If you want to start your own business, a sole proprietorship is often the first choice. It’s quick to set up, requires no capital, and is well-suited for consultants, tradespeople, creative professionals, and startup online stores. The rules are straightforward, but you need to know them. At Accountview, we make it easy to navigate the rules for a sole proprietorship, from registering with the tax authorities to day-to-day bookkeeping.
How to Start a Sole Proprietorship
You can set up a sole proprietorship online at virk.dk using MitID. You’ll need to choose a name, an industry code, and a start date; if your revenue is expected to exceed 50,000 kroner within 12 months, you must also register the business for VAT. Registration itself is free, and you’ll receive a CVR number within one to two business days.
You can also choose to register the business under a trade name if you want to market yourself under a name other than your own. Keep in mind that the name must not be confusingly similar to other businesses, and that it must accurately reflect the business’s activities.
Liability and Finance
The most important thing to know about a sole proprietorship is that you are personally liable with all of your private assets. This means that the business’s debts can be recovered from your car, your house, and your savings if the business cannot pay them itself. Therefore, we recommend that you consider early on whether a limited liability company (ApS) might be a better choice as soon as your revenue and risk increase.
Profits are taxed as personal income, and you pay both income tax and an 8 percent labor market contribution on the business’s profits. In return, you have access to the business tax plan, which allows you to spread your tax liability over several years. We’ll work with you to find the right plan and update your estimated tax payment so you don’t end up with a large tax liability.
Accounting and VAT Requirements
Even a small sole proprietorship is subject to the Bookkeeping Act. This means you must record income and expenses on an ongoing basis, keep receipts for five years, and be able to document what the money was spent on. Many people start with a spreadsheet but quickly switch to Billy or Dinero because these systems handle VAT and reconcile bank statements.
VAT is typically reported quarterly or semi-annually, depending on revenue. The report is submitted via Skat.dk, and we ensure that it is submitted on time by briefly reviewing the figures before you click “Send.”
Advantages of a Sole Proprietorship
A sole proprietorship offers a number of advantages that make it an ideal choice for new self-employed individuals. You can get started quickly, administrative tasks are minimal, and you retain full control over all decisions. You can deduct all business expenses, and you can transition to a limited liability company (ApS) later as your business grows. Many of our clients start as sole proprietorships and convert their businesses to an ApS after one to three years, once their revenue can support the additional administrative workload.
How Accountview Can Help
We have over 900 clients, a large portion of whom are sole proprietorships. You’ll be assigned a dedicated advisor, receive a transparent price, and get assistance with Billy, Dinero, or e-conomic. We handle VAT, tax filings, and business consulting so you can focus on your customers and invoices. 94 percent of our clients stay with us for more than five years because they feel that we take responsibility for their entire financial situation—not just the paperwork that needs to be filed.
Frequently Asked Questions
Do I need to purchase insurance as a self-employed person in a sole proprietorship?
You are not automatically covered by standard workers’ compensation insurance, and you are personally liable for accidents and professional liability. We typically recommend professional liability insurance, business interruption insurance, and voluntary workers’ compensation insurance. We refer you to relevant insurance partners without selling the policies ourselves.
Can I hire employees in a sole proprietorship?
Yes, you can hire employees under standard terms and conditions. You must register your business as an employer with Skat, and you must report payroll through eIndkomst. We’ll set up the payroll system and ensure that A-tax, AM contributions, and pension contributions are calculated correctly each month.
What happens to my sole proprietorship if I go on maternity leave?
As a self-employed person, you are entitled to maternity benefits, but the rules are different from those for employees. You must apply yourself through Udbetaling Danmark and provide documentation of your business’s income. We’ll help you with the documentation so you receive the correct amount during a period when your business may be operating at a reduced capacity.
Want peace of mind when it comes to the rules? Let’s have a no-obligation chat about your startup.
