Denmark Permanent Establishment Guide

PE Under Danish Domestic Law (SEL §2)

Under SEL §2, stk. 1 (Selskabsskatteloven), foreign entities are subject to limited tax liability in Denmark if they carry on business through a PE in Denmark. The domestic definition is broader than the OECD MC in several respects:

• General definition: A fixed place of business through which the activities of the foreign enterprise are wholly or partly carried on in Denmark. This follows the OECD MC Article 5(1) definition closely, but Danish domestic law has no minimum duration requirement — even a short-term presence can create a domestic PE (contrast with the treaty threshold of 12 months for construction projects).
• Construction, installation, and assembly (SEL §2, stk. 1, litra a): A PE exists if the foreign enterprise engages in building, construction, installation, or assembly activities in Denmark, or supervision of such activities. The domestic threshold is 30 days (within any 12-month period) — significantly shorter than the 12-month threshold under the OECD MC. This means a foreign contractor can have a domestic PE after 30 days even if treaty protection would require 12 months. The domestic PE is relevant for: (a) withholding tax obligations on payments to the foreign contractor (KSL §47 G-I — building owner's withholding obligation), (b) VAT registration for construction services, and (c) corporate tax on profits from Danish activities.
• Service PE (SEL §2, stk. 1, litra b): A PE exists if the foreign enterprise provides services in Denmark through employees or other personnel present in Denmark for more than 30 days (aggregate) within any 12-month period. This applies to consulting, IT services, engineering, and similar service activities. The 30-day threshold is per project or per client — the days are aggregated across all projects for the same or related clients.
• Warehousing/storage (SEL §2, stk. 1, litra c): A PE exists if the foreign enterprise maintains a warehouse or storage facility for its own goods in Denmark — even if no sales are made from the facility. This is broader than the OECD MC Article 5(1), where a storage facility is considered a preparatory or auxiliary activity and thus exempt from PE treatment.
• Representative office: A representative office in Denmark is not a PE under the domestic definition if it only performs preparatory or auxiliary activities (market research, advertising, information gathering). However, if the office concludes contracts or engages in any revenue-generating activity, it becomes a PE.

Where a double taxation treaty applies, the treaty definition of PE prevails over the domestic definition if it is narrower (which it almost always is). Foreign entities should always determine whether a treaty applies before assessing their Danish PE exposure.

PE Under Tax Treaties (OECD MC Article 5)

Most Danish treaties follow the OECD MC Article 5 definition. The MLI has modified the PE definition for ~70 Danish treaties since 2019:

• Fixed Place of Business PE (Article 5(1)): A fixed place of business through which the business of the enterprise is wholly or partly carried on. Requires: (a) a fixed or determinable geographical location, (b) a degree of permanence (typically >6 months for non-construction activities), and (c) the right to use the premises (ownership or rental, not merely access). Danish case law: loan of office space from a Danish group company was held to create a PE (SKM2019.456.LSR).
• Construction PE (Article 5(3)): A building site, construction, installation, or assembly project constitutes a PE only if it lasts more than 12 months (OECD MC 2017). Under MLI Article 14(2), Denmark adopts the option that the 12-month threshold includes connected activities — multiple short-term projects for the same or related clients are aggregated for the duration test. This is stricter than the pre-MLI position where each project was assessed independently.
• Agency PE (Article 5(5)): A PE exists if a person (dependent agent) habitually concludes contracts on behalf of the foreign enterprise. The MLI (Article 12) has broadened this: the agent need not conclude the contract itself — it is sufficient if the agent plays the principal role leading to the conclusion of contracts without material modification by the foreign enterprise. This captures agents who negotiate but do not sign contracts. Independent agents (agents acting in the ordinary course of their business for multiple principals, with independent economic activity) are excluded under Article 5(6). However, the MLI provision on commissionaire arrangements and similar structures (Article 12) narrows the independent agent exemption where the agent acts exclusively or almost exclusively for one principal.
• Service PE (Article 5(3) alternative in some treaties): Some Danish treaties (particularly with non-OECD countries) include a service PE provision: a PE exists if services are provided in Denmark through employees or other personnel for more than 183 days within any 12-month period for the same project or connected projects. This is broader than the standard OECD MC and must be checked treaty by treaty.
• Preparatory or auxiliary activities (Article 5(4)): Fixed places used solely for storage, display, delivery, purchasing, or information collection are not PEs if the overall activity is of a preparatory or auxiliary character. The MLI anti-fragmentation rule (Article 13(2)) closes a loophole: if a foreign enterprise splits its activities across multiple locations that individually qualify as preparatory/auxiliary but whose combined activity is core to the business, SKAT may aggregate them into a PE.

