Foreign businesses’ obligation to register for VAT in Denmark

29 January 2016

Should a foreign business register for VAT purposes in Denmark when contracting a foreign subcontractor to carry out services in Denmark?

When a foreign business (A) is contracting another foreign business (B) to carry out services in Denmark, the foreign business (A) may in some instances be required to register for VAT purposes in Denmark and calculate Danish acquisition VAT on the amount paid to its subcontractor (B) for the services rendered.

In other cases, the subcontractor (B) is required to charge 25 pct. Danish VAT when invoicing the foreign business (A).

Inter alia, the VAT treatment depends on the status of the seller and buyer, the services rendered in Denmark etc.

Background

The Danish act on VAT contains a special rule concerning services related to real estate located in Denmark.

For example, such services comprise services rendered by real estate agents, services related to preparation for construction, renovation of property, masonry, repair work on real estate, fixed structures and wind turbines etc. located in Denmark.

Practice

Services rendered in relation to real estate located in Denmark are subject to Danish VAT. Further, the mandatory reverse charge mechanism applies to such services under certain conditions. Consequently, in some cases, subcontractor (B) is required to issue an invoice without VAT and the recipient (A) must register for VAT purposes in Denmark and calculate Danish acquisition VAT.

That will be the case if subcontractor (B) is not established in Denmark and the foreign business (A) is a person liable to duty or a legal person registered for VAT that is not liable to duty.

The reverse charge mechanism applies even if the subcontractor (B) is already registered for VAT purposes in Denmark.

When is a business deemed to be established in Denmark for VAT purposes?

In cases where the subcontractor (B) is deemed to be established in Denmark for VAT purposes, the subcontractor (B) is required to charge 25 pct. VAT.

This leads to question when a business is established in Denmark.

The primary criteria in this assessment is whether the subcontractor (B) has the necessary human and/or technical resources in Denmark to render the services in question.

If this is not the case, in some instances, subcontractor (B) may still be considered to be established in Denmark if subcontractor (B) has acquired a permanent structure through the purchase of services from a subcontractor (C), which is established in Denmark.

Whether the foreign business (A) should register for VAT purposes in Denmark as a result of the purchase of services rendered in Denmark from foreign subcontractors depends on an individual assessment.

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.