Company taxation scheme
The perfect choice for most self employed and contracters.
If you are self employed with your own business or as an independent consultant or contractor you may chose to be taxed of your income as a private person (taxed like salary income) or under the company taxation scheme, in Danish virksomhedsordningen, virksomhedsskatteordningen or just VSO.
The VSO has certain advantages. It aims to tax a personal business as if it was a much bigger corporate company. This way also smaller businesses do not – at least in theory – suffer from unfair competition due to lower corporate taxes.
There are several advantages when using the VSO. You will be able to make full tax deductions so that the revenue from your business is reduces by the operating costs and financial costs results in a business profit. This business profit is taxed by only 22% – just like corporate tax on net business income calculated almost the same way.
In order to use the VSO and to achieve 22% taxation you will need to separate the business from your private economy. One of the key factors is that the business has its own bank account.
The 22% tax is temporary. You will suffer full taxations as in personal income when you take the money out of the company and into your private economy. Just like if you run a corporate company and pay salary to yourself or to an employee. When you take out money to yourself you pay normal Danish income tax on 44-57% but with reduction of the already paid 22%. This system can be used in planning the size of your (or your spouses) income and thereby income tax percentage. You may so to speak postpone your taxes and optimize.
Besides the possibilities of more extensive deductions and 22% tax on profits that stays in the company you also have the option to receive return on capital (kapitalafkast) on the value in the company. This return on capital is taxed as interest and by only 33-42% in total taxes.
Furhermore you can split the income between married couples and you have the option to have a company car, company phone etc.
In order to use the VSO you will need to make a yearly tax report of the business, and you will have to use an accounting system that meets Danish standards for accounting and reporting.
Please contact us and let us help you with setting up a VSO-solution for you.