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What is VAT law?

VAT law is a set of rules that VAT-registered Danish businesses must comply with. In other words, it includes all the conditions and requirements relating to VAT – from a company’s VAT liability to how it pays and reports VAT.

It is, therefore, essential to understand what VAT is. Value Added Tax is commonly known as VAT. It is a tax surcharge added to the price of goods or services.

The state tax is initially 25% of the price of the goods, but it can also be 6% and 12%. This depends on the individual product or service.

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When does VAT law cover your business?

If you are a VAT-registered business, you must follow the VAT law. Your business must be registered for VAT if you have a turnover of more than DKK 50,000 annually. This is the VAT threshold in Denmark.

You should be aware here that your turnover (how much you sell) and not your profit (how much you have earned) determines whether you need to register for VAT.

It is also important to note that you should not wait to register for VAT until you reach the golden DKK 50,000 annual turnover mark. You must register your business for VAT when you anticipate a DKK 50,000 or more turnover in 12 months.

As a VAT-registered business, you must impose 25% on your goods and services. At the same time, you can also deduct VAT on what you buy for your business.

VAT exemption and VAT-free services

VAT law also has rules for VAT exemption. There are VAT-free companies exempt from VAT. For these companies, a payroll tax applies instead. Payroll tax is a tax imposed on companies that sell VAT-exempt services.

VAT-exempt companies may be:

  • Doctors
  • Psychologists
  • Dentists
  • Physiotherapists
  • Funeral directors
  • Banks

VAT-exempt services may include:

  • Funerals
  • Flights
  • Train journeys
  • Taxi rides
  • Charity events
  • Cultural activities

However, you can be a VAT-exempt company and still conduct VAT-liable sales. This can be, for example, a physiotherapist who performs VAT-exempt treatments but sells VAT-liable training equipment.

VAT settlement - how do you settle VAT?

You must settle your VAT with Skattestyrelsen  (Danish Tax Agency, formerly SKAT). To make a VAT settlement with them, you must first understand the difference between purchase VAT and sales VAT in your business.

Input VAT is the VAT included in purchases (all incoming goods), while Output VAT is the VAT included in sales (all outgoing goods). The difference between the two reveals whether you have VAT to claim or whether you owe money to the tax agency.

If your purchase VAT is higher than your sales VAT, the tax agency will pay you the difference between the two. If, on the other hand, the situation is reversed, you owe money to the tax agency.

VAT settlement according to the VAT law

As a registered company for VAT, you are obliged to report your VAT to the Tax Authority. You can find the report under TastSelv Erhverv.

Your turnover determines how often you need to report your VAT:

  • Monthly: If your company has an annual turnover of more than 50 million kroner, you are required to report your VAT monthly.
  • Quarterly: If your turnover is between 5-50 million kroner annually, you must report your VAT every quarter. Newly established companies must report VAT quarterly for the first year and a half, regardless of their turnover.
  • Semi-annually: If your annual turnover is between 0-5 million kroner, you are required to report your VAT every six months.

There are deadlines for when you must report your VAT. You must report on time – otherwise, you risk getting a fine. You can get an overview of the VAT deadlines from the Tax Authority.

Do you want to know more?

At Acubiz, we can help you with the digitization of your company’s expense management, handling of VAT and integration with your company card and financial system. Learn more about what software integrations are here, or read more about the integrations options with Acubiz.

Contact us if you want to know how we can help your business or book a free online demo to learn more.

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