Are you planning to make it your business to turn your hobby into a full-blown venture? You must be sensing butterflies and excitement, dreaming of where your business idea can take you a few years from now. Now that you have got so serious, you need to contain the fever and charge yourself with dedication, commitment, and knowledge, if you aspire to make a go of it.
Denmark is almost an ideal location when it comes to starting a venture. The process of starting a business here is straightforward, affordable, and efficient. Furthermore, the country does not pose any residency requirements to incorporate a business, which implies that the board of directors and CEO of the company can live in whichever part of the world they want. Denmark’s economy is an advanced one with high living standards, high reliance on foreign trade, and a high level of government services. The country is renowned for its business culture throughout the world. As per the World Bank survey, Denmark came at the 4th position in the EODB index among 190 economies in 2020. Its highly skilled labor and education population, developed infrastructure, business-friendly tax regimes, advanced health sector, etc., render the country an ideal destination for locating a startup.
Although the process of establishing a business in Denmark is easy, you still need to know the requirements, follow certain formalities, and abide by the regulations. Here is a detailed guide to help you with that. Dig in to know more!
To start a business in Denmark or anywhere, you first need to come up with a robust and marketable business idea. You can gauge the profitability and viability of the idea by conducting in-depth research on it. Thereafter, use this knowledge to prepare a convincing business plan. Now, choose a legal structure for your company. In Denmark, you can select from a limited partnership, general partnership, sole trader, etc. The next step is to register your business with the Danish Business Authority as soon as the documents of incorporation get in your hand. Now, consider the registration of your company with tax authorities at the Danish Customs and Tax Administration for VAT and tax purposes. Set up a business bank account and deposit a paid-in minimum share capital. Get an office space and register its address as well. Finally, you may start creating employment contracts recruiting people for your company.
In the sections that follow, you will understand how to start a business in Denmark in further detail, along with the other significant matters that stand of significance here. Read on!
Process of setting up a business in Denmark
Starting a business in Denmark is super easy, as indicated by the high rank of the country in the Ease of Doing business prepared by the World bank. The country bagged 4th rank in the EODB index among 190 countries that were compared against several indicators such as paying taxes, getting electricity, enforcing contracts, etc. Here are the requirements, steps, and procedures you must be aware of when starting a company in Denmark.
- Craft a business plan: A solid business plan emerges as a crucial and strategic tool for new ventures and businesses. It facilitates entrepreneurs in planning things, identifying weaknesses in the plan, coming up with good marketing strategies, etc. All in all, it acts as a roadmap to the entrepreneurs and also helps them acquire investors and communicate the business idea with the stakeholders.
- Choose a legal structure of the business: Choosing a legal form of the company is a critical step for businesses. Thus, it must be done safely. The business structure you select will determine, in the end, how much taxes you will pay, the liability or risks you will confront with the assets, and your capacity to procure funds from various sources. In Denmark, common types of legal structures one may find are limited liability company, partnership, general partnership, branch office, etc.
- Register the company: Now is the time to get your business registered with the Danish Business Authority once you receive the documents of the corporation. To register a business at this step, one needs to pay an annual fee and comply with documentation requirements. The process takes about 2 weeks from the moment of signing of the Memorandum of Association. If any amendments are to be made in the Articles of Association, all the board of directors, members of the executive board, and supervisory board for LLC and the company’s auditor need to be always registered.
- Register the company for tax purposes: Now, you must register your company with tax authorities to pay VAT and other applicable taxes. This is to be done with the Danish Customs and Tax Administration. Any business whose profits exceed 50,000 DKK is eligible to register with the tax authority and pay taxes. Companies that have a turnover of less than 5 million DKK need to reimburse the VAT two times a year.
- Set up a Danish business bank account: Now, you will need to open a business bank account in Denmark, where you will need to deposit the minimum share capital. When setting up a business bank account, consider the costs like bank fees, fees levied on international money transfers, ATM withdrawals, etc.
- Recruit staff and employees: Finally, you will need to peruse the employment and labor laws of Denmark and prepare employment contracts corresponding with the obligations. And voila! You are ready to hire your first employee with the assistance of expert consultants at Zimyo.
