Corporate tax for 2016

26 February 2016

The corporate tax rate in Denmark is reduced from 23.5 pct. in 2015 to 22.0 pct. in 2016. The last day of payment of the first provisional tax rate for 2016 is 21 March 2016.

The reduction in the corporate tax rate is a consequence of a political initiative to stimulate economic growth adopted in the spring of 2013. This included a – now completed - plan for a gradual reduction in the corporate tax rate from 25.0 pct. to 22.0 pct.

As provisional tax for 2016, companies are charged an amount equal to half of the average taxes for the tax years 2012, 2013 and 2014. The amount is collected in two installments, the first of which must be paid no later than 21 March 2016, while the other half must be paid no later than 21 November 2016.

The way in which provisional taxes are calculated implies that many companies are likely to incur residual taxes. In order to avoid this, companies have to make voluntary tax payments on account.

Voluntary tax payments can be made together with the provisional tax rates on 21 March and 21 November 2016 or on 1 February 2017.

Whether it is worthwhile to make a voluntary payment of provisional taxes depends on the interest rates on loans or deposit accounts. In our view, voluntary payment in March 2016 will only be attractive for companies paying negative interest on a deposit.

The vast majority of companies will probably wait making any voluntary payment until next year. By that time, a more accurate estimate of the earnings in 2016 will be available. Additionally, the different interest rates of the Corporate Tax Act for the year 2016 have been determined, which happens in December 2016.

It will rarely be worthwhile to make large voluntary payments if the intention is to apply for a refund of surplus taxes before the annual tax statements for 2016 are released in November 2017 as the current level of interest rates implies that negative interest will be due to the Danish tax authorities.

Companies, for which the provisional tax installments are expected to exceed the actual taxes, can themselves amend the provisional tax rates in the online systems of the Danish tax authorities. This must be done by 21 March 2016.

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.