5 steps guide to a successful tax credit

Tax credit
The Danish tax credit scheme enables companies to obtain a cash payment for recognized tax losses of up to DKK 5.5m (equivalent to DKK 25m in taxable loss) for the years 2025–2026. From 2027 up to DKK 7.7m. Payout is made in November following the income year. Eligibility for payment requires fulfilment of the novelty, creativity and uncertainty criteria.

Extra step-up
For 2023–2025 an additional step up of 8% applies to qualifying R&D expenditures; the enhanced deduction rate increases to 114% in 2026, 116% in 2027 and 120% from 2028 onwards up to a threshold of approx. DKK 1bn. Qualifying costs above this threshold are, however, still deductible at 110%. 

The cost base may include external expenses, internal salaries and other indirect costs, provided they are attributable to the R&D activity. To ensure proper documentation, companies should establish a project ledger or equivalent accounting records to ensure accurate allocation to the relevant project. The company carries the burden of proof that expenses relate to the enhanced deduction and tax credit claim.

Robust, contemporaneous documentation – such as technical descriptions, project plans, milestone sign offs, timesheets, invoices, grant letters, patent filings and collaboration agreements – are essential to support claims and to withstand tax authority review. 

#1 Is the idea novel enough?
Meeting the novelty criterion for research and development costs is decisive for their recognition. The novelty assessment must be carried out against the standards of the relevant industry on a global scale rather than only locally. Global benchmarking ensures activities are measured against the international state of the art, reducing the risk of overstating innovation and aligning tax and accounting treatment with genuine research.

Furthermore, you must document the uncertainty and creativity criteria.

#2 How about cost allocation?
Proper cost allocation of research and development expenditures is essential. Only costs that can be directly attributed to development activities should be allocated; unrelated expenses must be excluded. Allocable items may include a proportion of rent and facility costs when development work takes place on-site, together with project-specific materials and personnel costs. By contrast, general travel expenses, legal fees, corporate overheads and other non-project-specific costs cannot be included. 

Clear documentation and a consistent, auditable allocation method are crucial to substantiate eligibility and ensure compliance.

#3 Proper documentation is key
Accurate and comprehensive documentation is essential to demonstrate that the conditions for claiming a tax credit are met. Acceptable documentation includes patents or patent applications, grants from the Innovation Fund, formal collaboration agreements with universities or recognized research partners, project plans and technical reports. 

Ensure records link activities and costs directly to eligible R&D tasks, include timelines, milestone sign offs and invoices, and are contemporaneous and auditable to support any review or claim.

#4 Set realistic expectations
Research and development costs require a realistic assessment of which projects qualify. It is often difficult to meet the evidentiary burden where a product is already on the market and activities amount to incremental improvements, or where the same product has been the subject of repeated tax credit claims over many years. Firms should document technical uncertainty, clear objectives and distinct development phases, and be prepared to demonstrate substantive novelty and measurable progress. 

Early engagement with advisers and contemporaneous records reduces risk.

#5 A successful tax credit
A successful tax credit engagement began when a client received an enquiry from the Danish tax authorities. We organised an initial meeting with the Danish tax authorities to demonstrate the company’s product and allow direct Q&A. 

Following that session, we prepared and submitted together with the client a detailed, precise technical description and the requested supporting documentation, explicitly linking costs to eligible development activities based on the meeting with the Danish tax authorities. An open dialogue, clear documentation and a compliance focused approach were key to advancing the claim and managing the review. In the end, the Danish tax authorities found that all projects met the criteria for being considered R&D.