Can a consultant invoice through an ApS?

Can a consultant invoice through an ApS?

In this blog, we ask the question: Can a consultant invoice through an ApS?

There can be many reasons to have an ApS in Denmark.

Often an ApS is chosen because of considerations in relation to liability towards employees, suppliers and customers.

Other times it can be due to tax considerations.

Or both of course.

Most people prefer paying 22% in company income tax (the corporate income tax rate in Denmark in 2024), rather than paying personal income tax on money earned.

Especially if profits are high.

And who would not be happy to have limited liability on top of that?

But can you even invoice your consulting services through an ApS?

The answer is usually “yes” – but sometimes it can also be a big “NO”.

In general, you can say, that just because you issue an invoice through an ApS in Denmark for your consulting services, that does not necessarily make it a company income.

It is only a company income, and taxed as such, as long as you are not considered being an employee in relation to the client.

In some circumstances, you might have just put yourself at risk of double or even triple taxation.

Yes, TRIPLE taxation.

NB: And this risk applies to everyone – also for other types of industries than just consulting services!

Why is that?

Well, in this setup we need to look at the 3 mechanisms involved:

1: There is your client paying for the consulting services to the ApS;

2: There is your ApS which are invoicing the consulting services and receiving the payment from the client;

3. And finally there is you, receiving a salary from the ApS at some point.

The big question here is:

Is the money, in reality, being paid from the client to you through the ApS?

Meaning that it is you and not the ApS that is the beneficiary.

This situation can occur if the work you perform for the client, has the characteristics of normal employment.

There is not one single thing that you can point at to determine who is the beneficiary.

But it is the overall situation that will govern.

Some consideration that could point in the direction of you being an employee would be

The client is giving instructions and inspecting the work done as in normal employment;

You only have 1 client or 1 major client;

The agreement between the client and you is ongoing and has no specific term;

Your working hours are set by the client;

The contract stipulates a termination period;

You get paid per hour, weekly, monthly;

The client pays for the costs relating to the work done;

You have paid holiday, employee insurance and similar.

In the worst possible scenario, you are considered the beneficiary, and not the ApS

The tax consequences for you being considered the beneficiary and not the ApS will most likely be:

1:

The ApS will first have to reduce its income with the invoiced amount incl. VAT.

Secondly, the ApS will now instead be taxed on the full amount received by the client.

So the full sales including VAT.

The ApS will be able to deduct any salary you already have received as a cost.

The tax on the remaining amount is 22% (corporate income tax rate in 2024).

This is the first time tax is paid.

2:

You as the shareholder/director might already have received part or all of the money as salary in the ApS.

In that case, you would already have paid personal income tax on this salary.

Even though corrections are made for the ApS as described above, the salary you already have received is taxed.

This is therefore the second time tax is paid.

3:

The sales incl. VAT from the LTD is now added to your personal income and taxed one more time.

This is the third time tax is paid.

Often bringing the total tax to more than 100%.

There are examples from the tax court, however, where already paid salary in the ApS to a shareholder is deducted from the taxable amount before tax is calculated.

But there are also situations where the full amount is taxed once more.

Basically making the tax triple.

Is it possible to repair a situation like this?

Well, yes and no.

Civil law opens up the possibility to make a correction.

However, the high court has already made rulings clearly stating that in cases like this, concerning beneficiaries, then it is not possible to make a correction.

So here a “no” must be observed.

How can you avoid this situation?

Make sure the contract between the ApS and the client is “bulletproof”.

Especially, consider the points from above carefully.

Are you not sure if you could actually be considered an employee?

In general, the best advice is:

If you are not sure, then do not invoice through an ApS.

If you instead should choose to invoice through a sole proprietorship, then there will still be tax consequences, if you would be considered an employee.

But the amounts in tax would be smaller since you normally already would have been taxed in your personal income.

So a sole proprietorship is not a perfect solution either, but definitely safer (and cheaper) than an ApS.

If you already have a feeling that you are actually just an employee, then do not bother with the ApS or the sole proprietorship.

Simply become an employee and save yourself a ton of headache and tax.

Learn what we need from your to incorporate a new ApS

Read an example of a court ruling regarding a consultant being considered the beneficiary personally and not his ApS

(Last update of this blog: 25.3.2024)

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