Construction PE — Domestic vs Treaty in Practice

The divergence between domestic (30 days) and treaty (12 months) thresholds for construction PEs creates a complex compliance landscape:

• Scenario A — Treaty applies, construction >12 months: Both domestic and treaty PE exist. The foreign contractor must: (a) register for Danish corporate tax, (b) file tax returns for the PE, (c) register for VAT (reverse charge may apply), and (d) comply with the building owner A-skat withholding rules (KSL §47 G-I).
• Scenario B — Treaty applies, construction >30 days but <12 months: Domestic PE exists but treaty PE does not. Under the treaty, Denmark cannot tax the foreign contractor's profits. However, Danish domestic law still requires the building owner to withhold A-skat from payments to the foreign contractor (KSL §47 G-I), and the foreign contractor must register for RUT and potentially for VAT. The foreign contractor must file a domestic tax return to formally declare no taxable profit (nul-angivelse).
• Scenario C — No treaty applies (e.g., contractor from non-treaty country): Only domestic PE rules apply. The 30-day threshold creates a PE, and Denmark taxes the full profits attributable to the Danish activities. Withholding A-skat and VAT obligations also apply.
• Day counting: Count all calendar days during which the site or project is active, including weekends, public holidays, and short interruptions (weather, material delivery delays). Days spent by subcontractors are attributed to the main contractor if they work under the main contractor's supervision and control. The 30-day (domestic) and 12-month (treaty) thresholds are tested on a rolling 12-month basis — not per calendar year.

Profit Attribution (Authorised OECD Approach)

Once a PE exists, profits must be attributed to it under the Authorised OECD Approach (AOA), which Denmark has implemented in its tax treaty practice and domestic transfer pricing rules:

• Functional and factual analysis: The PE is treated as a functionally separate enterprise. Step 1: Identify the critical people functions performed by the PE (decision-making, risk management, strategic direction). Step 2: Attribute assets to the PE based on the people functions that use those assets. Step 3: Attribute risks to the PE based on the people functions that manage and control those risks. Step 4: Allocate free capital to the PE based on the risks assumed and assets used (the "capital allocation" step is the most disputed area in Danish PE profit attribution).
• Dealings with the head office (Dependent Agent approach): Transactions between the PE and the head office (or other parts of the enterprise) are treated as if they were between independent enterprises. Transfer pricing documentation (master file and local file) must cover these internal dealings. SKAT's Transfer Pricing Unit specifically reviews PE profit attribution in audits.
• Danish tax return: The PE must file a Danish corporate tax return (selvangivelse) within 6 months of the PE's year-end. The return must include: a profit and loss statement for the PE, balance sheet (with attributed assets and liabilities), and transfer pricing documentation for dealings with the head office. The Danish corporate tax rate of 22% applies.
• Significant people functions (SPF): The concept of SPF is critical — if the PE performs SPFs related to strategic risk management (e.g., a Danish trading desk managing a portfolio of financial instruments), significant profits are attributed to the PE. If the PE performs only routine functions (e.g., administrative support), a cost-plus or transactional net margin method (TNMM) may be more appropriate.
• Danish PE profit attribution disputes: Common areas of dispute with SKAT: (a) attribution of intangible property developed by the head office but used by the PE, (b) capital allocation (the amount of free capital attributed to the PE directly affects the PE's taxable profit), and (c) the pricing of internal services between head office and PE. Advance Pricing Agreements (APAs) are available for PE profit attribution — processing time is typically 6-12 months.

Registration and Compliance for PEs

• CVR registration: The PE must register with the Central Business Register (CVR) via virk.dk. The registration requires: a Danish manager responsible for the PE's operations, a Danish address for the PE, and a registered Danish VAT number (if the PE makes taxable supplies). Registration typically takes 1-3 business days.
• Corporate tax registration: The PE must register with SKAT as a limited tax liability entity. The registration is separate from CVR registration. The PE files annual SEL-angivelse (corporate tax return). A foreign entity cannot join a Danish joint taxation group (sambeskatning) through its PE alone — the group membership requires a Danish-resident company.
• VAT registration: A PE that makes taxable supplies in Denmark must register for Danish VAT. If the PE only makes supplies that are subject to reverse charge (B2B services), it may not need VAT registration. However, if the PE imports goods, makes B2C supplies, or has employees physically present in Denmark providing services, VAT registration is generally required. The PE can file quarterly VAT returns. See our VAT Registration Guide → for details.
• RUT registration (foreign service providers): Foreign contractors providing services in the construction sector must register in the RUT (Register for Udenlandske Tjenesteydere) before starting work. This is required even if no PE exists. See our Construction Industry Tax Guide → for RUT details.
• A-skat withholding: If the PE employs individuals in Denmark, it must register as an employer, withhold A-skat and AM-bidrag, and report via eIndkomst. Even if the foreign entity considers the employees seconded from the head office, if they perform their work for the PE, the PE is responsible for withholding obligations.
• Transfer pricing documentation: The PE must prepare and submit transfer pricing documentation covering dealings with the head office and other related parties. The documentation must be prepared by the corporate tax return filing deadline. Penalties: DKK 250,000 basic fine + 10% of any income adjustment (same as for companies).

