You can deduct expenses incurred to ensure your business income. You deduct such expenses in your business annual accounts. You need to be able to document expenses that you deduct.

Examples of deductions include:

  • purchase of goods for resale,
  • purchase of tools, equipment and machinery
  • fees for accountants and lawyers
  • expenses for telephone and Internet
  • rent of business premises
  • electricity and heating
  • repair and maintenance of business premises
  • insurance

You are not entitled to deduct private expenses - meaning items you buy through your business but only use for private purposes. If you buy something which is used for both business and private purposes, you can deduct the part you use for business purposes.

You are also entitled to deduct VAT on some of your business expenses.

You deduct relevant expenses in your annual accounts. This will give you your net profit or loss for the year which you state on your tax return.

Further information on bookkeeping and accounts.

Most often, you are entitled to deduct business expenses you have incurred during a period of six months prior to starting your business. This could, for example, be:

  • rent for business premises
  • telephone
  • salaries
  • advertising

The closer to you are to opening your business when you pay a relevant expense, the more likely it is that you will be allowed the deduction.

Expenses for accountancy, legal advice and market research, for example, are not deductible.

You deduct operating costs (costs for continuous operations) in your accounts.

You deduct capital expenditure (expenses for machinery and tools, for example) in your accounts in the year of acquisition, or depreciate the item acquired over several years if the annual expense exceeds DKK 13,500 in 2018 (DKK 13,800 in 2019).

Deduction for minor assets

Plant and equipment with a short life (maximum three years) and minor assets with an acquisition price of less than DKK 13,500 in 2018 (DKK 13,800 in 2019) may be deducted entirely in the year of acquisition.

Deduction for major expenses

If an expense, for example the acquisition of a new machine, exceeds DKK 13,500 in 2018 (DKK 13,800 in 2019), the expense is not deductible right away. Instead, you have to spread the expense over a number of years. Spreading the expenses is called depreciation. You may depreciate an item by a maximum of 25% a year. If you have several expenses exceeding the limit, the amounts are added up and the total amount is the basis of the depreciation. This is called the diminishing-balance method.

You can easily depreciate acquisitions at a lower rate if, for example, your business income is low one year and you do not need major deductions. The following years you will be able to raise the deduction rate again (maximum 25%).

When at some point the amount is less than the limit of DKK 13,500 in 2018 (DKK 13,800 in 2019), you can deduct the entire amount at once.

Example of depreciation

If you buy a machine for DKK 100,000, you can decide to depreciate it at a rate of 25% in the first year. This means that you can deduct an expense of DKK 25,000 in your annual accounts. In the next year you can deduct 25% of the balance of DKK 75,000, meaning that you can deduct DKK 18,750.

Plant and equipment for both business and private purposes (a car for example)

If you use plant or equipment for both business and private purposes, a car for example, you need to depreciate it separately. You can only deduct the part used for business purposes in your accounts.

Further information on the rules on depreciation in Danish in our legal guide.

You can deduct all expenses for advertising in your accounts, including adverts in newspapers and marketing activities.

You can deduct 25% of expenses for entertainment in your accounts. Entertainment is expenses to complete a business activity or to make or maintain business relations such as:

  • food
  • meals in restaurants
  • beverages
  • gifts
  • expenses related to anniversaries, birthdays, travelling, outings, etc.

It is important that you keep vouchers and note the reason for the expense as your documentation.

In order to be entitled to deduct expenses for premises in your private home, such premises may not be set up in a way allowing you to use them for private purposes. It is not sufficient that you do not use the premises for private purposes. A room that has been set up as an office, can, for example, almost always be used for private purposes, and as a result the expenses for this room are not deductible.

However, you can fully or partially deduct expenses for desks, cabinets and other office furniture if you are able to document or make probable that such furniture etc. is used in your business. If, for example, you use the office furniture 50/50 in your business and privately, you can only deduct 50% in your accounts.

