepare and submit periodic VAT returns to the Danish tax authority (SKAT).
• Provide required reports and documents by the Danish tax authorities, including annual returns and additional reporting obligations.
• Acting as an intermediary between the foreign company and the Danish tax authorities.
• Assist in the recovery of Danish VAT paid on local purchases, including preparing and submitting VAT refund claims for non-Danish companies.
• Managing audits and tax audits conducted by local VAT authorities.
  
  

Entrusting VAT obligations in Denmark to a tax representative

Delegating VAT-related tasks to a tax representative is a common practice, especially among foreign companies operating in a country where they have no physical presence or inadequate knowledge of local VAT regulations.

It is essential to delegate VAT responsibilities to a tax representative in Denmark in order to protect the business, effectively manage tax risks and reduce the administrative burden on the company. The complexity of Danish and intra-Community VAT regulations means that they are often subject to modification. The requirements for filing returns are varied and recur at various intervals. Violations of the regulations, delays in compliance and inaccuracies in cash flow assessments can quickly lead to significant financial burdens.

In Denmark, a tax representative is usually jointly and severally liable for a company's VAT obligations. Many European countries require the appointment of a local representative to represent non-EU companies that need to register for VAT. To avoid unnecessary risk and stress, it is advisable to entrust the management of your tax obligations to a specialist.

In what situations is VAT registration in Denmark necessary?

The requirement to have a VAT representative in Denmark depends on the geographic location of your company. If your company operates outside the EU, but sells goods or services in Denmark, it is necessary to appoint a Danish tax representative. Such a representative will handle VAT matters in Denmark and assume joint responsibility for tax obligations in Denmark.

Businesses that have not generated revenue in excess of DKK 50,000 in the past 12 months are not required to register for VAT in Denmark, although they can exercise this option. If revenues exceed this amount and the company is not yet registered for VAT, it is necessary to register at the earliest opportunity. In addition, businesses that plan to generate such revenues should register as VAT taxpayers no later than 8 days before starting operations.

In addition, some small agribusinesses may opt for a flat-rate VAT system instead of standard registration, which eases their tax obligations. It is worth noting that although these entities are not required to register for VAT purposes, they may have the option to register voluntarily if it benefits their business.

Harmonization of VAT regulations in the European Union makes the criteria for VAT registration in Denmark similar to those in other member states. VAT registration in Denmark is required in the following situations:

• Sales and purchases of goods in Denmark or exports from Denmark to other countries.
• The provision of services that are subject to VAT.
• Importing goods through Denmark to other EU countries.
• Storage of goods within Denmark.
• Receiving reverse charge services when the company is not registered for VAT.
• Organization of live events.
  
  

Individuals and companies that provide services that are exempt from VAT under Danish law are not required to register. The most common examples include:

• educational services,
• healthcare, including medical and dental services,
• financial services, such as banking and insurance,
• cultural activities, including some forms of art and entertainment,
• charitable organizations providing certain social services.
  
  

To complete the VAT registration process in Denmark, foreign entrepreneurs should fill out the form available at virk.dk. Upon successful completion of the registration, a Danish VAT number, known as a DK-nummer, will be sent to the designated mailing address. In situations where a company is based outside Denmark and offers goods or services that are taxable in the country, it may be necessary to obtain a non-resident VAT registration. This obligation stems from the EU VAT directive, which requires foreign companies to register in certain situations. This registration is necessary to report taxable transactions and to declare the appropriate VAT charges.

When a company needs to register for VAT in another country in connection with its operations, it may be necessary to appoint a local tax representative. In addition, foreign companies conducting Business-to-Consumer (B2C) transactions in Denmark that exceed the threshold for intra-Community sales are required to register for VAT if they do not use the VAT One-Stop Shop (OSS) system to account for tax.

What are the benefits of choosing a Danish VAT representative?

Direct registration for VAT in Denmark by non-European companies is not possible. In such a situation, it is necessary to use the services of a Danish VAT representative. Such tax representation allows foreign companies to enter the Danish market without incurring start-up expenses, which would involve creating a corporate structure and managing separate accounting procedures.

