VAT - The basic rules
VAT is a central part of Danish companies’ finances and an area where even small mistakes can have major consequences. Although the VAT rate in Denmark is 25%, there are many nuances in how VAT is handled, depending on what is being sold, who it is sold to, and where the delivery takes place.
When is something subject to VAT?
As a general rule, VAT must be charged when a business supplies goods or services for consideration and the supply takes place in Denmark. This applies to both sales to businesses (B2B) and to private consumers (B2C).
However, VAT quickly becomes more complex when questions such as the following arise:
- Is the service or good subject to VAT or VAT exempt?
- Does the supply take place in Denmark or abroad?
- Is it the seller or the buyer who must account for the VAT (for example reverse charge)?
It is particularly in these grey areas that we often see businesses make mistakes. Do you need help with VAT in Denmark?
VAT registration, when is it required?
A business must be VAT registered when its taxable turnover within a calendar year is expected to exceed DKK 50,000.
Once a business is VAT registered, it becomes subject to reporting obligations. How often VAT must be reported depends on the company’s turnover:
- Semi-annual VAT settlement, taxable turnover below DKK 5 million annually
- Quarterly VAT settlement, taxable turnover between DKK 5 and 50 million annually
- Monthly VAT settlement, taxable turnover above DKK 50 million annually.
It is not only important that VAT is reported, but also crucial that it is done correctly and on time. We can help you with your tax matters in Denmark.
Output VAT, when must VAT be charged?
When a business sells goods or services in Denmark, VAT must be charged on the sale. This applies regardless of whether the sale is to another business or to a private customer.
As a main rule, VAT becomes payable at the time of supply, which in practice corresponds to the invoicing date. Output VAT is generally calculated on the total invoiced amount.
This means that the seller must:
- add VAT to the invoice
- report the output VAT to the Danish Tax Authorities
- settle the VAT in the relevant VAT period.
This may sound straightforward, however in practice errors often occur. Typically, this happens when a supply is invoiced without VAT even though it should be subject to VAT, or when an incorrect VAT code is used in the accounting system.
Such errors can have significant consequences. Failure to charge VAT may result in additional assessments, interest, and possible penalties, even if the error is due to a misunderstanding rather than intentional wrongdoing.
When sales occur across national borders, VAT rules change, and it is not always the seller who must charge VAT.
Reverse charge, when the buyer accounts for VAT
As a rule, the sale of goods and services to other EU countries is VAT exempt, as intra-community supply of goods/services. However, this requires, among other things, that the goods physically leave Denmark and that the seller can document this. In addition, the buyer must be VAT registered in another EU country, and the buyer’s VAT number must appear on the invoice.
It is therefore important that the company’s internal processes ensure that all EU transactions are reported correctly, both in the VAT return and in the EU Sales List, the VIES system.
To sell without charging VAT, several conditions must be met, all of which must be fulfilled. This includes verifying the buyer’s VAT number, ensuring that the buyer’s valid VAT number with the correct country code appears on the invoice, that invoicing is otherwise carried out correctly with a clear indication of reverse charge, and that EU sales are reported correctly and on time, both in the VAT return and via the EU Sales List, the VIES system.
Input VAT, when is there a right to deduct VAT?
Input VAT concerns the company’s right to deduct the VAT paid on purchases of goods and/or services. The right to deduct VAT depends on how the purchases are used in the business.
When it comes to VAT deduction, there is also a documentation requirement that must be met. To claim a VAT deduction, the company must therefore be in possession of a correctly issued invoice.
Generally, the invoicing date determines when the VAT deduction may be taken. This means that the deduction should normally be included in the VAT period in which the invoice date falls.
The main rule for VAT deduction is that a company may deduct input VAT if the costs are incurred for use in the company’s VAT liable activities. When assessing a company’s right to VAT deduction, there are generally three possible situations.
First, there may be full right of VAT deduction if the expense relates exclusively to the company’s VAT liable activities. In such cases, the input VAT can be fully deducted.
Second, there may be partial or limited right of deduction. This situation typically arises in companies that have both taxable and VAT exempt activities. In such cases, the company has a partial right to deduct VAT on so-called general expenses, that is shared costs that cannot be directly attributed to a specific part of the business.
With partial deduction, a deduction percentage must be calculated. This percentage is determined based on the ratio between the company’s taxable turnover and its total turnover. The percentage is then used to determine how much of the input VAT may be deducted.
In certain cases, the right of deduction is determined on an estimated basis, often for purchases such as mobile phones, computers, and similar items that are used both for business and private purposes.
Finally, there may be situations where there is no right of deduction at all. This applies if an expense relates exclusively to VAT exempt activities.
Assessing VAT deduction therefore often requires a specific review of both purchases and their use, as the right of deduction in practice depends on documentation, usage, and the company’s activities.
Invoice requirements
To ensure correct VAT treatment and the right to deduct VAT, an invoice must meet multiple formal requirements.
An invoice must contain the following information:
- Date of issue, invoice date
- A sequential invoice number
- The seller’s name, address, and CVR number
- The buyer’s name and address
- The quantity and nature of the goods supplied, or the scope and nature of the services provided
- Delivery date, if different from the invoice date
- The VAT base, including price per unit excluding VAT and any discounts
- The VAT rate applied
- The VAT amount payable.
When selling to VAT registered customers in other EU countries where the buyer must account for the VAT, the invoice must also include:
- The buyer’s VAT number with country code
- A statement that the supply is subject to reverse charge, for example:
- “Reverse charge”, for the sale of services
- “Zero-rated”, for the sale of goods.
Do you need VAT advice?
VAT errors often arise in day-to-day operations, not because businesses intentionally do something wrong, but because the rules are complex and highly detailed.
It can therefore be a good idea to have your VAT setup reviewed.
At Azets, we support companies with VAT advice, process reviews, and the management of specific VAT matters, helping you avoid costly surprises.