Expenses for telephone and Internet are fully deductible, but you may have to pay tax on free phone and/or Internet.

Free telephone

You will be taxed on free phone if you run your business from your private home or if you just once bring your work mobile phone home. If you have a free phone at your disposal all year, you should enter DKK 2,800 (in 2018 and 2019) in box 462 in your tax return. In your business accounts, where you have deducted the telephone expenses, you should add DKK 2,800 (in 2018 and 2019) to your business results.

Free Internet

You are entitled to fully deduct Internet expenses if you either run your business from home or have access to your business network via your computer (meaning that you have access to almost the same functions and/or documents as when you are at work).

If your Internet connection does not meet any of the above requirements, you are taxed on DKK 2,800 (in 2018 and 2019) a year. As a result you need to enter DKK 2,800 in box 462 of your tax return (in 2018 and 2019). In your business tax accounts, where you have deducted the expense for Internet connection, you should add DKK 2,800 (in 2018 and 2019) to your business results.

If you are taxed on free telephone as well as Internet connection, you should add a total of DKK 2,800 (in 2018 and 2019) to your business results and enter DKK 2,800 (in 2018 and 2019) in box 462 of your tax return.

Spouse discount and free telephone/Internet

If you and your spouse are both taxed on free phone and/or Internet connection for the entire year, you are both entitled to a 25% discount. The amount you are taxed on will then be DKK 2,100 for each of you (in 2018 and 2019). In your business tax account where you have deducted expenses for Internet and telephone, you should add DKK 2,100 to your business results (in 2018 and 2019).

You should each enter DKK 2,800 (in 2018 and 2019) in box 462 of your individual tax returns.

Conditions you need to meet to qualify for the discount:

  • You must be married or registered partners
  • You must be living together at the end of the year
  • The total taxable value of the benefits received in the income year must amount to at least DKK 3,700 (in 2018 and 2018). This means that, within the tax year, you will jointly be taxed on benefits for at least 16 months.

If you were married during the income year, you are entitled to the spouse discount for the entire income year. This applies irrespective of the time of year you were married.

If you have your own business and use your private car for business purposes, you can deduct the part of your driving that is related to your business by deducting the relevant expenses in your business accounts.

You can calculate expenses for business-related use of car in two ways:

  • According to a calculated "rental cost" corresponding to the actual business cost (that is the business part of operating costs and depreciation).
  • According to the Danish Tax Council's rates for driving in own car for business purposes at DKK 3.54/km for up to 20,000 km/year in 2018 and DKK 1.94/km for more than 20,000 km/year. These rates are adjusted annually.

Examples

Example 1: Deduction for actual expenses for business-related transport

According to the driving log, you travelled 20,000 km, of which 8,000 km (40%) is business related.

Total car operasting costs (petrol, insurance, repairs etc.) amount to DKK 24,500.

Value of the car for tax purposes is DKK 150,000.

The car's value for tax purposes at the beginning of the income year can be depreciated by up to 25%.

Deduction for actual expenses for business-related transport in DKK

Business part of operating costs: 40% of DKK 24,500

9,800

Depreciation: 150,000 x 25% = 37,000 x 40%

15,000

Total deduction:

24,800

Example 2: Deduction according to the Danish Tax Council's rates

According to the driving log, you travelled 20,000 km, of which 8,000 km (40%) is business related.

2018:
According to the Tax Council's rates you can deduct 8,000 km x DKK 3.54 = DKK 28,320.

Keep a driving log

Remember to keep a log of the distance travelled for business/private purposes so that you can document how much you have used the car for private and business purposes respectively.

Your car and the business scheme

You may also opt for the business taxation scheme and let your car be part of this (meaning that your car is included in the business finances). If you do so, you will be taxed on having a company car, if you also have it at your disposal for private purposes. In return, you are entitled to deduct all car expenses in your business accounts.

VAT and car expenses (link in Danish)

Please see our legal guide (in Danish) for further legal information.