How Do I Withdraw Money From My Sole Proprietorship?

Unlike an ApS or A/S, there's no legal distinction in a sole proprietorship between your personal finances and the business's. The profit is generally yours, and the entire profit is taxed as personal income in the year it's earned — regardless of whether you actually withdraw the money or leave it in the business.

Standard taxation: the entire profit is taxed immediately

If you don't use the Danish business tax scheme, the entire year's profit is taxed as personal income, no matter how much you actually withdraw for yourself. This is the simplest model, but also the one where you pay the highest marginal tax on the whole profit immediately.

The business tax scheme: taxed based on what you withdraw

If you instead use the business tax scheme (virksomhedsskatteordningen), only what you actually withdraw for personal use is taxed as personal income. The portion of the profit you leave in the business ("retained profit") is instead provisionally taxed at a lower rate matching the corporate tax rate. This lets you smooth taxation over several years and build up capital for, say, investments in the business — but it requires you to follow a fixed withdrawal order when you take money out.

What does this mean when you later sell?

Here's a detail many overlook: if you've built up retained profit under the business tax scheme, that retained profit is taxed when you sell or close the business — regardless of whether you actually withdraw the money at that point. This can create a significant tax bill in the year the business is sold, and should always be factored into your price expectations, well before you list the business for sale.

What should you consider?

• Are you building up a large balance under the business tax scheme while also planning to sell within a few years? Then you should work through the consequences well in advance.
• Consider whether it makes sense for your business to convert to an ApS ahead of a sale — among other things, this can open up a holding structure, but has its own tax and practical consequences that need investigating.

See the full overview of the tax rules in our guide on tax when selling a business, or book a call under Advisory & Mediation if you'd like help planning the sale of a personally owned business.