Expatriate tax ebook - Denmark

Basis of taxation

Charge to tax
Residence
Income from employment
Source of employment
Benefits (in kind)
Expatriate concessions
Relief for foreign taxes
Deductions against income

Charge to tax
An individual Danish resident is liable to pay taxes in Denmark based on his/her worldwide income.
A non resident is likely to be taxed in Denmark, despite the treaty exemption, if the OECD hiring out of labour conditions are met.

Residence
An individual will be considered a Danish resident for tax purposes if:

 

• The individual has a permanent residence in Denmark.
• The individual is present in Denmark during any six-month period (short stays abroad for holidays, etc. are disregarded). The tax liability will apply from the first day of the six-month period.
  

Nonresident individuals are subject to national income tax and an average county and municipal income tax (currently 32.00%) on Danish sourced income (limited tax liability).

Income from employment
In Denmark, the employer is obliged to withhold tax on any salaries, car benefits, bonuses and all other cash payments.
Contributions to Danish pension funds are deductible under certain conditions if paid by the employee. Pension fund contributions paid directly from the employer are not subject to taxation.

Source of employment
Salary paid for services performed in Denmark will usually be regarded as limited tax liable income if performed for a Danish employer. It is the actual work performed that is important and not the place where the contract has been signed.

Benefits (in kind)
The main rule is that benefits are subject to tax. It is the expatriate who is liable to pay tax on benefits. Some benefits, such as free PC and internet access, are tax exempt if certain conditions are met.

Expatriate concessions
Under certain conditions, foreign executives (key employees) working in Denmark for limited periods may qualify for a flat 25% income tax liability on their earnings. This 25% tax scheme is an optional tax that the executive may choose instead of the normal Danish progressive taxation of personal income. The 25% tax scheme can only apply for three years, the 33% tax scheme can apply for five years. The tax is calculated on the gross salary after social contributions have been deducted. No further deductions are granted. In brief, the conditions are:

 

• the foreign executive must have a Danish employer
• the foreign executive must become fully tax liable to Denmark in connection with the commencement of the employment.
• three years prior to the employment, the foreign executive must not have been fully or limited tax liable to Denmark with respect to salaries earned in Denmark.
• five years prior to the employment, the foreign executive must not have participated directly or indirectly in the management or control of the company, nor contributed capital to the company in which the foreign executive is to be employed.
• The executive’s salary must not total less than DKK 61,700 per month after deduction of social security contributions.
• The executive must not have been stationed from Denmark by the enterprise in which he is to be employed or have been employed by a foreign group related company in the first three years of the tax discontinuation.

Relief for foreign taxes
Denmark has signed agreements with a large number of countries to alleviate double taxation of income including remuneration. Some treaties also provide relief for pensions contributions.

Deductions against income
In Denmark, deductions in taxable income are granted if the expenses are held to gain, secure and maintain the income. In addition to this there are special rules regarding a number of deductions. Paid interest is fully deductible in income which is subject to the local taxes, but not in income subject to state tax. The average value of the deduction is 33.7% including church tax. In general, expenses related to salary income are only deductible for the amount that exceeds DKK 5,400 in total. Some expenses, i.e. transport, trade union contributions and unemployment insurance premiums are not reduced by the DKK 5,400. Under certain conditions, individuals only limited tax liable to Denmark may be treated as fully tax liable individuals and be granted the same deductions as fully tax liable individuals.

Information about Denmark:

introduction

facts and figures

basis of taxation

what taxes?

tax planning opportunities