Danish Cross-Border Business: EU Trade, Transfer Pricing and International Tax

Denmark’s economy is small and open, so it should come as no surprise that a large share of its commerce crosses a border. For a Danish business, selling to a customer in another country is routine - but routine does not mean simple. The moment a transaction leaves Denmark, it picks up a layer of rules around VAT, transfer pricing and international tax that purely domestic operations never have to think about. Get those rules right and cross-border trade can be a steady, uncomplicated source of growth. Get them wrong, and you can face reassessed tax bills, penalties and unwelcome attention from SKAT, the Danish tax authority. This guide walks through the main obligations in plain language: how EU trade works for VAT, how non-EU imports and exports are treated, when transfer pricing documentation is required, how double taxation agreements apply, and the holding and CFC rules that shape how many Danish businesses structure their international affairs.

One point to keep in mind before going further: tax rules change, and the figures quoted here are current as of this writing. Treat them as a starting point for understanding how the system works rather than as fixed rates, and check the position with SKAT or a qualified adviser before you rely on any of them in practice.

EU trade: intra-community supply

When a Danish business sells goods or services to a business in another EU country, the transaction is generally treated as an intra-community supply. In practical terms, that means it is VAT-free in Denmark - you do not charge Danish VAT on the sale. The VAT responsibility instead moves to the customer, who accounts for it in their own country under the reverse charge mechanism.

That sounds simple, but it only works if you can actually justify the treatment. SKAT and other EU authorities take a close interest in intra-community supplies precisely because they are VAT-free, so the rules for qualifying are strict.

Requirements for a VAT-free intra-community supply

To treat a sale as VAT-free, several conditions all have to hold at once:

1. The customer is a registered business, not a private consumer.
2. The customer has a valid VAT number in their EU country.
3. The goods physically leave Denmark and arrive in another EU country.
4. You validate the customer’s VAT number via the VIES system (the VAT Information Exchange System).
5. The invoice shows both your Danish VAT number and the customer’s foreign VAT number.
6. The invoice carries the notation “reverse charge” or “omvendt betalingspligt”.

Validating VAT numbers via VIES

Before you issue a VAT-free invoice, you should verify the customer’s VAT number through the European Commission’s VIES portal. This validation is more than an administrative formality - it is your main protection. If the number turns out to be invalid, you could be held liable for the Danish VAT that you thought you had avoided. A quick check on VIES closes that gap.

It is worth keeping a printout or PDF of each VIES validation. SKAT may ask to see this documentation during an audit, and having it on file makes it far easier to demonstrate that you acted correctly and in good faith.

Invoice requirements

An invoice for an intra-community supply needs to be complete. At a minimum it should include:

• Your full company name and address.
• Your Danish CVR number and VAT number.
• The customer’s company name, address and EU VAT number.
• A description of the goods or services.
• The net amount, excluding VAT.
• The notation “reverse charge - Article 196 of the EU VAT Directive” or “Omvendt betalingspligt”.
• No Danish VAT charged on the invoice.

EU acquisitions: buying from EU businesses

The reverse charge also works in your favour when you are the buyer, but you are not off the hook entirely. Buying goods from an EU supplier means the supplier treats the sale as an intra-community supply and issues you a VAT-free invoice. The responsibility then shifts to you.

How it works

• The EU supplier issues a VAT-free invoice, treating the sale as an intra-community supply.
• You report the acquisition in your EU VAT return (the Indberetning af EU-virksomhedsoverdragelser).
• You pay Danish VAT (25%) on the acquisition.
• You then deduct the same amount as input VAT on your regular VAT return.

In most cases this is a net-zero transaction for VAT - what you pay is what you reclaim - but the reporting itself is mandatory. Skipping it, or getting it wrong, carries real consequences.

EU VAT return reporting

You must report all intra-community acquisitions and supplies in the EU VAT return, also known as the EC Sales List or ESL. This is filed either monthly or quarterly, alongside your regular VAT return. The report captures:

• The customer’s or supplier’s EU VAT number.
• The total value of transactions for the period.
• The type of transaction - goods, services or triangular trade.

Failure to file, or filing inaccurate data, can result in penalties and may jeopardise your right to use the reverse charge mechanism at all.

Non-EU trade

Trade with countries outside the EU follows a different set of rules, and documentation becomes even more important.

