I’m running my own business – what does this mean for me if I close down and apply for benefits?

Read more about how you earn benefit rights and how the calculation of benefit rates for self-employed persons are done.

How to gain benefit rights

From 1 October 2018 benefit rights are earned by combining profits from your own business with all A- and B-income (income taxed at source and income not taxed at source, respectively) in one of two ways:
 
Option 1: You are entitled to benefits if your total income from own business and paid employment was at least 228,438 kr. (2018 figure) over the last 3 years. Your income will be specified on a monthly basis, taking into account no more than 19,029 kr. per month (2018 figure). The monthly income from your own business will be specified by distributing the year’s profits equally over the 12 months of the accounting year. 
 
Option 2: Even if you do not fulfil this requirement, you may be entitled to benefits if your total yearly income was at least 228,438 kr. over the last 5 years (2018 figure). In this case, only income from your own business is taken into account. 
 
It is possible to extend the 3- and 5-year specification periods by including periods in which you were sick, on parental leave, etc. Only income for periods in which you were a member of an unemployment fund will be considered.

How we calculate your rate

If you earned your right to benefits as described in Option 1, your rate is calculated on the basis of your total income in the best 12 months within the last 24 months before you became unemployed. All A-income (taxed at source) and B-income (not taxed at source) liable to labour market contribution (AMB) is added to the profits from your own business. To get the maximum rate, your average monthly income must have been at least 22,504 kr. (2018 figure). 
 
If you gained benefit rights on the basis of the exception rule (Option 2), your rate will instead be calculated as an average of the 2 years with the highest taxable profits within the last 5 completed income years before you became unemployed. This rule does not apply if you have earned benefit rights within the 3-year period (Option 1).
 
Please note that: 
  • the so-called minimum rate no longer applies from 1 October 2018 and
  • income already used for calculating your rate cannot be used for calculating a new rate.

 

How to get your business considered as closed down

From 1 October 2018 it will be easier to close down an own business and gain benefit rights:

Certificate of termination

Your business is considered closed down when it has been registrered as such with the Central Business Register (CVR) and you have presented a so-called certificate of termination from the Danish Business Authority (Erhvervsstyrelsen).

Solemn declaration

If you are unable to present a certificate of termination because your business is not yet fully liquidated, it will be considered closed down when we receive your solemn declaration that the business is no longer operating.

The hours you spend liquidating the business will result in deductions in your benefits. You need to document within 6 months that the business is closed down. If you are unable to do this, you cannot receive benefits before you have submitted a certificate of termination or a similar document.

Conversion of a company to a holding company

If you can document the termination of business activity, your business may be considered closed down when you have changed its objects clause to the administration of assets and documented this with records from the Danish Business Authority (Erhvervsstyrelsen).

Bankruptcy/foreclosure sale

Your business is considered closed down if it has gone bankrupt or has been sold at foreclosure sale. 

Leasing/rental

If you have leased or rented out your business under a mutually irrevocable contract for at least 3 years, it is considered closed down as far as you are concerned. 

Your business is carried on by your spouse 

If you were an assisting spouse, the business is considered closed down as far as you are concerned when you declare solemnly that you have resigned from your spouse’s business.

Your business is carried on by your partner(s)

Your business is considered closed down when you resign as a business partner, and the Danish Business Authority (Erhvervsstyrelsen) has registered that you are no longer an owner. 

If you continue as a partner, we will consider your business closed down when you present proof of registration from the tax authorities (SKAT) that ownership of the business has changed, indicating that you no longer have decisive influence on the company. You are seen to have decisive influence for example if you own at least 50% of company capital or hold a controlling share of shareholders’ votes. The change in ownership must also be registered with the Danish Business Authority.

You are not entitled to benefits until a waiting period has passed (previously “karens for selvstændige”)

If you stop running your own business as a main occupation, you cannot receive benefits until after a so-called waiting period. The waiting period always counts from the day after you have documented that your business is closed down. 

The waiting period is generally 3 weeks, but if the closure is caused by bankruptcy or foreclosure sale, it may be reduced to 1 week. However, the waiting period is 2 months if the closure is attested in a solemn declaration. If you submit a certificate of termination to us before the 2 months have passed, you are entitled to benefits from the following day, although at least 3 weeks must have passed from the day we received your solemn declaration.

 

Your right to start a new business will be limited

Job search period

From 1 October 2018, a new rule introduces a so-called job search period of 6 months from the termination of an own business as the main occupation. 

You will not be entitled to benefits in this period if you start a new business, whether as a main or secondary occupation. If you choose to go ahead despite the rule, you will be excluded from receiving benefits until 6 months have passed.

The rule on a job search period does not apply if you close down because of bankruptcy or the termination of own business as a secondary occupation.

No more than one termination per benefit period

From 1 October 2018 a new rule is introduced permitting only one termination of an own business for each benefit period. However, any termination that may have occurred before you gain the right to a 2-year benefit period is not included.

This means that if you start a new business (Business 1) in your benefit period and then close it, the closing-down of a potential new business (Business 2) will result in a loss of benefit rights. This new rule applies to own businesses, but not to spare-time activities. 

You should consider the advantages of changing your business into a spare-time activity og wealth management. Read more in the blue box below.

 

 

Consider starting your business as a spare-time activity

You might consider the alternative of starting your business as a spare-time activity. This is possible if you expect a turnover of less than 50,000 kr. over 12 months, and thus do not need to have a CVR number and register for VAT (moms).  If you already have a CVR number, you must unsubscribe.
  • Pros: The period in which you can run a spare-time activity will not be limited to 30 weeks, but may carry on as long as you wish. Furthermore, stopping a spare-time activity does not count in relation to the rule limiting the number of close-downs to one. Learn more on this page in the section "Your right to start a new business will be limited"
  • Cons: Your income cannot be used to earn benefit rights
  • No change: We will still make deductions in your benefit payments for the hours you spend on the spare-time activity.

Consider running your own business as wealth management

You might consider having your business as wealth management (that is a real estate business, trading in own securities, passive ownership or if you have leased your business) if you have very limited work in the company. Very limited means, work for a maximum of 5 hours a month. 
  • Pros: The period will not be limited to 30 weeks, but may carry on as long as you wish. Furthermore, stopping wealth management does not count in relation to the rule limiting the number of close-downs to one. Learn more on this page in the section "Your right to start a new business will be limited"
  • Cons: Your income cannot be used to earn benefits rights
  • No change: Deductions in your benefit payments will still be made for the hours spent on your spare-time activity.

When is an activity considered an own business?

In general your activity is considered as self-employment if:

  • You have a central business register (CVR) number. If your VAT-attracting (momspligtige) turnover is least 50,000 kr. over a 12-month period, you must also have a VAT number 
  • The activity aims at generating a profit
  • You yourself work in the activity.

Contact the tax authorities if you are in doubt whether your activity is considered an own business.