Accounting In Denmark: Everything You Need To Know To Run a Compliant and Successful Business

Understanding how accounting works in Denmark is essential for any entrepreneur, whether local or foreign. The Danish accounting system is highly structured, with clear rules about bookkeeping, tax reporting, and financial statements. Businesses are expected to maintain transparency, accuracy, and timely documentation to comply with national laws. In this article, we’ll explore the fundamentals of accounting in Denmark, including legal obligations, financial reporting, VAT handling, and how to choose the right accounting methods and tools for your business.

The Legal Basis of Accounting in Denmark

Accounting in Denmark is governed by the Danish Financial Statements Act (Årsregnskabsloven) and the Bookkeeping Act (Bogføringsloven). These regulations define how companies should record, report, and store their financial data.

Key legal obligations include:

• Companies must prepare annual financial statements.
• Records must be stored for at least five years.
• Businesses must follow double-entry bookkeeping.
• Accounting must be done in Danish kroner (DKK) unless exceptions apply.
• Documentation must be accurate, traceable, and chronological.

Failure to comply can lead to fines or legal action from the Danish Business Authority (Erhvervsstyrelsen).

Classification of Danish Companies and Reporting Requirements

Danish businesses are categorized into four classes based on size: Class A, B, C, and D. The classification determines the complexity of accounting requirements and financial statement disclosures.

• Class A: Sole proprietorships and partnerships with fewer than 10 employees and a turnover under DKK 5 million. These entities have simplified requirements.
• Class B: Small private limited companies (ApS) must submit annual financial statements to the Danish Business Authority.
• Class C: Medium and large companies must provide audited statements and management reports.
• Class D: Publicly listed companies, which must meet extensive disclosure obligations.

Each class has different rules for balance sheets, income statements, cash flow reporting, and notes to the accounts.

VAT and Tax Accounting in Denmark

Value-Added Tax (VAT or moms) is a core component of accounting Denmark. Businesses with a turnover above DKK 50,000 annually must register for VAT with SKAT, the Danish Tax Authority.

Accounting responsibilities include:

• Charging 25% VAT on most goods and services.
• Filing monthly, quarterly, or semi-annual VAT returns, depending on business size.
• Reporting input and output VAT correctly.
• Issuing compliant VAT invoices with all required details.

Additionally, businesses must handle:

• Corporate income tax (typically 22% of taxable income).
• Tax prepayments and adjustments.
• Employee income tax and social contributions if hiring staff.

Accurate accounting ensures compliance with tax regulations and helps avoid penalties or audits.

Annual Financial Statements and Audits

At the end of each financial year, Danish companies are required to prepare and file financial statements. The contents of these statements vary depending on the company classification but generally include:

• Profit and loss account
• Balance sheet
• Notes to the financial statements
• Management commentary (for larger companies)

These documents must be submitted via Erhvervsstyrelsen’s online platform. For medium and large businesses, an external audit by a certified auditor is also mandatory.

Deadlines are strict—typically six months after the financial year ends. Missing these deadlines may result in fines or deregistration from the CVR register.

Choosing an Accounting Method in Denmark

In Denmark, companies can handle their accounting in various ways:

1. Manual Accounting – Suitable for microbusinesses with simple structures.
2. Accounting Software – Digital systems are the norm for small to medium businesses.
3. Outsourcing to Accounting Firms – Popular among foreign entrepreneurs and companies with limited in-house expertise.

Popular accounting software solutions in Denmark include:

• e-conomic – Widely used by accountants and SMEs.
• Dinero – Ideal for freelancers and startups.
• Billy – Offers easy-to-use invoicing and tax tools.
• ERP systems like Microsoft Dynamics 365 for larger companies.

When selecting a method, consider factors such as VAT integration, payroll handling, and bank integration capabilities.

Payroll Accounting and Employee Obligations

If your business in Denmark employs workers, payroll accounting becomes a major responsibility. Danish labor laws are strict and require employers to:

• Register with SKAT as an employer.
• Deduct income tax (A-tax), labor market contributions (AM-bidrag), and ATP pension contributions.
• Report salaries through the eIncome system.

Monthly payroll reports must be submitted electronically, and employees must receive proper payslips detailing gross pay, deductions, and net pay.

Employers must also account for:

• Paid holidays and leave accruals.
• Sick leave compensation.
• Optional company pension contributions.

Good payroll accounting ensures legal compliance and builds trust with employees.

Accounting for Foreign-Owned Companies in Denmark

Foreign investors or companies setting up a branch or subsidiary in Denmark must follow the same accounting laws as local businesses. Specific considerations include:

• Setting up a CVR number (business registration).
• Opening a Danish bank account.
• Understanding local tax obligations, including VAT, income tax, and withholding taxes.
• Ensuring all documentation is available in Danish for submission to authorities.

It’s highly recommended to work with a local accountant familiar with Danish law, especially during the early stages of your operation.

Companies without Danish-language capabilities may struggle with platforms like TastSelv Erhverv, SKAT’s online portal, which is primarily in Danish.

Best Practices for Accounting in Denmark

To maintain effective accounting in Denmark, business owners should follow these best practices:

• Keep records up-to-date on a weekly or daily basis.
• Reconcile bank accounts monthly to catch errors or fraud.
• Use cloud-based accounting tools to improve accuracy and accessibility.
• Store digital copies of invoices, contracts, and receipts.
• Back up financial data regularly to avoid data loss.

Additionally, staying informed about annual tax changes and accounting law updates is crucial. Joining a professional network or consulting with an accountant can help you stay ahead.

Penalties for Non-Compliance with Accounting Rules

Denmark enforces accounting laws strictly. If your business fails to meet the requirements, you may face:

• Fines from the Danish Tax Authority or Business Authority.
• Forced deregistration from the CVR register.
• Increased tax audits and scrutiny.
• Legal action or court cases in extreme situations.

The most common causes of non-compliance include missing deadlines, VAT misreporting, poor invoice management, and lack of documentation. Having a professional accounting system in place helps avoid these risks.

Benefits of Transparent Accounting in Denmark

Beyond compliance, there are several business advantages to maintaining good accounting practices:

• Improved financial decision-making based on accurate data.
• Better relationships with banks and investors due to reliable financial statements.
• Easier access to public grants or loans available for Danish businesses.
• Faster growth due to improved operational efficiency.
• Enhanced reputation and credibility in the market.

In Denmark’s transparent and trust-driven economy, clear financial reporting is a sign of professionalism and long-term business stability.

Accounting in Denmark is more than just a legal obligation—it’s a tool that can empower business growth, build financial discipline, and establish trust with stakeholders. From VAT registration and payroll to annual reports and audits, every step of the accounting process must be handled with precision. By choosing the right tools, staying informed about legal requirements, and working with professionals when necessary, you can ensure your business not only stays compliant but also thrives in the Danish market.