How Danish VAT (Moms) Works: A Plain English Guide

In Denmark, Value Added Tax is called moms. It is a consumption tax applied to nearly all goods and services. If you run a business in Denmark, understanding how it works is not optional. It is a core part of your financial administration.

The standard VAT rate is 25%. This figure is central to your pricing and bookkeeping. Let's look at the practical details you need to manage it correctly.

When Do You Need to Register for VAT?

You are required to register your business for VAT when you expect your taxable sales to exceed 50,000 DKK within any 12-month period. This is the registration threshold.

It is important to monitor your turnover. Once you cross this threshold, you must register with the Danish Business Authority (Erhvervsstyrelsen). Many businesses choose to register from the start, which is often simpler. Registration allows you to begin reclaiming VAT on your business purchases immediately.

The Core Concept: Input vs. Output VAT

To understand your VAT reporting, you need to be clear on two terms: output VAT and input VAT.

Output VAT (Salgsmoms)

This is the 25% VAT you add to your sales price and collect from your customers. If you sell a service for 1,000 DKK, you actually charge the client 1,250 DKK. The 1,000 DKK is your revenue, and the 250 DKK is the output VAT you owe to the state.

Input VAT (Købsmoms)

This is the VAT you pay when you buy goods or services for your business. If you buy a new laptop for your company for 8,000 DKK including VAT, the 1,600 DKK portion (25% of the 6,400 DKK pre-tax price) is your input VAT. You can generally deduct this amount.

Your VAT return calculates the difference between these two. You either pay the difference to the tax authorities (SKAT) or receive a refund if your input VAT is higher than your output VAT.

Calculation: Output VAT - Input VAT = VAT Payable (or Refundable)

Filing Your VAT Return

The frequency of your VAT filings depends on your business's annual turnover.

New businesses often start with quarterly reporting unless they request otherwise. Filing is done online through the E-tax for businesses portal (TastSelv Erhverv). Missing a deadline results in fines, so it is critical to keep track of your reporting periods.

What Can You Actually Deduct?

You can deduct the input VAT on expenses directly related to your business's taxable activities. However, the rules have some specific limitations.

Generally Deductible:

• Professional services (like accounting or legal fees)
• Software subscriptions and IT equipment
• Office rent and supplies
• Marketing and advertising costs

Partially or Non-Deductible:

• Meals: VAT on restaurant bills is generally not deductible when dining with business partners. If the meal is solely for an employee, you can deduct 25% of the VAT.
• Entertainment: Costs for entertaining clients, such as concert tickets or gifts, are not deductible.
• Hotel Stays: You can deduct 100% of the VAT on hotel accommodation.
• Vehicles: The rules for cars are complex. VAT on the purchase of passenger cars (hvide plader) is typically not deductible. For commercial vehicles on yellow plates (gule plader), VAT is usually fully deductible.

Keeping accurate records and receipts for all purchases is essential for justifying your deductions.

Trading with the EU: The Reverse Charge Mechanism

When you buy services from a business in another EU country, the VAT is handled through a system called reverse charge. Instead of the seller charging you VAT, you are responsible for accounting for it in your Danish VAT return.

For example, if you buy a €100 software subscription from an Irish company, they will not add Irish VAT. You then report the VAT on this purchase as both an output and an input in your Danish return. The two entries cancel each other out, resulting in a net-zero effect on the amount you owe. The purpose is to shift the reporting obligation to the buyer's country.

Common Mistakes to Avoid

1. Late Registration: Failing to register for VAT once you pass the 50,000 DKK threshold is a frequent error. Monitor your revenue closely.
2. Incorrect Deductions: Claiming VAT on non-deductible expenses like client entertainment can lead to corrections and penalties during a tax audit.
3. Missing Deadlines: Filing or paying your VAT late will result in financial penalties from SKAT.
4. Mixing Personal and Business Expenses: Only expenses that are for the business can have their VAT deducted. Poor record-keeping often causes this issue.

Managing moms is a fundamental responsibility for any business in Denmark. By understanding these core principles, you can ensure you stay compliant and manage your cash flow effectively.