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Global expatriate tax guide

Expatriate tax - Denmark

Denmark 120x120.png

These sections provide an overview of the tax system and planning opportunities Denmark.

Click on each of the areas below to expand for more information:

Facts and figures
Pre arrival procedures

In Denmark, there is special legislation that relates to foreign employees working temporarily in Denmark. It is, therefore, important that the expatriate’s employment contract and benefits package is structured tax efficiently before the contract is submitted to the Department of Trade and Employment in Denmark.

If a foreign individual is working for a Danish company or a Danish branch of a foreign company, the individual is obligated to apply for a personal tax number and tax card. The application can be done digitally 60 days before the employment begins. We recommend that the application is submitted as soon as possible and before the employment begins.

The employers of non-EU nationals are required to apply for a work permit prior to the employee taking up employment in Denmark.

Territoriality and residence

Danish tax legislation distinguishes between full tax-liability for resident individuals and limited tax liability for non-resident individuals. Citizenship does not affect tax liability.

Unlimited tax liable are taxable on their worldwide income. Furthermore, residents are liable to pay gift tax.

There is no wealth tax in Denmark.

Non-residents are taxed only on income deriving from sources in Denmark.

Tax year

The Danish tax year for individuals runs from 1 January to 31 December.

Tax returns and compliance

Individuals who are either unlimited tax-liable or limited tax liable to Denmark, are obliged to submit a Preliminary income assessment and a final Danish Tax return to the Danish Tax authorities.

The Preliminary tax assessment shall be submitted to the Danish Tax Authorities together with the application of the individual personal ID-number/tax number (CPR-number). The Preliminary tax assessment inform the individual about her/his expected income, tax deductions and allowances and the tax rate used by the individual’s employer to withhold tax. It is important that the Preliminary tax assessment always is up to date with the individuals expected income etc. So that the employer is withholding the correct amount of taxes every month. Changes in the Preliminary tax assessment are to be done through the individuals personal digital tax account.

The annual Danish assessment will be available the following year in March. The individual will be able to see the tax assessment by logging on to their personal tax account. The employee is obligated to file (the tax return) any changes to the tax assessment, as missing income, deductible allowance, etc.

If the individual is treaty resident abroad, arrived in Denmark doing the income year or has foreign income, the deadline for submitting the Danish tax return is no later than 1st of July.

If the individual only has Danish income and Danish information to report to the Danish Tax authorities, the deadline for submitting the Danish tax return is 1 May.

Payment of the Danish tax

For salaried individuals, the tax is withheld by the Danish employer doing the year

If the individual’s financial situation changes, the individual should change her/his preliminary tax return to pay the correct amount of tax throughout the year.

If it turns out that the Preliminary income assessment did not contain the right information throughout the income tax year, then the individual will have taxes due or excess tax.

If the preliminary tax assessment hasn’t been adjusted doing the year, interest on tax due can be avoided if paid no later than 31 December. If tax due after the end of the calendar year, at minor interest at 0.7% per month must be paid, if the tax due is paid before 1 July. If tax due after the 1 July after the calendar year a penalty of 3.8% of the tax due will be added.

The deadline for paying taxes due to avoid the 3.8% penalty is 1 July in the following calendar year.

Basis of taxation
Income from employment

Income from employment and work performed in Denmark for a Danish employer, including a Danish branch of a foreign entity are taxable in Denmark. Income includes all wages, overtime pay, bonuses, some benefits etc.

Benefit in kind

Basically, all types of salary income/remuneration, whether in cash or in-kind, are subject to income tax. For an employee, remuneration in kind may include such items as free housing, free private use of telephone, private use of company car, free home travel, etc. The tax value of such fringe benefits or remunerations in kind is based on assessed value for taxation purposes. The taxable value does not necessarily equal the corresponding cost to the employer.

Taxation of individuals

Expatriates with high salaries
Special legislation relates to foreign employees working temporarily in Denmark.

If they meet certain conditions, they may choose to be taxed at a flat rate of 27% on their gross salary income rather than being subject to the general rules of taxation of individuals (see below). The foreign employees must pay a tax-deductible labour market contribution at a rate of 8% resulting in a total tax of approx. 33% on the gross salary income:

Labour market contribution - 8%
Tax 27% of 92% - 24.84 %

Total - 32.84 %

The foreign employees must work for Danish employer’s subject to full Danish taxation or for Danish branches or permanent establishments of foreign companies which may be required to have a legal representative in Denmark.

The 27% taxation may be chosen for an aggregate period of 84 months.

The employees’ averagely monthly salaries in cash and certain fringe benefits must be at least approx. DKK 69,600/ EUR 9,355 (2021) (DKK 70,400/EUR 9,460 in 2022) after deduction of Danish social contribution (ATP bidrag).