Hiring Employees in Denmark
After completing the registration and establishment of a business, the employers must take the pain of familiarizing themselves with the employment and labor regulations of the country where the business is located. These laws indicate the entitlements, duties, and responsibilities of an employer as well as the employees. These regulations can also be utilized to check whether you are complying with the international and local labor standards. With assistance from expert consultants at Zimyo, you can enjoy hassle-free recruitment and training experience.
Read on to know what these regulations are in Denmark.
- Trial Period/Probation Period: The probation period in Denmark is of varying durations fr different job roles. For instance, for white-collar workers, it is fixed at 12 months which can be reduced to 9 months under mutual agreement, and for blue-collar workers, it is set to 9 months. There is no provision for a notice period for blue-collar workers, whereas white-collar workers are entitled to a notice period of about 14 days to 3 months.
- Leave and Holidays: Working on public holidays is not accepted in Denmark. Public holidays in the country may include New Year’s Day, Good Friday, Boxing Day, Christmas Day, etc. Employees who shall not receive holiday allowance must be stated clearly in the employment contract. Certain industries may also allow half days on 1 May, Christmas Eve, and Constitution Day. Employees in Denmark are entitled to holidays at a rate of 2.08 on a per month basis. Employees in Denmark are entitled to at least 25 days of annual leave for every employment year. The holiday supplement is reimbursed at the beginning of the holiday period. An employee is entitled to leave from work in the following cases:
- Sickness, injury, accident, or death of close kin.
- An employee has to take care of a close family person.
- An employee has to look after a closely connected individual who desires to die in his home.
- Maternity Leave: A female employee must inform the employer of the pregnancy at least three months before the expected date of delivery. During the period of pregnancy, a female employee is entitled to a salary of up to 5 months due to her incapacity to continue work. However, the payment shall be made only at least three months before the expected date of childbirth and three months after the childbirth. In case the employer terminates the employee during maternity leave, she is entitled to receive full pay until the contract terminates with prior notice.
- Termination of Services: According to the Equal Treatment Act, an employer cannot terminate the employee on the grounds of the employee’s gender, nationality, ethnicity, etc. Termination of services on the employee’s part must be done with a one-month prior notice, where termination will occur at the end of the month. If an employee has been associated with the company for 12, 15, or 18 years, the employer must pay two or three months of salary in addition to a sum paid at the end of service. The employer is not liable to pay severance pay if the employee will receive an old-age pension from him/ her and in case the employee has is associated with a pension scheme before turning 50 years old.
Dismissing an employee who is at least 18 years old and has been working for the company for 12 months before the termination of service notice on feeble grounds, an employer must pay compensation. The compensation amount corresponds to the service period and other circumstances involved in the case. However, compensation cannot exceed the employee’s salary. In case the employee is at least 30 years old when getting terminated, the compensation amount shall be equal to three months of salary.
- Pension: Employers in Denmark must participate in pension plans. To facilitate pensioners who are financially disadvantaged, Denmark has a public pension scheme that entails a means-tested pension supplement and a basic pension. Another pension scheme which is a mandatory pension scheme, is based on lump-sum pension contributions (ATP). ATP ensures that irrespective of the labor market attachment, pensioners receive enough income to preserve their standard of living.
- Work Hour Norms: Standard working hours for the employees under 18 years of age are fixed at eight hours per day and 40 hours per week. Those working under 15 years of age must not be employed for more than two hours on school days or seven hours on other days. The total work hours cannot surpass the limit of 12 hours per week, inclusive of school days and 35 hours per week on other days. Young employees under the age of 18 years must not be employed between 8: 00 pm and 6: 00 am. In case daily working hours surpass the limit of four and half hours, they must be allowed a rest period of at least half an hour which should be continuous.
How easy is it to conduct business in Denmark?
Doing Business report 2020 places Denmark at the 4th position among 190 countries and assigned a score of 85.3 out of 100. What does this imply? Well, the Doing Business report is prepared by the World Bank, which takes certain factors into consideration that affect the process of starting and running a business. Some indicators of Doing Business are resolving insolvency, paying taxes, getting credit, getting electricity, enforcing contracts, etc. The World bank compares 190 countries against these indicators and then uses the ranks of a country in these sub-indices to determine the overall Ease of Doing Business position. Let’s see what record Denmark makes in these sub-indices. Read on!