Exports to non-EU countries

Exports outside the EU are VAT-free at the 0% rate. That is generous - but it is only available if you can produce proof of export to support the zero-rating. Without it, SKAT can revisit the transaction and charge the VAT back.

Proof of export typically includes:

• A copy of the export declaration, usually managed by your freight forwarder.
• A bill of lading or airway bill.
• A certificate of export from customs authorities.
• Evidence the goods actually left the EU, such as a customs stamp or tracking data.

Keep all export documentation for 5 years. SKAT can audit your export transactions, and if you cannot prove the goods left the EU, the zero-rating can be disallowed entirely.

Imports from non-EU countries

When you import goods into Denmark from outside the EU you must pay:

1. Customs duty, which varies by product type and country of origin.
2. Danish VAT (25%), charged on the customs value plus duty and shipping costs.

You can deduct the import VAT as input VAT on your next VAT return, provided the goods are used for business purposes.

Transfer pricing

If your Danish company transacts with a related party - a parent company, a subsidiary, or a company under common ownership - the prices you charge must be at arm’s length. That means the price should be what two independent parties would agree in the open market. The idea is to stop businesses shifting profits between related entities to reduce their tax, and SKAT takes it seriously.

When documentation is required

You must prepare transfer pricing documentation if your company meets at least one of these thresholds:

• Total group turnover exceeding DKK 50 million.
• Related party transactions exceeding DKK 10 million.

What the documentation must include

The documentation should cover:

• A description of the group structure.
• Details of the related party transactions.
• An analysis of the arm’s length pricing, typically using a comparable uncontrolled price method, a resale price method, or a cost-plus method.
• Financial data supporting the pricing.

Consequences of non-compliance

If SKAT decides your transfer pricing is not at arm’s length, it can adjust your income. In practice that means it can increase your taxable income - and your tax bill - to what it believes the price should have been, then add interest and, potentially, penalties on top.

The best approach is to prepare your transfer pricing documentation annually, before SKAT asks for it. Retrospective documentation is much harder to defend, because the groundwork was never done at the time.

Permanent establishment (PE)

A permanent establishment (fast driftssted) arises when your Danish company has a fixed place of business, or carries on certain activities, in another country. Once it exists, that foreign country acquires the right to tax a share of your profits.

What creates a PE

A permanent establishment can be created by:

• A fixed office, shop or warehouse abroad.
• A branch or subsidiary.
• An employee or agent with authority to conclude contracts on your behalf (a dependent agent PE).
• A construction or installation project lasting more than 12 months.

Consequences

If you create a PE abroad, you generally must:

1. Register the PE with the local tax authority.
2. File a corporate tax return in that country.
3. Pay corporate tax on the profits attributable to the PE.

The profits attributed to the PE are calculated separately from your Danish operations. Denmark’s double taxation agreements (DTAs) typically allocate taxing rights between the two countries to prevent the same income from being taxed twice.

Double taxation agreements (DTAs)

Denmark has signed double taxation agreements with over 70 countries. These treaties mostly exist to answer one question: which country gets to tax a particular type of income? That matters enormously for any business with cross-border operations, because it decides how dividends, interest, royalties and business profits are treated.

How DTAs work

Denmark’s DTAs generally follow the OECD Model Tax Convention. The key principles are:

• Business profits are taxed only in the country where the company is resident, unless a PE exists in the other country.
• Dividends are typically subject to reduced withholding tax rates, often 15% or lower.
• Interest and royalties may be taxed at reduced rates, or only in the recipient’s country.

Checking DTA rates

Before making cross-border payments, it pays to check the applicable DTA rate. The table below shows common rates, though the exact figure depends on the specific treaty and the specific country.

You can find Denmark’s full list of DTAs on SKAT’s website or the OECD treaty database.

Holding company structure (Holdingselskab)

Many Danish businesses with international operations use a Danish holding company (Holdingselskab) to manage their investments. The main attraction is the participation exemption (fritagelsesmetoden).

Participation exemption

Under the participation exemption, dividends and capital gains from qualifying subsidiaries are 100% tax-free in the holding company, provided:

1. The holding company owns more than 10% of the subsidiary’s share capital.
2. The shares have been held for more than 1 year continuously.
3. The subsidiary is subject to a reasonable level of taxation in its country of residence.

