Tax on account for companies – ordinary and voluntary
Over the year, companies are required to observe three final due dates for payment of tax on account. Two of the due dates relate to the compulsory, ordinary tax on account, which is calculated by the Danish Customs and Tax Administration (SKAT), and the third due date concerns the voluntary payment of tax on account, where your company has some options:
- First instalment, ordinary tax on account: final due date is 20 March of the current financial year
- Second instalment, ordinary tax on account: final due date is 20 November of the current financial year
- Third instalment, voluntary tax on account: final due date is 1 February of the following financial year
You also have the option of paying voluntary tax on account on top of the ordinary tax on account in March and November. I will address this option in more detail below.
Ordinary tax on account
In 2017, ordinary tax on account constitutes an amount equal to half of your company’s average actual tax for the income years 2013, 2014 and 2015. This means 11% of your company’s average income for these years, 50% of which is payable in March and the other 50% in November.
If your income performance is expected to be weak in 2018, you can use E-tax for Businesses (TastSelv Erhverv) to request SKAT to reduce the rates. This option is open right up to the final due dates for the first and second instalments in March and November, respectively.
If your company participates in a joint taxation arrangement, the aggregate tax on account is payable by the administrative company.
Voluntary tax on account
If you assess that the ordinary tax payments on account are insufficient to cover the actual tax for the income year, you can choose to supplement the ordinary tax on account with voluntary payments. You are free to choose whether you prefer paying voluntary tax on account in both March and November or only in one of these months.
Besides, you can opt for the so-called third voluntary payment, which does not fall due until 1 February of the following year. This later due date, 1 February 2018, gives your company an opportunity to gain an accurate picture of your net profit for 2017 and, accordingly, to know the exact total amount of tax payable for the income year 2017. Since this calculation may be difficult to perform as early as November, it is an advantage for many businesses to opt for this third instalment, which is not due for payment until one month after the end of the financial year.
A voluntary payment must be created through E-tax for Businesses before your company transfers the money – otherwise, SKAT will return the amount.
Premium in connection with voluntary payment of tax on account
If you choose to make a voluntary payment of tax on account, you should keep in mind that if a voluntary payment is made in March, your tax account will be credited with a premium, whereas a premium will be charged on a voluntary payment in November and in February. For the income year 2017, the following premiums are applied:
- Payment in March: 0%
- Payment in November: 0%
- Payment in February: 0.7%
This means that if your company makes a payment of DKK 100,000 on or before 1 February 2018, an interest premium of DKK 700 will be charged. If your estimated tax underpayment amounts to DKK 100,000, you will therefore be required to pay DKK 100,700.
This interest premium is much lower, however, than the tax underpayment penalty you would have to pay in November. For the income year 2017, the underpayment penalty rate is 3.4%, and the penalty is non-deductible. If you pay underpaid tax on or before 1 February 2018, you will therefore save 2.7% (3.4-0.7) of your tax payment for the income year 2017.
Do you have sufficient liquidity?
It is my assessment that if your company has the necessary excess liquidity, then you should definitely consider paying the underpaid tax as an instalment on account in February and be “let off” with a tax underpayment penalty at the rate of 0.7%. In this fashion, you will avoid paying higher and non-deductible interest.