Denmark is known for its transparent, well-regulated, and business-friendly environment. However, with these advantages comes a strict and clearly defined set of obligations, especially regarding financial transparency and bookkeeping. Whether you run a small sole proprietorship or a growing private limited company, understanding the bookkeeping requirements is essential for maintaining compliance and ensuring the healthy operation of your business. In this article, we’ll take an in-depth look at what Danish law requires when it comes to bookkeeping, how to stay organized, and which tools and practices can help you meet your obligations effectively.
Legal Basis for Bookkeeping in Denmark
The core legislation governing bookkeeping in Denmark is the Bookkeeping Act (Bogføringsloven). This law applies to all businesses that are registered in Denmark and have a CVR number – including sole proprietorships, partnerships, and limited liability companies (ApS and A/S).
The purpose of the Bookkeeping Act is to ensure that companies:
- Record all financial transactions accurately and promptly
- Maintain records in a secure and verifiable format
- Store accounting documentation for a minimum period of five years
- Enable authorities to verify business activities at any time
Failure to comply with the bookkeeping requirements can lead to administrative penalties, tax reassessments, or even criminal charges in severe cases. Therefore, it is critical for all business owners to understand what’s required and implement sound bookkeeping practices from day one.
What Must Be Recorded?
All financial events related to the company’s activities must be recorded in the accounting system. This includes, but is not limited to:
- Sales and revenue
- Purchases and operating expenses
- Employee salaries and tax withholdings
- VAT collected and paid
- Loans, investments, and asset purchases
- Bank transactions and cash flow
The records must be kept in chronological order, and each entry must be supported by documentation such as invoices, receipts, bank statements, or contracts. These records must reflect the company’s actual financial position and be updated regularly.
Documentation and Retention Requirements
In Denmark, all source documents that support accounting entries must be preserved for at least five years from the end of the financial year they relate to. This includes:
- Purchase and sales invoices
- Credit notes
- Contracts
- Payroll records
- Bank statements
- Accounting reports
As of 2024, the Danish government requires most businesses to store these documents in digital format. Paper records are no longer sufficient unless they are scanned and securely stored in an approved system. This shift aims to improve data accessibility and reduce the risk of document loss or fraud.
Companies must also ensure that their digital records are backed up regularly, encrypted where necessary, and accessible to auditors or tax authorities upon request.
Approved Accounting Systems and Digitalization
In line with the digital transformation of Danish public services, bookkeeping must now be conducted using an approved digital accounting system. This requirement is part of the effort to improve compliance, reduce errors, and automate reporting.
The system used must:
- Be compatible with Danish accounting standards
- Allow for automated VAT calculation and reporting
- Generate financial statements and transaction reports
- Ensure data security and integrity
Some popular accounting software platforms in Denmark include Dinero, Billy, e-conomic, and Visma. These tools are designed to integrate seamlessly with banking systems, the TastSelv Erhverv tax portal, and invoicing platforms like NemHandel.
It is important to verify whether your chosen system is compliant with the latest regulations from the Danish Business Authority (Erhvervsstyrelsen).
VAT Reporting and Bookkeeping
If your company is registered for VAT (required once annual turnover exceeds 50,000 DKK), your bookkeeping Denmark system must be capable of tracking:
- VAT on sales (output VAT)
- VAT on purchases (input VAT)
- The net VAT payable to the Danish Tax Agency (SKAT)
VAT returns are submitted via the TastSelv Erhverv system, usually monthly, quarterly, or semi-annually depending on your business’s turnover. Your bookkeeping records must match these declarations exactly, and all VAT-related entries must be clearly documented.
Mistakes in VAT accounting – such as incorrect categorization of transactions, forgetting to include VAT on sales, or missing deadlines – can lead to fines, interest, and audits.
Payroll Accounting Obligations
Companies that employ staff have additional bookkeeping responsibilities related to payroll. This includes:
- Recording gross salaries, tax withholdings, and social contributions
- Filing monthly wage reports in the eIndkomst system
- Paying contributions to ATP (the Danish labor market pension fund)
- Calculating and transferring holiday allowances via FerieKonto
Payroll entries must also be fully documented with payslips (lønsedler), employment contracts, and relevant tax filings. Most accounting software in Denmark includes payroll modules that automate these tasks, but it’s still the employer’s responsibility to ensure accuracy and legal compliance.
Annual Financial Reporting
All limited liability companies (ApS and A/S) are required to prepare and submit annual financial statements to the Danish Business Authority. These statements must be based on the bookkeeping records and include:
- A balance sheet
- An income statement
- Notes explaining financial figures
- (In some cases) a management commentary and auditor’s report
The deadline for submission is generally 5 months after the end of the financial year. If the company exceeds certain size thresholds, an independent auditor must review and sign off on the accounts. Bookkeeping records must therefore be accurate and detailed enough to support the preparation of these financial reports.
Audit and Inspection Readiness
Even if your company is not legally required to undergo an audit, it may still be subject to inspections or inquiries from the Danish Tax Agency or Erhvervsstyrelsen. In such cases, your bookkeeping records must be:
- Complete and up to date
- Easy to navigate
- Available in digital form
- Consistent with tax returns and official filings
Businesses that cannot provide proper documentation may face fines or additional scrutiny. Therefore, good bookkeeping is not just a compliance obligation – it’s also a defense mechanism in case of future audits.
Common Bookkeeping Mistakes to Avoid
Despite the clarity of the Danish bookkeeping regulations, many new companies make avoidable mistakes. These include:
- Delayed or irregular data entry
- Failure to document small expenses
- Mixing personal and business finances
- Forgetting to register for VAT
- Using outdated or non-compliant software
To avoid these pitfalls, business owners should establish clear processes early on, seek guidance from professionals when needed, and regularly review their bookkeeping system’s performance.