Benefits of a holding structure

• Tax-efficient dividends: profits flow from the operating company to the holding company without Danish tax.
• Capital gains tax-free: selling a subsidiary does not trigger Danish corporate tax.
• Asset protection: it separates operating assets from investment assets.
• Flexibility: restructuring, selling, or bringing in new investors all become easier.

Setting up a holding company

To create a holding structure:

1. Incorporate a new ApS or A/S (the minimum share capital for an ApS is DKK 40,000).
2. Transfer your existing company’s shares to the holding company.
3. The holding company becomes the shareholder, and you own the holding company.

This is a common structure for Danish entrepreneurs and family businesses with international ambitions.

CFC rules (Kontrollerede Udenlandske Selskaber)

Denmark’s CFC rules (Controlled Foreign Company rules) exist to stop Danish taxpayers shifting profits into low-tax jurisdictions through foreign subsidiaries.

When CFC rules apply

The rules apply if a Danish company or person controls a foreign company that:

• Is tax resident in a country with a corporate tax rate below 75% of the Danish rate - currently 75% of 22%, which equals 16.5%.
• Is not genuinely economically active in its country of residence.
• Earns primarily passive income such as interest, royalties, dividends or rental income.

What happens

If the CFC rules apply, the Danish taxpayer must include the foreign company’s passive income in their Danish taxable income, even if the profits have not been distributed. The income is taxed in Denmark as if it had been earned there.

Exceptions

• EU/EEA companies with genuine economic activity are generally exempt.
• Companies in countries with adequate tax rates are exempt.
• Small CFCs, with passive income below DKK 5 million, may be exempt.

A worked example: selling goods to a German company

To bring this together, consider a straightforward case: a Danish company (ApS) sells DKK 1 million worth of goods to a German company.

Step by step

1. Validate the German customer’s VAT number via VIES - let’s say it comes back valid.
2. Issue an invoice for DKK 1,000,000 that shows:
   • No Danish VAT charged.
   • The notation “Reverse charge - omvendt betalingspligt”.
   • Both VAT numbers displayed.
3. Record the sale in your books as an intra-community supply.
4. Report the sale in the EU VAT return (EC Sales List).
5. The German customer pays German VAT (19%) to the German tax authority.
6. Danish VAT impact: none - the sale is VAT-free in Denmark.
7. Danish corporate tax: the DKK 1M revenue is included in your corporate taxable income, and the 22% corporate tax rate applies to the resulting profit.

In summary:

Tips for Danish cross-border businesses

A few habits make cross-border compliance considerably more comfortable, and most of them come down to doing things early rather than waiting.

1. Get transfer pricing documentation prepared early. Do not wait for SKAT to request it. Arm’s length compliance is easier to demonstrate proactively.
2. Always validate EU VAT numbers via VIES before issuing a VAT-free invoice. A single invalid number can cost you the full VAT amount in an audit.
3. Keep proof of export for every non-EU shipment. Without customs documentation, SKAT can deny the zero-rating and charge you back VAT plus penalties.
4. Consider a holding structure if you are building an international portfolio of subsidiaries. The participation exemption can save significant tax on dividends and exit gains.
5. Monitor CFC rules if you have subsidiaries in low-tax jurisdictions. The rules are complex and the consequences of non-compliance are severe.
6. Review your DTA position before making cross-border payments. Withholding tax rates vary significantly between countries, and treaty benefits often require formal applications.
7. Register for a PE if you have employees or a fixed place of business abroad. Late registration leads to penalties and a backdated tax liability in the foreign country.
8. Work with a tax adviser who understands both Danish and international tax. Cross-border rules change frequently, and the stakes are high.

Final considerations

There is no avoiding the fact that cross-border business from Denmark comes with paperwork, and much of that paperwork is tax-related. But the system is navigable, and the rewards are real: access to a single market of hundreds of millions of consumers, plus a stable framework for trade with the wider world. The businesses that handle it best tend to be the ones that treat compliance as a routine part of operations rather than an afterthought - validating VAT numbers, keeping export evidence, preparing transfer pricing in good time, and knowing where they have a permanent establishment. Do that, and cross-border trade becomes a normal, well-managed cost of doing business rather than a source of surprise tax bills.

As ever with international tax, the figures and rules in this guide can change, so confirm your own position with SKAT or a professional adviser before acting on them.