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 obliged 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.
Danish tax legislation distinguishes between unlimited 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.
The Danish tax year for individuals runs from 1 January to 31 December.
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 income 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 income 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 income assessment always is up to date with the individuals expected income etc. So that the employer is withholding the right amount of taxes every month. Changes in the Preliminary income assessment are to be done through the individuals personal digital tax account.
The annual Danish tax assessment notice will be available each 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.
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.
For salaried individuals, the tax is withheld by the Danish employer doing the year
If the Preliminary income 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 2% pa 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 4% of the tax due will be added.
The deadline for paying taxes due to avoid the 4% penalty is 1st of July after the calendar year.
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.
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.
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 68,100/ EURO 9.120 (2020) 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.
A deduction from income tax is granted as a personal allowance to each individual. The allowance amounts to DKK 46,500/ Euro 6,225 in 2020.
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.
Taxable income is based on gross income less deductions. If the tax return covers less than a calendar year, the income is generally annualised in order to reflect the full effect of the graduated system of taxation.
The Danish tax is based on a progressive system. Income and allowances are divided into three categories:
- Personal income – eg cash salary, director’s fee, free company car and free telephone – less pension contributions.
- Capital income – eg net interest income and net capital gains.
- 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.
|Level of income||Level of taxes % *|
|< DKK 46,500/Euro 6,222||0 %|
|DKK 46,500/Euro 6,222 <
DKK 531,000/Euro 71,057
|DKK 531,000/Euro 71,057 <||52-56 %|
|*The tax rate includes Labour market contribution of 8 %|
If the individual has a personal income between DKK 46,500/Euro 6,222 and DKK 531,000/Euro 71,057, the tax rate will be between 35-42 %, depending on the precise income. The tax includes a personal income tax of 12,14 % (2020), Municipal tax of 24,95 % (average) (2020), church tax of 0,67 % (average) and labour market contribution of 8%.
Personal income exceeding DKK 531,000 plus positive net capital income in excess of DKK 45,800 (if married, DKK91,600) is taxed at a rate between 52-56 %, also depending on the exact level of personal income. The tax rate also includes personal income tax, municipal tax, church tax and labour market contribution.
The tax rates for non-residents subject to limited tax liability are similar to the tax rates mentioned above and depends on the level of personal income.
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 DKK57,200/Euro 7,654 (2020). 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. An earned income relief for expenses for e.g. allowance for extra costs of living, subscriptions to professional associations and necessary business literature is granted, if the total amount exceeds DKK 6,200/Euro 830 (2020) per year.
Furthermore, a deduction of a maximum of DKK 39,400/Euro 5,272 in 2020 in the taxable income is granted for employed individuals.
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.
Dividend income and net capital gains on shares are taxed separately and at different flat tax rates: Net share income up to DKK 55,300/ Euro 7,400 (2020) 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 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 estate tax is a flat rate of 15% of the value exceeding DKK 301,900/Euro 40,397 (2020) and is calculated based on 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.
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 67,100/Euro 8,978 (2020).
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 23,500/Euro 3,145 (2020).
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 67,100/Euro 8,980 (2020) 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.