Denmark Pharma and Life Sciences Tax Guide

R&D Super-Deduction for Life Sciences

The Danish enhanced R&D super-deduction is the primary tax incentive for pharmaceutical and biotech R&D. Qualifying expenses include costs directly related to systematic, investigative, or experimental activities with the goal of achieving scientific or technological advancement:

• Super-deduction rates (2025–2028): For the 2025 income year, an additional 8% deduction (108% total deduction) applies to qualifying R&D costs. This increases to 12% in 2026, 16% in 2027, and 20% in 2028 (120% total deduction). The deduction is available to both companies and certain transparent entities.
• Qualifying life sciences activities: Preclinical research (in vitro, in vivo studies), clinical trial phases I–III, formulation development, analytical method development, process development and scale-up, stability studies, pharmacovigilance systems development, and biomarker discovery. Regulatory affairs activities (compiling CMC dossiers, writing clinical study reports) that generate new technical knowledge also qualify.
• Non-qualifying activities: Routine quality control testing of production batches, market research, patent filing and maintenance costs, regulatory submission fees, and commercial manufacturing scale-up do not qualify as R&D for the super-deduction.
• Contract R&D (CRO/CDMO): R&D conducted by external contract research organisations on behalf of a Danish company qualifies for the super-deduction if the Danish company bears the economic risk and owns the results. The CRO/CDMO invoices must clearly separate qualifying R&D from routine services. Captive CROs must comply with transfer pricing rules — see below.
• Cash payout (skattekredit): Companies with negative taxable income can convert the super-deduction into a cash payment of 22% of the additional deduction (i.e., 22% × 8% of qualifying R&D costs in 2025). The payout is capped at 5 million DKK per company per year (2025 level) and must be applied for via SKAT's skattekredit scheme. This is particularly valuable for pre-revenue biotech startups.
• Collaborative R&D: R&D conducted in collaboration with Danish universities or hospitals (GCP-registered clinical trials) qualifies. The Danish company must document its share of the costs and its entitlement to the results. EU Horizon Europe and Innovation Fund Denmark grant-funded projects — the grant portion is deducted from qualifying costs before the super-deduction is calculated.

For full details on eligible costs, documentation requirements, and the payout scheme, see our R&D Tax Credits Guide →.

CRO and CDMO Transfer Pricing

• Arm's-length pricing: Fees paid to related-party CROs or CDMOs must be at arm's length. SKAT expects full transfer pricing documentation including a functional analysis (who performs the R&D, who bears risk, who owns the resulting IP). The Danish tax authorities have a specific focus on life sciences transfer pricing, particularly for cost-sharing agreements and buy-in payments for pre-existing IP.
• Cost-plus method: The most common transfer pricing method for CROs is the cost-plus method with a markup reflecting the functions performed, assets used, and risks assumed. Routine CRO services typically attract a markup of 5–15%. Higher markups apply where the CRO assumes significant risk or contributes intellectual property.
• R&D cost-sharing agreements: Danish companies participating in global R&D cost-sharing arrangements must ensure the allocation of costs and benefits reflects the reasonably anticipated benefits (RAB) share. SKAT follows OECD guidelines and may challenge allocations that do not align with the group's actual R&D activity and profit allocation.

VAT on Medicines and Life Sciences Products

• Prescription medicines — 0% VAT (ML §5, stk. 1, nr. 2): Medicines dispensed on a doctor's prescription (receptpligtig medicin) are subject to 0% VAT. This is a true zero-rate, meaning the pharmacy or supplier can deduct input VAT on related costs. The zero-rate applies regardless of whether the medicine is purchased at a physical pharmacy or dispensed through a hospital pharmacy.
• OTC medicines — 25% VAT: Over-the-counter medicines (håndkøbsmedicin) sold without a prescription are subject to the standard 25% VAT. This includes painkillers, allergy medication, vitamins and supplements, and other non-prescription health products.
• Vaccines: COVID-19 and other publicly funded vaccines are typically subject to 0% VAT when supplied under a public health programme. Commercially purchased vaccines (e.g., travel vaccines) are standard-rated at 25%.
• Medical devices (medicinsk udstyr): Most medical devices are subject to standard 25% VAT. However, certain assistive devices for disabled persons (hjælpemidler) supplied through municipalities may be VAT-exempt. The distinction between a medical device and a medicine matters — combination products (drug-device combinations) follow the VAT treatment of the primary component. The Danish tax authorities have issued several binding rulings on this classification (SKM2025.xxx series).
• Clinical trial supplies: Investigational medicinal products (IMPs) supplied for clinical trials are not subject to VAT, as they are not considered supplies for consideration. Ancillary clinical trial services (laboratory testing, data management) provided to sponsors are subject to 25% VAT unless the sponsor is established outside the EU (reverse charge applies).
• Pharmacy VAT: Community pharmacies (apoteker) operate under a regulated margin system — the VATable amount is the pharmacy's dispensing fee and margin, not the full medicine price. Prescription medicine dispensing is 0% VAT; OTC sales are 25% VAT on the full retail price.

