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Set Up a Sole Proprietorship in Denmark

Set Up a Sole Proprietorship in Denmark

Just as any other European country, Denmark enables individuals who can be citizens or residents in the country to open various types of businesses. Even if the limited liability company is the most employed business and also one of the easiest types of structures to register in Denmark, there are also other forms of starting one’s own venture. One of them is the sole proprietorship which is also covered by the Commercial Code in Denmark.

The registration of this business form is an easy one and, more important, the overall management requirements for the sole trader are lower than in the case of other businesses. This is due partly to the fact that the business form is a simple one and part to the fact that it has no employees. However, special consideration is advisable when choosing to incorporate this business form for two particular reasons: firstly, the liability of the founder, followed by the fact that there are certain conditions for foreign investors. Foreign citizens who want to register as sole traders can rely on our law firm in Denmark.

 Quick Facts  
Setting up a sole proprietorship as foreigner

– must have a residence permit and a work permit,

– must obtain a NemID (digital signature)

Registration process for a sole proprietorship

– register on Virk,

– use NemID to login,

– select company type,

– provide detailed personal information,

– obtain CVR number.

Restrictions on registration

Individuals who are unemployed and receive state support are not eligible to register as sole traders in Denmark.

Required documents

– ID,

– address proof,

– CPR (Civic Registration) number.

Liability 

Sole proprietors have full liability for the business's debts and obligations;

Seeking legal advice from our lawyers in Denmark before incorporation is advisable.

Special licenses and permits

for specific industries:

– gambling,

– transport,

– hospitality,

– healthcare, etc.

 Taxation

Sole traders in Denmark are taxed based on the progressive tax system for personal income;

They estimate profits for the first year and file a tax declaration at the end of the year.

Accounting requirements

Must comply with international and Danish accounting standards;

Our accountants in Denmark can help.

 Bank account

It is advisable for your business to have a separate bank account known as a "NemKonto" that is linked to your business's CVR number.

Can hire employees (YES/NO) YES 
Minimum share capital

Not required

Changing business form

It's possible to change from a sole trader to another business form once the business becomes stable and profitable.

Advantages of setting up a sole proprietorship in Denmark

– straightforward and easy process,

– minimal paperwork,

– full control of business and assets,

– direct ownership,

– flexibility,

– tax benefits, etc.

Other type of company structures

– private limited companies,

– public limited companies,

– limited partnership company,

– cooperatives, etc.

Assistance  Our Danish law firm can help you open a sole proprietorship in the country or assist in any legal matters.

Our agents can explain the conditions and requirements regarding the permits for these types of founders. Alternatively, we can always guide investors towards opening different business forms that will suit their business needs.

Below, we answer some common questions about this simple business form, the main requirements for incorporation and management and we also present some of the existing alternatives.

What are the requirements to open a Danish sole proprietorship?

Foreign citizens must have a residence and a work permit in order to be allowed to register a sole proprietorship in Denmark. Following that, they must obtain a NemID which is a digital signature and which must be obtained before the company registration is completed. This is because it will allow one to log onto the Companies Registrar’s site and file the information related to the opening of the sole proprietorship.

What are the steps for registering the sole trader with the Danish authorities?

After the two steps mentioned above have been completed, the future business owner must enter the Trade Register’s website and select the sole proprietorship as a business form, offer information about him or herself, to enter the code specific for the activity which will be carried out, register for taxation and social security purpose. In summary, there are four steps to be completed:

  1. Online business registration: the process starts online, in Danish, on the portal for business, Virk.
  2. Logging in: the founder of the sole trader will use the NemID to log into the business portal.
  3. Company type selection: the next step is selecting the business form, the sole trader (the only one available for registration under these conditions).
  4. Provide information: this is the step where the founder offers more details about himself, like the address.

Following that, the tax authorities will issue the Danish sole trader a VAT identification number known as a CVR number.

A sole trader is subject to lighter accounting requirements, compared to a corporation. Nonetheless, if you run your own business in Denmark, discussing the main aspects concerning taxation can be an essential step once you start trading. Our accountants in Denmark can answer any questions about individual taxation, annual tax compliance for sole traders, and more.

The registration cannot be performed when the individual attempting to register the sole trader is unemployed and receives state support. Those who attempt to start a business when they are in this situation will lose the mentioned government support.

Our Danish lawyers can advise on the registration procedure of a sole proprietorship.

A few tips on sole proprietorships in Denmark

Foreign citizens who register as sole traders in Denmark should know that certain licenses are necessary depending on the activity they undertake. Also, they will be fully responsible for the company’s debts and obligations, including with their personal goods. 

The advantages of the sole trader are given by the fact that it allows the individual to contribute to losses in the company by deducting from the earned income of the spouse. It is also very easy to create and it does not require special incorporation taxes. Moreover, there are no annual requirements to publish the accounts or submit reports and perform audits. This easy management and incorporation remain the top reasons why entrepreneurs choose to open a sole trader.

On the other hand, the sole proprietorship in Denmark does mean that the owner is fully liable for the debts and obligations of the business. This high level of liability may discourage some investors. Those who do wish to know more about the liabilities they may face can reach out to one of our lawyers in Denmark for consulting services before incorporation. Other issues to consider when starting this business is that the founder will remain the only one who will operate the company; there is no possibility to bring partners into the business and, depending on the profits of the sole trader, the overall personal income tax rate can be a high one.

It is not uncommon for business owners to start with one business type and then change to another. Sole trader owners who wish to change the business form can do so once the business has become stable and profitable. The most common change is into a limited liability company without any charges from the authorities. In this case, it is advisable to ask for professional help in order to make sure that the business transfers for the assets are made accordingly. An attorney in Denmark from our team can assist you throughout this process.

The taxation for a sole trader in Denmark is performed according to the progressive tax system available for the taxation of personal income. When starting the sole trader, the entrepreneur starts with an estimate of the profits for the first year of business. A simple tax declaration is to be filed at the end of the tax year, according to the actual profits. In most cases, the tax for the sole proprietorship profits is paid in installments. Some costs associated with running the sole trader business can be deducted. These include those related to company vehicles, for travel expenses, for home offices and others. The taxation method for sole trader is generally regarded as a simpler one, compared to that for more complex business structures. This is an important advantage for entrepreneurs who wish to start a business by incorporating this business form.

The sole trader is subject to the lightest accounting requirements when compared to other principal business entities. Investors who are unsure whether this simple business form suits their needs can discuss the accounting and tax requirements with our team and can rely on our local Danish accountants for complete bookkeeping and accounting solutions, according to the IAS/IFRS and Danish GAAP.

The sole trader is easy and free to set up, it does not require a minimum share capital and the licensing is maintained to a minimum, only in some cases. There are all important advantages for investors, however, they must be well aware of the unlimited liability they have when they set up this simple type of business. There is no distinction between themselves and the business and, before starting to register the sole trader, they can talk to one of our Danish lawyers for complete details. Likewise, we can assist foreign investors who wish to start this business are need to comply with different requirements.

For assistance in setting up a sole proprietorship or any other type of company, do not hesitate to contact our lawyers in Denmark.