- Starting a Business: Running a business takes blood, sweat, and tears. However, starting it isn’t less challenging. There are formalities, procedures, and requirements involved in the process. The Doing Business ranks and assigns scores to economies by measuring the cost, time, and procedures involved in starting a business. According to the Doing Business Report 2020, Denmark came at the 45th position among 190 countries and scored 92.7 out of 100. In 2012, the country reduced the minimum capital requirement from 125,000 Danish kroner to 80,000 Danish kroner for limited liability companies.
- Managing Permits: Permits and licenses are official permissions to establish and run a business. The licenses applicable to a business depend on the activity your entity undertakes. According to the Doing Business report 2020, Denmark came at the 4th position among 190 economies and scored 87.9 out of 100. To measure the rank of a country in this sub-index, the Doing Business estimates the quality control and safety control mechanisms that come under the construction permitting system.
- Getting Electricity: Saying electricity is important to a business would be an understatement. It is the lifeline of the businesses. That’s the reason why it makes a potential EODB indicator where the authority assesses the procedures, formalities, and time it takes to get connected to the electricity grid. It also evaluates the transparency of tariffs and the reliability of the power supply. According to the Doing Business report 2020, Denmark came at the 21st position among 190 countries and scored 90.2 out of 100.
- Getting credit: “Access to credit is the lifeline for a business”. It facilitates the ventures to procure the needed funding to expand, meet overheads and day-to-day expenses, buy inventory, recruit extra staff, and consider other operational expenses. Lack of funding seriously impacts businesses, and that’s what renders getting credit a critical EODB indicator. According to the Doing Business report 2020, Denmark came at the 48th position among 190 countries and scored 70 out of 100. In 2008, the country transferred some powers in proceedings of bankruptcy from trustees to judges through legislation and allowed more rights to creditors. This was done to ease the process of resolving insolvency.
- Managing Payroll: Employees are a crucial resource of the organization. That’s why companies allocate a fair time to recruit, train, and maintain their workforce. Attention must be paid to their payroll management as well, which in turn boosts their morale and facilitates retention. Having a payroll management system in the company brings out the image of professionalism and financial stability of the company. Being a complex task, hiring professional payroll management services is recommended for payroll management. You may choose the most cost-effective, reliable, and suitable payroll management services from Zimyo.
- Paying Taxes: Paying taxes regularly and on time is important for businesses as soon as they gain eligibility. The Doing Business measures the time, procedures, and cost it takes to file and pay the taxes. According to the Doing Business report 2020, Denmark came at the 8th position and scored 91.1 out of 100 among 190 countries. In 2009, the country reduced the rate of corporate income tax, thereby making the process of paying taxes less costly.
- Enforcing Contracts: Enforcing contracts is another Doing Business indicator. The body probes deep into the time, outcome, cost, procedures, and recovery rate involved in the process of enforcing contracts. Furthermore, the radar of Doing Business also scans the efficiency of regulations and court systems of the country. Denmark came at the 14th position among 190 countries and scored 73.9 out of 100, according to the Doing Business report 2020. In 2019, the country adopted an online system to file the initial complaints and lawyers and judges to manage the cases electronically. This was done to streamline the process of enforcing contracts.
- Resolving Insolvency: Insolvency can happen due to different reasons such as poor financial management, loss of revenue, etc. However, how efficiently a business can overcome and recover from it is contingent on the insolvency laws of a country. According to the Doing Business report 2020, Denmark came at the 6th position among 190 countries and scored 85.1 out of 100. In 2012, the country adopted new company reorganization rules, which eliminated the suspension-payments regime.
Denmark energetically endorses entrepreneurship and innovation, thus, offering tremendous opportunities to new businesses and ventures. The fast-track scheme of the country enables faster procurement of licenses and permits to run a business. Denmark’s procedures are deemed as one of the fastest when it comes to establishing a business. The small business ideas that enjoy the most scope in Denmark today are boat rental businesses, bike repair businesses, umbrellas, raincoat businesses, coffee shops, edible arrangements businesses, football coaches, pastry shops, bacon-making businesses, and more.
Zimyo is a leading HR and Payroll management services provider in Denmark with multiple years of experience. The company helps businesses hire the best talent and takes care of the financial requirements of employees, such as advances or credit for a hassle-free work experience.