COVID-19: Emergency tax legislation
The Danish Minister for Taxation has just introduced bill L 134, intended to help mitigate the financial consequences of the spread of coronavirus. Three tax initiatives are being taken to improve liquidity of businesses.
The initiatives are:
- Postponed payment deadlines for payroll tax and labour market contribution
- Postponed VAT payment deadline for large businesses
- Increased limit for credit balance in the tax account
Payroll tax and labour market contribution
Under current rules, businesses must pay withheld payroll tax ("A-skat") and labour market contribution in monthly installments. Small businesses must pay the installment on the 10th of the month following the settlement month. Large businesses must pay the installment on the last banking day of the month to which the income relates.
Large businesses are defined as businesses with a total payroll tax payment of more than DKK 1 million over a preceding 12 months period or a total labour market contribution payment of more than DKK 250,000 in the same period.
With the proposed bill, the payment deadlines for the installments in April, May and June are postponed by 4 months.
The bill does not change the deadlines for reporting payroll tax and labour market contribution. Consequently, small businesses must report income information on the 10th of the month following the settlement month, and large businesses must report on the last business day of the month which the income relates to.
Only private businesses are subject to the postponed payment deadlines. Public institutions liable for withholding tax on salary etc. must pay in accordance with current rules.
VAT - Large businesses
Under current rules, large businesses must report VAT on a monthly basis. Large businesses are defined as businesses whose total VAT liable deliveries exceed DKK 50 million annually.
With the proposed bill, the payment deadlines for the monthly installments in March, April and May 2020 are postponed for large businesses:
The bill does not change the tax administration's deadline for paying negative VAT. Negative VAT can thus be reported as soon as the VAT period has expired, and the company will get the negative VAT refunded within 3 weeks of receipt of the negative VAT statement.
The Ministry of Taxation is currently investigating whether the payment deadlines for small and medium-sized businesses can also be postponed.
Credit balance in the tax account
A credit balance in the tax account ("Skattekontoen) indicates that the business has a net receivable against the tax administration.
Under current rules, the credit balance is generally paid out to the business. However, the business can choose that only amounts in excess of DKK 200,000 are paid out.
With the bill, the DKK 200,000 limit is raised to DKK 10 million. The increase is temporary for the period 25 March 2020 to 30 November 2020. Thereafter, the limit is DKK 200,000 again.
The temporary increase is a consequence of the postponement of payment deadlines for payroll tax, labour market contribution and VAT, as these postponements are not optional but apply regardless of whether the company needs the postponement. Therefore, some businesses will have amounts in the bank at negative interest rates until the money can be paid to the tax administration at the postponed deadlines. This can be avoided by early payment into the tax account within the new limit of DKK 10 million.
In collaboration with the Danish business community, the Government has set up a financial coronavirus unit with a view to discussing measures that can solve the financial challenges posed by the outbreak. Further initiatives to mitigate the financial impact of the outbreak are expected to be presented soon.