Foreign companies with activities in Denmark and Danish companies with activities abroad should regularly seek advice regarding the tax and VAT challenges this may entail.
A permanent establishment remains an important control point for the Danish Tax Agency, and it can have significant consequences if a company establishes a permanent establishment in Denmark without realizing it. If this is discovered several years after the establishment, the Danish Tax Agency can reopen and correct the company’s tax obligations to Denmark.
We want to highlight this issue and emphasize some typical situations that companies should be particularly aware of.
Typical situations where a Danish permanent establishment may arise include:
- Foreign companies or corporations performing construction, installation, or assembly work in Denmark.
- Foreign companies or corporations renting or purchasing premises in Denmark, for example, by establishing a branch.
- Foreign companies or corporations hiring a person in Denmark who works from a home office.
- Foreign companies or corporations hiring or engaging an agent/person to enter into binding agreements on their behalf.
It is important to note that this list is not exhaustive. Any presence in Denmark where a foreign company conducts activities can lead to the establishment of a permanent establishment in Denmark.
Due to COVID-19, there has been a particular focus on working from home in Denmark in recent years. The assessment of a permanent establishment has become stricter, especially when high-ranking executives work from Denmark, as this almost automatically results in a permanent establishment.
Tax Consequences
A permanent establishment entails many obligations, such as registration in Denmark, preparation of a Danish tax income statement, possible preparation of TP documentation, reporting of wages, withholding of A-tax and AM contributions, and tax liability for foreign employees.
The fact that a permanent establishment is established in Denmark means that the company is generally required to prepare TP documentation for Denmark unless the company can be exempted from this obligation. Failure to comply with the obligation can result in a fine of DKK 250,000 per income year.
Therefore, it is crucial to identify a permanent establishment in a timely manner to avoid subsequent sanctions.
Final Remarks
It is important to note that this also applies when Danish companies conduct activities abroad. In such cases, the assessment must be made according to the foreign country’s rules on permanent establishments.
Be aware that there is not a complete equivalence between the tax concept of a permanent establishment and the VAT concept of a fixed place of business. Therefore, it is crucial to conduct a separate VAT assessment when companies have activities in Denmark.
If you are in a situation that may be covered by the above, we are here to assist that your company’s operation can continue smooth without any tax headache.