Milestone Payments, Royalties, and Licensing

• Upfront and milestone payments: Payments for licensing a pharmaceutical patent or drug candidate are treated as royalties for Danish tax purposes when they compensate for the use of or right to use intellectual property. This means — withholding tax at 22% applies on outbound payments to non-residents, subject to treaty reduction (typically 0–10% under most Danish tax treaties). Development milestones tied to regulatory approval events (IND filing, Phase I/II/III initiation, NDA filing) are generally royalties, not service fees.
• Commercial milestones: Milestones triggered by sales thresholds (e.g., 5% of revenue) or first commercial sale are treated as royalties and subject to the same withholding tax analysis. SKAT distinguishes between royalties for the use of IP and proceeds from the sale of IP — a full assignment of a patent may be a capital gain rather than royalty income.
• No patent box: Denmark does not have a patent box or IP box regime. All IP income (including out-licensing royalties) is taxed at the standard corporate rate of 22%. Unlike the UK, Netherlands, Ireland, or Switzerland, there is no reduced rate for qualifying IP income — Denmark's policy instead favours the R&D super-deduction on the input side.
• Cost-sharing and profit-split: Multinational pharma groups operating in Denmark must ensure their Danish entities are adequately compensated for functions performed and IP contributed under OECD profit-split or cost-sharing guidelines. The Danish tax authorities have a specialised life sciences transfer pricing team and conduct frequent audits of IP migration and cost-sharing arrangements.
• Success fees: Success fees paid to licensing partners, CROs, or finders for securing a licensing deal are generally deductible as business expenses when they relate to the acquisition of a business asset (intangibles). Fees for securing in-licensing of a compound may need to be capitalised and amortised over the patent life or expected useful life of the IP.

Public Research Grants and Tax Credits

• Innovation Fund Denmark (Innovationsfonden): Grants from Innovation Fund Denmark for collaborative R&D projects are generally taxable income for the recipient company when received. The grant amount must be deducted from qualifying R&D costs before calculating the super-deduction — preventing double benefit.
• EU Horizon Europe and Eureka: EU research grants are taxable income in Denmark. The Danish company must include the grant in taxable income, but can deduct corresponding R&D costs. The net tax effect depends on whether the costs exceed the grant. Value-added subsidies (e.g., the 25% VAT refund for Horizon Europe projects) are not taxable.
• Clinical trial reimbursements: Payments from pharmaceutical sponsors to hospitals or GCP units for conducting clinical trials are taxable income for the hospital (if a taxable entity) or tax-neutral if the hospital is a public institution outside the corporate tax net. Public hospitals in Denmark are generally not subject to corporate tax on their clinical trial activities, but VAT rules apply separately.
• Danish Biotech Startup Pool (Iværksætterpulje): Targeted grants for early-stage biotech companies are taxable upon receipt. However, the corresponding R&D costs may qualify for the super-deduction, generating a tax loss that can be carried forward or converted to a cash payout via the skattekredit scheme (capped at 5 million DKK).

Employee and Talent Tax

• Researcher Tax Scheme (forskerordningen): Foreign researchers and key employees in the life sciences sector can benefit from a flat 33% tax rate for up to 7 years on salary exceeding 75,400 DKK/month (2026 rate). The scheme requires the employee to have highly specialised knowledge — typically PhD-level scientists, clinical research physicians, and senior executives. See our Researcher Tax Scheme Guide → for eligibility criteria.
• Employee shares and warrants: Life sciences startups commonly use employee share schemes and warrants to attract talent. The tax treatment depends on the type of instrument — see our Employee Shares Guide → for details on the 2026 reform taxing unrealised gains on unlisted shares upon exit.
• Relocation costs: Employer-paid relocation costs for foreign life sciences professionals hired to work in Denmark are tax-free for the employee when paid directly to third-party providers (moving company, travel, temporary accommodation up to 30 days). Cash reimbursements are taxable as A-income.
• Patent remuneration (opfinderløn): Employee-inventors who assign patent rights to their employer must be compensated under the Danish Patent Act. This compensation (opfinderløn) is taxable as A-income for the employee and deductible for the employer, subject to AM-bidrag and A-tax withholding.

For general life sciences company formation in Denmark, see our Starting a Business Guide →. For tax treatment of CRO exit proceeds and M&A, see our Cross-Border M&A Guide →.