17 Mar 2020
Denmark changes tax legislation in light of COVID-19

Denmark changes tax legislation in light of COVID-19

By

EY Denmark

Multidisciplinary professional services organization.

17 Mar 2020
Related topics Tax

The Danish Parliament has approved certain amendments in Danish tax legislation aimed at reducing the adverse economic consequences of COVID-19.

You can find a description of the amendments and how they may support Danish businesses in the present situation in this article.

The Danish Parliament has introduced certain amendments to Danish tax legislation aimed at reducing the adverse economic consequences of COVID-19. The wording of the bill is available (in Danish) here. Parliaments in other countries have adopted similar incentives.

In this article, we will go through the amendments implemented by the Danish Parliament in an effort to secure the liquidity and cash flow of Danish businesses both during and after the current crisis.

Most amendments take effect on 17 March 2020. However, the increase of the refund limit on the business tax account (“skattekontoen”) will not take effect until 25 March 2020.

The Danish Government will continue to explore the possibilities of introducing further measures to mitigate the consequences for Danish businesses and employees.

During the past days, EY has commented on the COVID-19 incentives presented by the Danish Government. You can read the previous article (in Danish) here. In addition, the already existing possibilities in the tax legislation to allow for a postponement of tax payments should always be kept in mind.

Extension of deadlines for VAT reporting and payment

In respect of VAT, the Danish Government wants to help protect businesses’ cash flow with the new legislation.

Initially, it was only the reporting and payment deadline for large businesses (those on monthly settlement periods) which was extended. This has been adopted as originally proposed and entails a 30-days extension of the deadline for reporting and payment of VAT for March, April and May respectively.

Monthly reporting - large businesses Normal deadline Extended deadline
March 27 April 25 May
April 25 May 25 June
May 25 June 27 July

As far as SMEs are concerned (those on half-yearly and quarterly reporting periods), these were not covered by the original bill. This is because the maximum payment deadlines are set in EU law, according to which the current Danish deadlines were already extended to the maximum allowed for these businesses.

However, amendments were made along the way in the legislative process, and a solution to the constraints of EU law was found. Therefore, instead of extending the payment deadlines, it was decided to allow an option to merge two reporting periods into one.

For the medium-sized businesses reporting VAT on a quarterly basis, this means that the first and second quarters of 2020 can be reported and paid together under the current deadline for the second quarter of 2020. Thus, the deadline for reporting VAT for the first quarter of 2020 is effectively extended by three months.

Quarterly reporting - medium-sized businesses Normal deadline Extended deadline
1st quarter 1 June N/A
Merged period for 1st and 2nd quarter N/A 1 September

Correspondingly, for the small businesses the VAT reporting periods for the first and second halves of 2020 can also be merged. Thereby, they effectively achieve an extension of the reporting and payment deadline of six months for the first half year.

Bi-annual reporting - small businesses Normal deadline Extended deadline
1st half-year 1 September N/A
Merged period for 1st and 2nd half-year N/A 1 March 2021

We kindly note that it is permissible to report VAT immediately after the expiration of the relevant period. Therefore, for instance if you file a negative VAT return, a potential adverse impact on your cash flow due to the extensions can be eliminated. In this respect it is important to note that the new legislation provides an option for SMEs to merge reporting periods, but that they are not obliged to do so. Therefore, if an SME is in a VAT receivable position for the 1st half-year/1st quarter, it will be an advantage for it to file its negative VAT return immediately after the end of the 1st half-year/1st quarter.

The law does not apply to indirect taxes other than VAT, implying that the deadlines for payment of various excise duties and special payroll tax are maintained, although most of these are also settled monthly like PAYE and VAT for large companies.

So far, the Government has refused to expand the initiative to include indirect taxes in general, but mentions in response to two specific questions that it cannot exclude that additional measures may be needed (but does not specify whether such measures would include an extension of the reporting and payment deadlines for excise duties and special payroll tax).

EY urges that the postponement of the reporting and payment deadlines is extended to also include excise duties and special payroll tax as these can be just as cash flow burdensome as VAT and A-tax (PAYE tax) for the companies concerned.

Extension of the payment deadlines regarding A-tax (PAYE tax) and labour market contributions (“AM-bidrag”)

For an overview of the various types of direct taxes in Danish tax legislation, please see the Danish Tax Agency’s site.

The payment deadlines have been extended by four months for the three upcoming monthly rates (April, May and June payments). 

  Small and medium-sized businesses  Large businesses
  Current rules Extended deadline Current rules Extended deadline
April rate 11 May 10 September 30 April 31 August
May rate 10 Juni 12 October 29 May 30 September
June rate 10 July 10 November 30 June 30 October

The amendment regarding labor market contributions and A-tax – both paid on source of personal salary income – takes effect as of the 30 April 2020-payment for large businesses and as of the 11 May 2020-payment for small and medium-sized businesses.

