Denmark Insolvency and Bankruptcy Tax Guide

Taxation of Debt Forgiveness (Gældseftergivelse)

When a creditor writes off or forgives a debt, the debtor receives a taxable benefit under the general rule in SL §5 (statsskatteloven §5) — forgiveness of debt is considered taxable income. However, several important exceptions apply:

• Insolvency exemption (KGL §29): If the debtor is insolvent at the time of forgiveness, the forgiven amount is not taxable under KGL §29 (kursgevinstloven §29). The exemption applies provided: (a) the debtor's liabilities exceed assets by at least 25%, and (b) the debtor notifies SKAT of the insolvency within the tax return. The exemption is automatic — no prior approval is needed.
• Compulsory composition (tvangsakkord): In a court-approved compulsory composition (a formal debt restructuring under konkursloven), debt forgiveness is tax-free under KGL §29 regardless of the debtor's solvency position. The composition must be approved by the bankruptcy court (skifteretten).
• Restructuring (rekonstruktion): Under the Danish Restructuring Act (rekonstruktionsloven, effective 2020 replacing the old betalingsstandsning regime), debt written off as part of a court-approved restructuring plan is tax-free. The restructuring plan must be approved by a majority of creditors and confirmed by the court.
• Shareholder debt forgiveness: When a shareholder forgives debt owed by a company, the tax treatment depends on whether the shareholder is a Danish company or an individual. For corporate shareholders, the forgiven amount is treated as a tax-free contribution to equity (skattefrit tilskud). For individual shareholders, the forgiveness may be treated as a taxable gift or capital contribution, depending on the circumstances.
• Group debt forgiveness: Intra-group debt forgiveness within a Danish joint taxation group (sambeskatning) is generally tax-neutral — the forgiven amount is treated as a transfer within the group and does not trigger income recognition.

Loss Recognition on Bad Debts (Creditor Perspective)

Creditors can deduct bad debts under specific rules depending on the type of claim:

• Trade receivables (KGL §13-14): Bad debts on trade receivables (tilgodehavender for varer og tjenesteydelser) are deductible under KGL (kursgevinstloven). The deduction is available when the debt is finally lost — typically at: (a) bankruptcy order (konkursdekret), (b) compulsory composition confirmed by the court, (c) enforcement proceedings return no assets (fogedforretning uden fyldestgørelse), or (d) the debtor is dissolved or has disappeared. Individual assessment (en konkret vurdering) is required — general provisions for expected losses are not deductible.
• Loan receivables: Bad debt deductions on loans are governed by the same KGL rules. However, loans to related parties face additional scrutiny — SKAT may recharacterise the loss as a non-deductible capital contribution if the loan was not made on arm's-length terms.
• Formal documentation requirements: To claim a bad debt deduction, maintain: (a) the original contract/loan agreement, (b) correspondence showing attempts to collect, (c) enforcement order from the bailiff's court (fogedret), (d) bankruptcy notice or composition agreement, and (e) the creditor's internal resolution to write off the debt.
• VAT adjustment on bad debts: If you have paid VAT on a supply and the customer does not pay, you can claim a VAT bad debt relief (momsgodtgørelse for tab på debitorer) under ML §52. The VAT adjustment is claimed in the VAT return for the period when the debt is finally lost. The same documentation requirements apply. See our VAT Registration Guide → for the filing procedure.
• Currency gains/losses on foreign-currency debts: Bad debts denominated in foreign currency trigger both a bad debt deduction (at the exchange rate at the time of loss) and a final currency gain/loss. These are reported separately under KGL.

Tax Treatment of Bankruptcy Estates (Konkursbo)

When a Danish company is declared bankrupt, the bankruptcy estate becomes a separate tax entity:

