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Please find information on taxation on COVID-19 compensation schemes below.

On 21 December 2021, the Danish Parliament passed an amendment, including an optional time of taxation scheme, in which the recipient of compensation may choose the time of taxation in certain cases.

Read more about the optional time of taxation below or see the amendment (in Danish) at retsinformation.dk.

Generally, the COVID-19 compensation schemes are subject to income tax for the recipient and as a result they should be included in the financial statements of the business.

Compensation received by a business should be included in the financial statements at the time when for tax purposes the compensation entitlement was obtained.

The time when the entitlement and thereby the time of taxation take effect depends on the conditions for receiving the compensation. The conditions are stated in the individual compensation schemes, this could be in the guidance given to the business along with the compensation, the executive order on the compensation scheme or similar.

We regularly receive information from third parties about compensation payments and we use this information when we check the figures reported by businesses.

In Danish tax law, income is generally taxed in the income year when the business obtained entitlement to the compensation. Entitlement is often obtained in the income year when the payment was made. In such cases, the time of taxation is the same as the time of payment of the compensation.

However, in a number of COVID-19 compensation schemes, the compensation payment is provisional, meaning that the actual compensation will not be decided until later on by the paying authority.

In these cases, the time of taxation will not be the same as the time of payment as the entitlement was not obtained at the time of payment. Typically, a compensation scheme will have conditions that cannot be met or documented to the paying authority until at a later point in time.

It could be that a business has applied for and received compensation in October to cover fixed costs or employee pay for the period of 1 October to 31 January the following year. In this case, it will not be possible to have the exact numbers until the following year when the estimates can be compared to the actual compensation that was applied for and received.

Tax liability takes effect when the compensation has been finally decided

As a result, the entitlement and time of taxation do not take effect until the paying authority has checked the documentation and made a final decision. This is not possible until at the end of the compensation period at the earliest.

Since a lot of businesses have applied for compensation, the paying authority cannot be expected to make a final decision immediately at the end of the compensation period.

Below you can read about the situations when the time of taxation is the same as or different from the time of the compensation payment.

See the compensation conditions if you are uncertain

If you don’t know if you have obtained entitlement to a compensation when the compensation was paid, or if the compensation has not been finally decided, you can check the conditions that apply to the specific compensation scheme. This could be the guidance that you received along with the compensation, the executive order on the compensation scheme or similar.

Situations where the tax liability takes effect at the time of taxation

Some compensation schemes require documentation that the business is/was entitled to the compensation at the time of application.

The paying authority can then make a decision and payment to the applicant based on this information.

In such cases, the tax liability takes effect at the time of compensation payment. This is why you have to include the compensation in the financial statements of that specific year.

Some compensation schemes pay out a provisional amount requiring that you at a later point in time document that the business meets/met the various conditions during the compensation period.

This could be an expected fall in turnover or the size of the expected fixed costs that are different in the final statements, which is why the paying authority cannot make its final decision on the compensation entitlement and the compensation size until afterwards.

Therefore, the time of taxation will be postponed. This means that you do not include the provisional compensation in the financial statements of your business until the time when the paying authority has made its final decision.

The compensation of the final decision may not be the same as the compensation you have received provisionally. It could be that your business has been given a larger og smaller compensation that the provisional payment. You can read more about this further down on this page.

Compensation for pay is solely financial support or subsidies offered to businesses with employees during periods when they were subject to COVID-19 restrictions. As a result, compensation for pay must be included as taxable income like other types of COVID-19 compensation.

Pay for employees, however, is not affected by any compensation for pay received by your business, and you should therefore treat salaries as usual.

To avoid uncertainty about when provisional compensation should be taxed, the Danish Parliament passed an act on 28 December 2021 to clarify the time of taxation of the various COVID-19 schemes.

The act only covers compensation paid as a result of COVID-19, including compensation schemes paying provisional compensation, as these schemes have a delayed entitlement and thereby also postponed time of taxation.

The act does not cover compensation schemes where the compensation entitlement is obtained at the time of payment. In such cases, there is never a provisional compensation to cause doubt about the time of taxation.

See the conditions of the compensation scheme if you are in doubt

If you don’t know if you have obtained entitlement to compensation at the same time as the payment or as a provisional payment, you can look up the conditions that apply to individual compensation scheme.

The conditions are stated in the guidance that you received along with the compensation, the executive order on the compensation scheme or similar.

The choice of taxation time applies to the schemes where the paying authority at the time of provisional payment has not finally decided if the recipient is entitled to compensation.

This means that the recipient has not obtained entitlement to the provisional payment. This is why a provisional payment is not taxable. It will not be taxable until the authority makes a final decision on the compensation.

The new act allows you to choose if your provisional compensation should be included in your taxable income for

  • the year of payment
  • the year when you receive the final decision from the paying authority
  • any year in between those two.