Example
A restaurant with 15 employees, each with an average gross income of DKK 25,000, will collect labour market contributions and A-tax totaling DKK 135,000 per month. Accordingly, following the extension of the payment deadline, payments of the provisional tax is extended by four months for the April, May and June rates.

This will result in an improvement of liquidity of DKK 400,000 (DKK 135,000 × three months) over the span of four months.

Increase of refund limit on the business tax account

Prior to the amendments, the maximum refund limit on the business tax account (“skattekontoen”) was DKK 200,000 (credit balance).

Amounts exceeding the maximum refund limit will automatically be transferred to the business’ bank account within five business days (banking days) if the company does not have payable debts to the tax authorities. This is inexpedient for businesses that prefer to make the payments within the regular payments deadlines, e.g. because of negative interest rates on their bank deposits.

Consequently, the amendments introduce an increase of the refund limit to DKK 10 million to ensure that companies with the possibility of paying within the previous “regular” deadlines to a large extent retain this possibility. As the refund limit is increased, companies will avoid that payments are automatically refunded.

The temporary refund limit is applicable from 25 March 2020 until 30 November 2020. Following the expiration of this period, the refund limit is automatically returned to a maximum of DKK 200,000. Companies can change their refund limits in their tax accounts by selecting “Udbetalingsgrænse” (refund limit) in the menu. The maximum refund limit is DKK 10 million.

Extension of the payment deadlines for B-tax (self-employed)

Regarding B-tax for the self-employed, the payment deadlines have been extended as follows:

  Self-employed 
  Current rules Extended deadline
April rate 20 April 20 June
May rate 20 May 20 December

Consequently, there will not be any B-tax payments due in April and May, and there will be no months with double payments since there are no payments due in June and December under the normal rules. Whether the extended payment deadlines should be applied, is subject to a choice by the tax payer.

Furthermore, the March rate for B-tax can be avoided if the individual changes his or her preliminary income assessment and rejects the payment with PBS-service (if the payment is to be made using PBS). The B-tax rate for the month of March has already been formed in the systems of the Danish Business Authority and has been dispatched for payment on 20 March 2020. If, within the next days, the individual makes amendments to the preliminary income statement in order to lower the B-taxes, this will not be reflected in the amount already set for the March rate.

It is important to notice that it is possible for self-employed persons to make amendments to their preliminary income statement for the current fiscal year on www.skat.dk. If, under such circumstances, an individual makes amendments to his or her preliminary income tax statement for the current fiscal year, reflecting that a decreased surplus for 2020 is now expected, new payment forms will automatically be generated to be used by the individual for the remaining payments for 2020.

Agreement concerning wage compensation

On 15 March 2020, the Danish Government and the social partners of the Danish labour market presented the framework for a temporary wage compensation arrangement that is expected to be in force from 9 March until 9 June 2020.

According to the agreement, the Danish Government will, in certain situations, compensate up to 75% of the businesses’ salary liabilities toward their employees per month (a maximum of DKK 23,000 per employee). However, for hourly workers the compensation amounts to 90% per month (a maximum of DKK 26,000 per employee). The arrangement is subject to certain conditions which can be read (in Danish) here.

The bill is yet to be presented in the Danish Parliament. The starting point is that a compensation provided by the Danish State will be tax liable at the level of the businesses. The businesses have a corresponding tax deduction for the wages that are paid to the employees included in the arrangement. In order to support the incentive for the businesses to use the new arrangement and incentive, it should be considered to include tax rules that provide for tax exemption of compensations received.

The website of the Danish Tax Authority

The Danish Tax Authority has set up a separate section on its website where the incentives in the tax area following the outbreak of COVID-19 will be updated regularly. Furthermore, the Danish Tax Agency has opened a hotline.

You can keep yourself updated on the Danish Tax Authority’s website regarding Covid-19 incentives (currently only available in Danish).

Contact

Further information can be gained by reaching out to your regular contact person in EY Tax or by contacting:

Lars Andersen, Tax, tel. +45 2529 4654
Søren Næsborg Jensen, Tax, tel. +45 2529 4561
Jacob B. Pedersen, Tax, tel. +45 2529 5018
Mick Jørgensen, Indirect Tax, tel. +45 5122 1643
Jens Wittendorff, International Tax, tel. +45 5158 2820

EY will regularly provide updates regarding COVID-19 and the implications which the current situation may have on your position for tax, VAT, duties, etc. Keep updated here.

Summary

The Danish Parliament has now adopted a bill regarding extension of businesses’ payment deadlines for VAT, PAYE tax and labour market contributions. Furthermore, the refund limit on the business tax account has been raised and the payment deadline for the so-called B-tax for self-employed persons has been extended. The tax authorities have set up a special COVID-19 section of their web page to allow businesses to keep updated on Corona initiatives. EY has done the same.

About this article

By

EY Denmark

Multidisciplinary professional services organization.

Related topics Tax