PMV vs. Sole proprietorship

Understanding PMV and sole proprietorship

Both a PMV and a sole proprietorship are two different business forms, although they are both characterized by being personally owned. This means that they can only have one owner, and that the owner alone has control over the business's operations, liabilities, and debts.

What is a PMV?

A personally owned small business, also called a PMV, is the smallest form of business in Denmark. It is particularly suitable for freelancers who run a part-time, leisure or hobby business with a view to making a profit.

A PMV is characterized by the following:

• Turnover under DKK 50,000 in the current calendar year
• Only one owner
• No employees
• Not subject to VAT or payroll tax
• No trade in goods outside the EU
• The registration must be renewed every 3 years.

What is a sole proprietorship?

A sole proprietorship also has only one owner. This form of business is characterized by the fact that it has no turnover limit, and is therefore generally subject to VAT. This means that a sole proprietorship can freely generate a turnover of more than DKK 50,000 in a 12-month period.

A sole proprietorship is characterized by the following:

• Turnover over DKK 50,000 is possible
• Only one owner
• Would like to have employees
• No turnover limit
• Must be VAT registered if turnover exceeds DKK 50,000 in 12 months
• Personal liability

Alternative to own business

If you find the different business forms and accounting to be difficult to navigate, Factofly offers a simpler solution.

Regardless of whether you are CVR registered or not, with Factofly you can avoid the hassle of invoicing, administration and paperwork. That way you no longer have to worry about accounting or setting up a business.

With Factofly, we handle the invoicing of your customers through our CVR number, and all you have to do is enter a few details. Factofly then takes care of invoicing, tax and VAT accounting, and instead pays your money as salary after tax directly to your account. You can read more about Factofly's services here.

How to close your business and switch to Factofly

Maybe you already have a business but want to switch to Factofly? Then it's easy and simple to close your business and register with Factofly instead.

How to close your sole proprietorship or sole proprietorship:

1. Unsubscribe from the company – Go to Virk.dk and specify an end date. This will result in deregistration of registrations such as VAT and A-skat.
2. Exit VAT – Report and pay VAT up to the end date. If there is no activity, you must report zero. Depending on the goods and operating assets, VAT must be calculated differently.
3. Update the advance statement – After closing, you must update your advance statement for correct tax payment.
4. Tax accounting and information form – Prepare the tax accounts for the closing year. Correct the annual statement/information form no later than 1 July of the year following closure.
5. Save documents – Remember to keep accounts and relevant documents for at least 5 years after the company ceases to exist.

After this, your business will be closed.

💡 Even if you still have an active CVR number, you can still use Factofly alongside it. When you use Factofly to invoice your customers, you do so as a private individual – and not as a business owner.

• Create a user profile on Factofly: You can quickly and easily register as a user on Factofly. It doesn't cost anything until you use our services.

• Fill out your profile: Fill out your profile with the relevant information and enter the information for your first invoice. Then you're ready to go.

PMV vs. Sole proprietorship

The legal and tax aspects of a PMV and a sole proprietorship are different, and they both have their own advantages and disadvantages. 

Both a PMV and a sole proprietorship are personally owned business types, but when choosing between a Personally Owned Small Business (PMV) and a sole proprietorship, there are several important differences to consider:

Turnover limit:

• PMV: Max. DKK 50,000 in 12 months.
• Sole proprietorship: No limit.

Opportunity for employees:

• PMV: No employees.
• Sole proprietorship: Employees allowed.

VAT liability:

• PMV: No VAT liability.
• Sole proprietorship: VAT liability over DKK 50,000 in 12 months.

VAT accounting:

• PMV: No VAT accounting.
• Sole proprietorship: VAT accounting upon VAT registration.

Payroll tax:

• PMV: No payroll tax.
• Sole proprietorship: Possible payroll tax.

CVR registration:

• PMV: CVR is renewed every three years.
• Sole proprietorship: CVR required.

Import and export outside the EU:

• PMV: Not allowed.
• Sole proprietorship: Allowed.

When considering starting your own business, it is crucial to understand the advantages and disadvantages of both a PMV and sole proprietorship so that you can choose the business form that best suits your business. 

Below you can read more about the advantages and disadvantages of the two forms:

Advantages and disadvantages of a PMV

Advantages:

• Free to set up – no start-up capital required
• Few accounting requirements and relatively easy CVR registration
• No VAT liability and therefore you do not have to report VAT

Disadvantages:

• The turnover must not exceed DKK 50,000. 
• No VAT liability and therefore no VAT deduction that you can deduct from your purchase VAT
• You must not have employees
• Personal liability with own assets

Advantages and disadvantages of a sole proprietorship

Advantages:

• Free to set up – no start-up capital required
• You may want to have employees.
• No limit on turnover

Disadvantages:

• Personal liability with own assets
• VAT reporting requirement (for turnover of more than DKK 50,000 in 12 months)
• Greater requirements for accounting and bookkeeping

Which business structure should I choose?

It is important to choose a business form that suits the ambitions of your business. If you already know that your goal is to turn over more than DKK 50,000 in 12 months, it would be obvious to choose a sole proprietorship. If, on the other hand, your business is a side or hobby project, a PMV would be the obvious and easy choice.

Choosing the right business structure depends on your business goals and finances. A PMV is suitable for part-time freelancers, while a sole proprietorship is better for those with ambitions to grow their business.

If you are in doubt and are instead looking for a solution that continuously adapts to the development of your business, you can choose Factofly instead. This way, you get help with administration and accounting, while not having to create a CVR number – regardless of how your freelance business develops in the future.

Considerations when changing the form of business

Changing the form of your business is an important decision to make. This choice defines the rules that apply to your business. The change from a sole proprietorship to a sole proprietorship typically involves VAT registration if your turnover exceeds DKK 50,000 in 12 months. 

To change your PMV to a sole proprietorship, you simply need to:

1. Go to the Danish Business Authority website: Go to Virk.dk and log in with your NemID.
2. Start the conversion: At Virk.dk you can begin the process of changing your company form.
3. Answer questions: Fill in the necessary information about the change.
4. Complete the process: Once the change is confirmed, your business is now a sole proprietorship without the previous PMV restrictions.

When switching from a PMV to a sole proprietorship, it is important that you read up on the rules that apply to your new business form.

For example, if you are VAT registered, as most sole proprietorships are, you must remember to report your VAT accounts every quarter – this also applies if you have no VAT to report, in which case you must report zero.

Future considerations for independent freelancers

Life as an independent freelancer is exciting, but can be challenging and demanding at times. As a registered company, it is incredibly important to stay up to date with changes in the legislation for the business form you have chosen – whether it is a PMV or sole proprietorship. It is your own responsibility to be familiar with the applicable legislation and to always comply with laws and guidelines in the area.

The best place to stay up to date on current legislation is at The Danish Business Authority's website, where you will find both the legislation for PMV and sole proprietorships.

If you are considering changing your business form, it may be a good idea to consult a business advisory expert to ensure that you choose the right business form and that the change to the new business form is made correctly. 

💡 If you instead want a solution for your business that is flexible and continuously follows your company's growth without the need for a change in company form or CVR registration, the competent advisors at Factofly ready to help you with an invoicing solution.

Frequently asked questions about PMV and business form as a freelancer