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- The Business Scheme
Conditions and Accounting Requirements for The Business Scheme
You must self-employed as in section 2 in order to apply for The Business Scheme, see section 1. In addition, there are a number of accounting requirements that you must be able to fulfill, as we have described in section 2.
1. When are you self-employed?
The Business Scheme can be used by both full and limited taxpayers to Denmark, who are considered to be self-employed. However, only the business that are regarded as self-employed can be included in The Business Scheme.
A self-employed person can easily run several self-employed businesses, some of which are regarded as business enterprises and others that are considered non-business enterprises (including for example hobby businesses).
Self-employed businesses are not defined in any specific provision of tax law whatsoever.
For the definition of this term, therefore, only practice must be looked at over time.
As a starting point, self-employed business is characterized by the fact that, at its own expense and risk, business of an economic nature is pursued for the purpose of making a financial profit. The business must not be a limited extent, run regularly and must not run for a very short duration.
The limitations of whether an enterprise is regarded as a business enterprise or a non-business enterprise are, in practice, determined by a total concrete assessment of, among other things, profitability and intensity.
The assessment takes the following points into account:
- Whether there is a prospect that the business will sooner or later make a profit (profitability)
- Whether the business' deficit is temporary
- Whether the business' outlook "requires" the owner to have stable income from other sides to neutralize a deficit
- Whether the profitability assumptions have been examined before the business was established (operating and liquidity budgets have been laid down)
- Whether the business has the necessary intensity and seriousness
- Whether the owner has the necessary professional prerequisites for running the business, and whether the business has a natural connection with the taxpayer's other profitable professions.
- Whether there are other business purposes for the business
- Whether the taxpayer has been prevented from using the businesses assets for private use
- Whether the scope / duration of the business is of a certain size
- Whether the mode of operation is customary for companies of that kind
- Whether the business enterprise meets the business standard that applies to that business
- Whether the business enterprise could be sold to a third party (ie whether a third party, despite previous deficits, sees earning potential in the business). In addition whether it has any earnings prospects at all, if it is detached from the property, where the company is situated; or the person/director, who has operated the business hitherto.
2. Conditions and accounting requirements for the application of The Business Scheme
When you have chosen to apply the company scheme, you must be aware that it is a requirement that you prepare annual accounts, which comply with the requirements of the Accounting Act. In addition, a tax account must be prepared, which complies with the minimum requirements notice for your type of business (executive orders 1295 and 1296 of 14/11/2018 for larger and smaller businesses respectively).
The business accounting must be organized, so that the business economy and the private economy are completely separated. This separation is mainly due to the fact that otherwise, it will not be possible to make a correct allocation for The Business Scheme (see the section on the extended raising order) and thus the correct tax calculation.
In The Business Scheme, accounts must be kept with a deposit account, interim accounts with the company's owner, account for saved profits, capital return basis at the beginning and end of the year and capital return and interest correction must be calculated every year.
In the case of several commercial business enterprise under The Business Scheme, these are treated as one business.
- In relation to the requirement for the complete separation of business and private finances and
- In relation to the calculation of a joint deposit account, savings account, capital return basis and others. This includes return on capital, as well as any interim bills and private withdrawals.
You select / deselect Business Scheme, when submitting your tax return. This is typically completed no later than 6 months after the end of the income year. However, you have the opportunity to re-elect until June 30th of the second year after the end of the income year, cf. VSL §2 (2). 2nd
For example, in the summer of 2020, you submit your tax return for 2019 without application of the business scheme, you have until 30 June 2021 to re-elect.
The tax return selection does not apply to single dispositions, such as a change in withdrawing’s to the company owner.
We do not assume responsibility for any transactions that may be based on the information provided above, without prior individual advice. Likewise, we assume no responsibility for any errors or omissions.