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VAT Settlement

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What is a VAT settlement?

In Denmark, most goods and services are subject to a tax surcharge of 25%. This surcharge is called VAT.

For example, if your company sells a washing machine for DKK 4,000, you must add DKK 1,000 VAT and demand DKK 5,000 from the customer because VAT must be added to the item’s price.

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A company reports and pays VAT to the tax authorities in connection with VAT settlement. This is where the DKK 1,000 VAT from the washing machine in the above example is settled.

Failure to comply with the VAT rules can result in fines and sanctions from the tax authorities, so it is essential that the company’s bookkeeping or bookkeeper makes the correct VAT settlements.

What does a VAT settlement consist of?

A VAT settlement contains information about a company’s sales, purchases, and VAT amounts, which the company is entitled to deduct from the VAT settlement. When the tax authorities receive the settlement, they calculate how much VAT must be paid or refunded to the company.

The settlement consists of a VAT account with output VAT and input VAT.

Input VAT and Output VAT

VAT is settled as a starting point with the Tax Agency, where the difference between your company’s input VAT and output VAT is found.

If your company’s output VAT exceeds your input VAT, the company must repay that amount to the tax agency. If the reverse is the case, the company will receive the difference.

Output VAT. That is, it is the VAT that a company charges its customers when customers buy from it. Input VAT is charged when a company buys a product or service from others.

VAT is settled according to your company's turnover

How often companies have to make their settlements and report VAT to the Danish Tax Age differs. It depends on the turnover of the individual company.

  • If your company’s annual turnover is between DKK 0-5 million, you must settle and report VAT every six months.
  • If your company’s annual turnover is between DKK 5-50 million, you must report every quarter.
  • If your company’s annual turnover is more than DKK 50 million, you must report every month.

... but there are also exceptions

All VAT-registered companies must settle and report VAT to the Tax Agency. But there are exceptions:

  • Health care (doctors, dentists, psychologists, etc.)
  • Education
  • Undertakers
  • Banks

The companies mentioned above are not obliged to pay VAT or be VAT registered.

Do you want to know more?

You can visit our Acupedia and learn everything about expense management, bookkeeping, and other relevant expenses-related concepts.

FAQ

What is VAT settlement?
VAT settlement is a company’s reporting and payment of VAT (Value Added Tax) to the tax authority. The settlement includes input VAT (VAT on purchases) and output VAT (VAT on sales), from which the amount of VAT the company needs to pay or is entitled to receive as a refund is calculated.
VAT settlement is calculated by comparing the company’s input VAT and output VAT. If the output VAT exceeds the input VAT, the company is required to pay the difference to the tax authority. If the input VAT exceeds the output VAT, the company is entitled to receive a refund for the difference.

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