PE Exit Taxation (Cessation)

• Exit tax on PE closure (SEL §13 B): When a foreign company ceases its Danish PE (by closing it, transferring assets out of Denmark, or changing the business model so the PE no longer exists), the assets attributed to the PE are deemed realised at market value. The resulting gain is subject to Danish corporate tax at 22%. This applies to: physical assets (equipment, inventory), intangible assets (IP, goodwill), and financial assets attributed to the PE.
• Exit tax on transfer of functions: If the PE ceases to perform certain functions (e.g., a trading desk is moved from Copenhagen to London), and those functions had significant-profit attribution, exit tax applies to the assets and risks transferred. The gain is calculated as the difference between market value and the tax base value of the assets/risks at the date of the function transfer.
• Deferral: Exit tax on PE closure within the EU/EEA can be deferred over 5 years if adequate security is provided. The deferral follows the same framework as corporate relocation exit tax under SEL §13 A. Non-EU/EEA closures trigger immediate taxation.

PE Risk Identification and Mitigation

• Common PE triggers for foreign businesses: (a) employees or contractors working from a Danish home office or co-working space, (b) a Danish subsidiary providing management, administrative, or sales support to the foreign parent (risks being treated as a dependent agency PE of the parent), (c) a foreign service provider whose employees spend >30 days (aggregate) in Denmark serving a single client, (d) stock of goods held in a Danish warehouse or third-party logistics facility, (e) a foreign company concluding contracts through a Danish-based agent or representative, and (f) remote workers (post-COVID) — if a foreign company has employees working from Denmark for extended periods, a PE may be created.
• Home office PE risk (digital nomads / remote workers): SKAT has issued several binding rulings on remote workers creating PEs. If a foreign company has an employee working from Denmark for more than 6 months, and that employee performs core business functions (sales, contract negotiation, client management), a PE may exist. If the employee only performs auxiliary tasks (IT support, data entry), PE risk is lower. Key factors: the employee's authority to bind the company, the duration and regularity of the Danish presence, and whether the company provides equipment or reimburses home office costs.
• Subsidiary as PE risk: A Danish subsidiary is not automatically a PE of its foreign parent. However, if the subsidiary habitually exercises authority to conclude contracts on behalf of the parent, or if the subsidiary's premises are at the parent's disposal, a PE may be created. The MLI's revised agency PE rules have increased this risk — the subsidiary does not need to sign the contract; it is enough that it plays the principal role in obtaining the contract for the parent.
• Risk mitigation strategies: (a) ensure foreign employees in Denmark are formally seconded to a Danish entity that bears the employment risk, (b) maintain clear functional separation between the Danish entity and the foreign parent (separate premises, separate decision-making, independent business operations), (c) limit the duration of physical presence in Denmark (monitor day counts), (d) obtain a binding ruling (bindende svar) from SKAT before establishing a physical presence in Denmark, and (e) consider restructuring through a Danish subsidiary (ApS/A/S) with substance rather than operating through a PE — a subsidiary may provide better legal protection even if the tax cost is higher.

Key Compliance Deadlines

• CVR registration: Within 15 days of establishing the PE.
• VAT registration: Within 8 days of making the first taxable supply in Denmark.
• RUT registration: Before starting work on a Danish construction site.
• Corporate tax return (SEL-angivelse): 6 months after PE year-end (typically June 30 for calendar-year PEs).
• Transfer pricing documentation: Prepared by the corporate tax return deadline, submitted on request within 60 days.
• A-skat and AM-bidrag payment: 10th of the following month.
• VAT returns: Quarterly (or monthly if over 50 million DKK turnover), due 30 days after quarter-end.

For related topics, see our Tax Treaties Guide → for treaty relief from PE taxation, Transfer Pricing Guide → for PE profit attribution documentation, Cross-Border Tax Guide → for broader international tax considerations, and E-tax for Businesses Guide → for digital filing procedures.