The tax and the labour market contribution are withheld by the employers as the final settlement of the tax liability.

The salaries taxed at 27% are not declared in the tax returns of the employees.

Expenses incurred in connection with earning the salary cannot be deducted. A tax loss from another income year cannot be offset against income taxed at 27%. However, it can be offset against other income.

General rules for taxation of individuals personal allowances

A deduction from income tax is granted as a personal allowance to each individual. The allowance amounts to DKK 46,800/EUR 6,292 in 2021 (DKK 47,400/EUR 6,372 in 2022).

If a married person cannot utilize the total tax value of the allowance, the balance is transferred to the spouse. Specific rules apply to married individuals subject to limited tax liability only.

Danish tax computation

Taxable income is based on gross income less deductions. If the tax return covers less than a calendar year, the income is generally annualised to reflect the full effect of the graduated system of taxation. The income tax consists of a state income tax and a local income tax.

Danish income tax

The Danish tax is based on a progressive system. Income and allowances are divided into three categories:

  1. Personal income – eg cash salary, director’s fee, free company car and free telephone – less pension contributions.
  2. Capital income – eg net interest income and net capital gains.
  3. Share income – eg dividend, profit/loss from shares.

Deductions are either included in computing the net income of the above categories or categorized as general deductions when computing the taxable income.

Personal income tax rates
Level of income annual basis Level of taxes % *
< DKK 46,800/Euro 6,292 0% (8% labour market contribution)
DKK 46,800/Euro 6,252 <
DKK 544,800/Euro 72,932
35-42 %
DKK 544,800/Euro 72,932 < 52-56 %
*The tax rate includes Labour market contribution of 8%

If the individual has a personal income between DKK 46,800/EUR 6,292 and DKK 544,800/EEU 72,932, the tax rate will be between 35-42%, depending on the precise income.

The tax rates for non-residents subject to limited tax liability are identical to a tax of 35-42% depending on the precise income.

Deductions

Contributions to Danish social security (ATP), and to Danish pension schemes are deductible from the personal income as well as certain business expenses. However, deduction for payment to Danish pension schemes can only be made up to DKK58,500/EUR 7,831 (2021) (DKK 59,200/EUR 7.959 in 2022). Premiums to life insurances are however unlimited.

Interest expenses are deductible as negative capital income.

Certain transport expenses and alimonies are deductible from the taxable income.

Other taxes
Tax credits

Individuals subject to Danish unlimited tax liability are entitled to claim tax credits and/or tax exemption in respect of income deriving from foreign sources.

Share income tax

Dividend income and net capital gains on shares are taxed separately and at different flat tax rates: Net share income up to DKK 56,500/EUR 7,796 (2021) (DKK 57,200/Euro 7,690 in 2022) is taxed at a rate of 27% and any exceeding net share income is taxed with 42%.

Employers can offer tax-favorable employee share schemes to their employees. The tax scheme only applies if certain conditions are met and further, the employers have reporting obligations with respect hereto.

Inheritance tax

Inheritance from a deceased person, who was resident in Denmark at the time of his/her death, is subject to inheritance tax divided into two categories.

The inheritance tax is a flat rate of 15 % of the value exceeding DKK 308,800/EUR 41,517 (2021) (DKK 312,500/EUR 42,014 in 2022) and is calculated on the basis of the value of the whole estate.

An additional tax of 25% is levied on the value received by recipients, who were not closely related to the deceased. Thus, the total effective tax rate is 36.25%.

Certain amounts are exempted from the tax duty, eg inheritance and insurance amount accruing to the spouse of a deceased person.

Gift tax

Individuals, who are closely related to the donor, can receive gifts without tax, if the cumulative value of all donations for one calendar year does not exceed DKK 68,700/EUR 9,236 (2021) (DKK 69,500/EUR 9.344 in 2022).

A child’s or a stepchild’s spouse can receive gifts tax-free, if the cumulative value of all donations for one year does not exceed DKK 24,000/EUR 3,145 (2021) (DKK 24,300/EUR in 2022).

Gifts to spouses are tax-free.

The gift tax is a flat rate of 15%, and it is only imposed on the above persons, if the cumulative value of the gifts for one year exceeds the tax-free limits.

There is an additional tax on gifts to stepparents and grandparents, if the cumulative value of the gifts exceeds DKK 68,700/EUR 9,236 (2021) (DKK 69,500/EUR 9,344 in 2022) for one year. The additional tax is calculated at a flat rate of 25%, resulting in a total effective tax rate of 36.25%.

Gifts to other relatives or unrelated parties are treated as ordinary taxable income.

For further information on expatriate tax services in Denmark please contact:

Lærke Hesselholt
E
laerke.hesselholt@dk.gt.com

Jenny Maria Fosaa Syderbø
E jenny.syderboe@dk.gt.com