What is corporate tax?
Corporate tax is the tax that companies pay. Just as you as an individual have to pay personal income tax on your earnings (salary, unemployment benefits, student grants, etc.), you as a company owner have to pay corporate tax on your company’s profits.
Therefore, keeping track of your company’s finances with the proper handling of receipts and documents is essential.
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What is the difference between corporate tax and business tax?
In Denmark, there are two different taxation systems for companies. Corporate tax is one, and company tax is the other.
While company tax is the type of tax that personally owned companies (such as sole proprietorships) pay, corporate tax is reserved for companies.
This can be:
- Limited liability companies (A/S)
- Private limited companies (ApS)
- Limited partnerships (P/S)
- Entrepreneurial limited companies (IVS)
- Cooperative societies
- Institutions
- Foundations
- Savings banks
- Investment companies and other associations
When does your company have to pay corporate tax?
According to tax legislation, your company must pay corporate tax on its profits if it has one of the above company forms. However, a company can be either tax-resident as independent or non-independent. The two forms determine which form of taxation you have to pay.
If you have a non-independent tax liability, you, as the owner, are obliged to pay tax on the profits. You must pay based on your company’s income if you have an independent tax liability.
As an owner, you become liable to tax as soon as you receive dividends – and then you must pay dividend tax. You can find more information about this at the Skattestyrelsen website (Danish Tax Agency, formerly SKAT).
If you have a loss in your company, it also means that you do not have to pay taxes. You only pay corporate tax if your company has generated a profit.
Payment dates for payment of tax
With corporate tax, you do not pay a percentage of tax every month, as with personal income tax.
Instead, you pay the tax twice yearly: March 20th and November 20th. You pay the tax in advance.
How do you pay tax in your company?
You pay corporate tax in your company by reporting to the Danish Tax Agency.
You do not automatically have the tax deducted from your income. Instead, you are responsible for reporting your company’s tax yourself.
You do this on the Danish Tax Agency’s website via TastSelv Erhverv.
How much does your company have to pay in tax?
The Danish corporate tax rate is 22% of a company’s profit.
The state sets the corporate tax rate, which has been falling steadily over the past decade. Today, you, as a company, pay a smaller part of the corporate tax than before. In 2013, the tax was 25% compared to the 22% you are charged today.
The exact amount of tax that a company has to pay depends on the profit generated by the company in a fiscal year. Therefore, all companies pay different amounts of corporate tax.
Example of corporate tax calculation:
If your company has had a profit of 300,000 kroner in the last fiscal year, a tax of 22% must be deducted.
The calculation looks like this:
300,000 X 0.22 = 66,000 kroner
Find out if you need to pay corporate tax:
Suppose you, as an individual, do not have any income. In that case, whether salary, student grants, unemployment benefits, or similar, you do not have any income to pay personal income tax on. The same applies to your company.
If you do not have a profit, you do not have to pay corporate tax.
But how do you know if you need to pay corporate tax? First and foremost, you find out by getting an overview of whether you have a profit. By calculating the difference between your income (sales) and costs (salaries, depreciation, etc.), you can clarify your profit, if you have any.
As a company, you are obliged to prepare an annual report. The profit is included in the income statement of the report.
You can offset the two if you have a deficit in one fiscal year but a profit in the following year.
This means that if you, for example, have a deficit of 150,000 kroner in one fiscal year but a profit of 150,000 kroner in the following year, you can avoid paying taxes because you break even.
The tax system is designed to make it easier for companies to survive during economic downturns.
Do you want to know more?
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Learn more about how we can help you with our efficient solutions.