If you want to pay tax on provisional compensation, you have to make that choice before the reporting deadline for the relevant year. If you want to make use of your option to choose the time of taxation and include provisional compensation based on one of the three options, you will be bound by that choice.

However, this does not apply to provisional compensation paid in 2020 and 2021 as you may change your choice for these years.

Please see below for further information on how to do this.

If you received provisional compensation in 2020 or 2021, you may change your choice and include the compensation in your taxable income in another income year.

However, you need to know that you can only change your choice for provisional compensation for the income years 2020 and 2021.

Changing your choice for compensation included in 2020 and 2021

If you received provisional compensation in the income years 2020 and 2021 and you have already included it in the year of payment, you can change your mind so that the amount will not be taxed in 2020 or 2021.

Changing your choice for compensation not included in 2020 and 2021

You may also change your choice for provisional compensation for the income years 2020 and 2021 which you have not included in the year of payment. However, the earliest you can include the compensation in your taxable income is the year of payment. As a result, provisional compensation for the income year 2021 cannot be included in 2020.

You will have to let us know if you have changed your mind by the reporting deadline for the income year 2021 which is 1 July 2022 for personally owned businesses.

Businesses with a non-calendar income year where the reporting deadline is 31 December or earlier should change their choice by no later than 30 June 2022.

Provisional compensation should be fully taxed in one income year - as a result, it cannot be taxed in more than one income year

If you change your mind

Please note that if you change your mind, you will not be able to choose differently at a later point in time.

When the paying authority has finally decided the size of your compensation, the actual amount you are entitled to may be different from the provisional compensation.

If the provisional compensation was higher than the compensation you are entitled to, you have to repay the difference and for tax purposes you have to:

  • deduct the amount in the income year when the final decision was made and when you have to repay the difference
  • deduct the amount in the income year where the provisional compensation was included in your income (this option requires that you have chosen to include the provisional compensation in an earlier income year). 

If you choose the last of the two options above, you also have to apply for a reopening of the relevant income year. Read more in Danish in sections 26 and 27 of the Danish Administration Act (Skatteforvaltningsloven).

If the provisional compensation is too low compared with the compensation you are entitled to, you will be offered a payment of the difference. If you accept such a payment, the amount should be included in the business income year that you accept the amount.

Provisional compensation should be included no later than in the year you obtained the entitlement

If you have not yet included provisional compensation in your income, you can always include it in a later income year, but no later than the year in which the final decision is made.

If the final decision is made in 2023, you can choose to include the compensation in either 2022 or 2023. If you decide to include the compensation in 2022, you are bound by your choice. If you include the compensation in 2023, it will be included with the consequences of the final decision which means that the final compensation will be fully taxed in 2023.

Please read more about compensation entered in your tax assessment notice in the section ‘Taxation of recipients of B-income and freelancers’ below.

Examples of compensation schemes that allow provisional compensation

For compensation schemes not covered by the option of taxation time, the applicant will have to document that he meets the conditions for the amount requested at the time of application. This means that applicants of this group do not have to provide subsequent documentation that the conditions were met.

A payment has therefore been finally approved.

These schemes are taxed at the time of payment, meaning in the income year when the money is paid to the recipient. If the compensation payment was made in the income year 2021, the amount should be included in the income statement for 2021.

Examples of schemes where the amount is final when the compensation is paid

If you receive B-income, you have to include any compensation in your personal income. You have to pay labour market contribution (AM-bidrag) on the compensation amount. 
Read more about B-income

If you carry out freelance work, you will be taxed in the same way as recipients of B-income.

If you run an independent commercial business, you will be taxed as a personally owned business. You therefore have to take the below into account.

If you want to change your time of taxation for compensation received in 2020, which is included in your tax assessment notice for 2020, you have to do so before 30 June 2022. However, this only applies to paid provisional compensation.

Some recipients of compensation - such as freelancers and sole proprietorships with a fall in turnover - have been paid based on their CPR no. (civil reg. no.). If this applies to you, your compensation may have been reported to us and if so, it is entered in your tax assessment notice for 2021.

Such amounts that have been entered may be provisional or final amounts. This is why you have to comply with the rules described above about final taxable amounts and paid provisional compensation.

You cannot change your mind

If you don’t change the entered amount in your tax assessment notice for 2021, we will consider this to be your choice of time of taxation. You cannot change this later on. Read more about the optional time of taxation further up on this page.

If you have received B-income that has not been entered in your tax assessment notice

If you have received compensation in the form of B-income and the compensation is not entered in your tax assessment notice, you have to include the amount in box 15.

Call us on (+45) 72 22 12 39 if you would like further information.

We are ready to take your call on Mondays 9-17, Tuesdays -Thursdays 9-16 and Fridays 9-14.

The Danish Parliament has passed several bills in response to the COVID-19 situation for the purpose of supporting Danish businesses and employees and to ease the financial pressure by helping businesses with liquidity. Public authorities and institutions are not covered by the aid packages.

Below, you can read more about tax and VAT on a number of aid packages.