Typically, a local company will act as a representative, acting on your behalf in dealing with the local VAT authorities. He or she is responsible for ensuring compliance with all VAT obligations, including those you may not have been aware of. As such, the representative may ask for a deposit (for example, a bank guarantee) before deciding to represent you.

The entire process is managed remotely from abroad with the support of a tax representative who handles all VAT obligations imposed by the Danish tax authorities. His activities include obtaining a VAT number and filing periodic returns and making VAT payments.

European companies are not required to appoint a Danish VAT agent. Nonetheless, they may choose to hire an agent to handle all tax formalities with local authorities on their behalf. Such a step simplifies their interactions with the administration. In such cases, it is not necessary to present a bank guarantee. However, it is worth remembering that the company is still fully responsible for paying its VAT obligations.

Tax representation, in addition to meeting legal requirements, offers a simpler and more cost-effective solution than setting up a branch or subsidiary.

Establishing a tax representative in Denmark

For a foreign company conducting transactions in Denmark that are subject to Danish VAT, it may be necessary to appoint a Danish-based tax representative.

The obligation to appoint a Danish VAT representative applies to all companies outside the European Union that conduct taxable transactions in Denmark. This requirement includes, among others:

• purchases of goods supplied in Denmark from EU member states,
• exports of goods from Denmark to non-EU countries,
• imports of goods from non-EU countries into Denmark,
• business-to-business (B2B) deliveries of goods from Denmark to EU member countries,
• and business-to-consumer (B2C) supplies of goods and services in Denmark, including transactions through trading platforms.
  
  

Located in Denmark, the tax representative handles a company's VAT obligations on its behalf, working with the Danish tax authorities. His tasks include filing VAT returns, remitting VAT-related payments, claiming VAT refunds and conducting tax audits.

Non-European companies that have not appointed a VAT representative based in Denmark face difficulties in establishing cooperation with European partners, such as suppliers, customers and trading platforms, which see the situation as too risky for their business.

Failure to designate a VAT representative office in Denmark carries severe sanctions imposed by the Danish tax authority, which also results in companies being unable to claim VAT refunds.

What types of companies must register a tax representative in Denmark?

It is crucial that any company doing business in Denmark review its compliance obligations and, if necessary, register before engaging in any taxable transactions.

Registering as a VAT payer in Denmark is mandatory for any company that conducts taxable transactions in the country. It is necessary to report these transactions and pay VAT. European Union companies can manage these procedures themselves or use a tax agent. For companies outside the European Union, however, it is necessary to use a tax agent to carry out the required administrative duties.

A tax representative in Denmark is mandatory for non-EU companies. Liability for tax liabilities is shared between the representative and the non-resident company. As a result, the client may be required to provide a bank guarantee or security deposit for the representative.

Companies based in the EU and in Norway, Greenland, the Faroe Islands and Iceland have the right to register directly with local VAT authorities. Although they are not required to appoint a Danish tax representative, non-resident companies may choose to entrust a local representative with complex and time-consuming VAT duties.

We offer the option of obtaining an address for the company in our location, and we will handle all the formalities in Danish and manage communications with the local authorities. It's worth noting that the cost of this service is lower for EU-based companies, as they will not share liability.

Advantages of having Danish tax representation

In Denmark, tax representation provides a wider range of benefits than simply registering foreign suppliers. In particular, the key elements are a reduction in the burden of handling import VAT and lower administrative costs for foreign suppliers.

The most important benefits of tax representation include the ability to reduce costs and speed up deliveries to European customers. It acts on behalf of foreign suppliers, which involves the representative assuming full and partial responsibility for VAT. In addition, the representative office reduces the burden of handling VAT during importation.

The Danish tax representative acts as an agent for foreign suppliers, ensuring that their rights and obligations are protected. In addition, he shoulders the responsibility for partial settlement of VAT that applies to the movement of goods. Working with a VAT representative can lead to lower costs and faster deliveries to customers in Europe, and offers many additional benefits.

As a foreign company, you have the option to take advantage of the reverse charge mechanism for imports by appointing a tax representative in Denmark. However, the foreign company remains responsible for its tax obligations. By entrusting these tasks to a tax representative, you can hold him or her responsible for fulfilling them on your behalf.