• Estate as separate taxpayer: The bankruptcy estate (konkursbo) is a separate taxable entity under SEL §1, stk. 1, litra c. It files its own tax return (selvangivelse for dødsbo/konkursbo) and is subject to 22% corporate tax on income realised during the estate administration period.
• Income during bankruptcy: The estate is taxed on: (a) income from the realisation (sale) of the debtor's assets, (b) interest earned on estate bank accounts, (c) income from continuing business operations (if the estate continues trading), and (d) recovery of previously deducted bad debts (genindvinding).
• Pre-bankruptcy loss carryforwards: Loss carryforwards from the debtor company before bankruptcy cannot be used by the bankruptcy estate. They expire at the bankruptcy declaration date. Similarly, pre-bankruptcy tax credits and timing differences expire.
• Distribution to creditors: Distributions from the estate to creditors are not taxable events for the creditors (they are receiving repayment of a debt, not income). However, if the creditor had previously claimed a bad debt deduction, the dividend received in bankruptcy is treated as recovery income (genindvundet beløb) taxable in the year of receipt.
• Estate administration period: The estate typically files one or more tax returns covering the period from the bankruptcy date to the estate's final distribution. The return is due within 6 months of the end of the estate's fiscal year (which may differ from the calendar year if the estate continues trading).
• Final tax return: After final distribution, the trustee (kurator) files a final tax return for the estate. Any remaining tax liability is payable from the estate's funds; if insufficient, SKAT's claim ranks as a preferential claim in the bankruptcy distribution order.

Director Liability for Unpaid Taxes

Danish law imposes personal liability on directors and managers for certain unpaid company taxes:

• A-skat and AM-bidrag (employee taxes): Under Kildeskatteloven §69, directors are personally and jointly liable for unpaid A-skat and AM-bidrag withheld from employee salaries but not remitted to SKAT. This is strict liability — the director cannot avoid it by claiming ignorance or delegating payroll. The liability arises when the company fails to pay within the statutory deadline (10 days after month-end).
• VAT liability: Under ML §47, directors are personally liable for VAT collected from customers but not remitted to SKAT. The same strict liability standard applies. Director liability for VAT accrues from the VAT return deadline.
• Excise duties (punktafgifter): Directors of companies subject to excise duties (alcohol, tobacco, energy, CO2) are personally liable for unpaid duties under the various excise duty acts. Given the typically higher amounts involved, this is a significant risk.
• Mitigation: Directors can mitigate personal liability by: (a) ensuring payroll and VAT are paid before other creditors when the company is in financial difficulty, (b) resigning from the board promptly if the company is unable to meet its tax obligations, (c) filing for bankruptcy or restructuring in a timely manner (trading while insolvent (tab af driftstabsgarantien) can extend director liability to all debts under the Danish Companies Act), and (d) maintaining adequate D&O insurance specifically covering tax liabilities.
• Legal actions by SKAT: Gældsstyrelsen pursues directors under KSL §69 through garnishment (lønindeholdelse), asset seizure (udlæg), and registration in the RKI credit database. Directors cannot discharge personal tax liability through personal bankruptcy (gældssanering) for A-skat/VAT debts.

For more on the debt enforcement process, see our Tax Debt Collection Guide →.

Restructuring (Rekonstruktion) Tax Considerations

• Court-approved restructuring: Under the Restructuring Act (lov nr. 1555 of 2019, effective 2020), companies can obtain court protection from creditors while implementing a restructuring plan. Tax debts can be included in the restructuring (subject to SKAT's approval as a creditor).
• Debt forgiveness in restructuring: As noted above, debt forgiveness in a court-approved restructuring is tax-free for the debtor under KGL §29. This includes forgiveness of both principal and accrued interest.
• Continuity of tax attributes: Unlike bankruptcy, a company undergoing restructuring retains its loss carryforwards, tax depreciation balances, and other tax attributes. The restructuring does not trigger a tax year-end or reset tax positions.
• VAT grouping during restructuring: If the company is part of a VAT group (fællesregistrering), the restructuring may affect the group — particularly if the company is sold or its ownership changes. The 3-year minimum commitment for VAT groups should be considered before restructuring.

Practical Steps for Financially Distressed Businesses

• 1. Notify SKAT early: Contact Skattestyrelsen to discuss payment plans (betalingsordning) for outstanding tax debts. SKAT is generally willing to agree to instalment plans if approached proactively.
• 2. Prioritise A-skat and VAT payments: These are trust-fund taxes — directors are personally liable. Pay them before trade creditors.
• 3. File for reconstruction within the window: The restructuring law works best when the company is still solvent on a going-concern basis. Filing too late (when already insolvent) limits options.
• 4. Document all decisions: Board minutes showing consideration of creditor interests and steps taken to address financial difficulties are critical for defending against director liability claims.
• 5. Seek professional advice: Engage a revisor (accountant) and advokat (lawyer) specialising in insolvency. Tax-driven restructuring decisions cannot be reversed once implemented.

For director and company obligations when hiring employees, see our Hiring Employees Guide →. For tax debt planning and payment arrangements, see our Tax Debt Collection Guide →.