VAT-exempt businesses purchasing goods and services abroad will often be required to register for VAT, because they are covered by the same rules as businesses subject to VAT.
All businesses – regardless of whether they are subject to VAT or not - are covered by the same rules for settlement of VAT in Denmark when purchasing goods and services abroad.
Among others, VAT-exempt businesses include such diverse businesses as dentists, doctors, physiotherapists, banks, insurance companies, cultural institutions (museums, exhibitions, theatres etc.), rental companies, private schools, course providers, undertakers and taxi hauliers. Public authorities and holding companies are also exempt from VAT. All these businesses should be aware of the VAT rules elaborated below.
Purchase of goods from other EU countries
A special DKK 80,000-rule applies. This means that, as a main rule, VAT registration is only required if the total value of purchased goods in the current or previous year has exceeded DKK 80,000. However, voluntary registration may be selected, even if the limit is not reached. This may be beneficial, if the VAT in the other country is higher than in Denmark.
There is an important exception to the DKK 80,000-rule. If the purchased goods are subject to harmonised excise duties – which applies to mineral oil products, as well as to tobacco, beer, wine and spirits – the business will be subject to registration in Denmark for both VAT and duties, regardless of the value of the goods.
Purchase of goods from outside the EU
When importing goods from countries outside the EU, import VAT must be settled according to the customs rules. This implies that otherwise VAT-exempt businesses must register as importers. Both customs, VAT and any applicable duties must be settled in connection with the customs clearance.
Purchase of services from abroad
In the case of purchase of services, no limit applies, and it makes no difference whether the services are purchased from other EU countries or from countries outside the EU. This means that the purchasing business normally always will be subject to VAT registration with such purchases, and Danish VAT must be paid at the time of purchase.
There are exceptions, however. For example, if the service purchased abroad consists of hotel accommodation and/or access to a conference, no obligation will arise, as no Danish VAT will be due for such services.
Tax deduction, but no VAT deduction
Failure to register for VAT results in a risk of post payment claims – and at worst a fine – from the Danish tax authorities.
VAT-exempt businesses are not entitled to VAT deduction concerning the VAT etc., which they have to pay for purchase of goods and/or services abroad, because their sales are exempt from VAT. In the case of taxable businesses, the VAT paid can be deducted when calculating taxable income.
The above article is taken from tax:watch, our electronic English newsletter on Danish Tax and VAT matters. tax:watch is issued on the last Friday of each month and is free of charge. Please sign up here.