DENMARK GUIDE

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Global expansion is a step to make for any business, regardless of what you wish to achieve. The opportunities that can come with an expansion can be both incredibly exciting as well as intimidating and confusing, especially when you consider all of the registration procedures that needs to be done and documentation required.

Expanding to countries such as Denmark – which is characterized by a highly motivated and productive workforce, flexible employment laws, strict tax laws, a resilient infrastructure network with leading sectors in agriculture, energy, tourism, and transport – can bring both excitement to the possibilities, but also significant stress to ensuring the entity with the country’s rigorous legal structures and laws.

Ensuring compliance without the sufficient knowledge of the country’s laws also adds to the stress of getting your new entity off the ground and ready to test new markets. Going at it without the proper support can increase the costs, time and risks involved.

Each new markets bring new challenges, and these can be worked through more efficiently and cost-effectively with the support of an International Professional Employer Organization (PEO) such as Bradford Jacobs, especially through our Employer of Record (EOR) framework. This can be best utilized when businesses are just beginning their expansion process and require more information before committing to incorporating an entity and fully establishing themselves in that market.

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Denmark – The Economy

Denmark’s economy is a modern mixed economy which is characterized with comfortable living standards, high degrees of government services and transfers, and a high dependence on foreign trade. Denmark is also a small open economy, with both its exports and imports making up around 50% of the GDP.

The country’s nominal gross national income per capita is the seventh highest in the world, registering at around $58,400 in 2020. In purchasing power, the country is the tenth highest in the world. Denmark has the 36th largest national economy in the world in terms of gross domestic product (GDP), as well as the 51st largest in the world in terms of purchasing power parity (PPP).

Denmark is a main gateway to European talent for companies expanding abroad and serves as a magnet for business ventures from all over the world. A large proportion of Denmark’s population is active in the labor force, with 78.8% of the 15-64 age group being active. The unemployment rate is also relatively low, in comparison with other European countries.

The labor market is also characterized by a high degree of union membership rates and collective agreement coverage – with active labor markets and ‘flexicurity’ taking being prominent in its efficiency.

Denmark’s strongest sectors include agriculture, services, energy, manufacturing, and digital infrastructure. Denmark is nation of digital frontrunners, ranked by the European Commission as an innovation leader. The country also boasts one of the world’s highest digital penetration rates, with over 75% of the population able to access the internet seamlessly.

Denmark has strong international ties – it is a founding member of NATO, the Nordic Council, the OECD, OSCE, and the United Nations, as is also part of the Schengen Area.

Geographically, Denmark is ideally placed in the European continent, with links to both mainland Europe and Scandinavia, and benefits from a state-of-the-art logistics and communications networks with the fastest and smoothest access to Europe.

This includes next-day deliveries to around 65% of Europe’s heartland, which has more than 500 million consumers, is home to leading logistics service providers such as Maersk and DSV and boasts a world-class digital infrastructure. The Copenhagen Airport is continuously rated as the most efficient in Europe, and their strong shipping system consists of 25 ports, with frequent international shipments.

The country’s economy is also an example of the Nordic model, which is characterized by high tax levels, high levels of government-provided services, as well as world-renowned digital services.

Small and Medium-Sized Companies

Small and Medium-Sized Businesses (SMEs) have a significant role to play in Denmark’s economy. In 2018, it was estimated that there were approximately 227,000 SMEs, which constituted around 99.7% of the country’s economy.

Denmark’s SMES generate about 60.8% of overall value added, which is above the EU average of 56.4%.

These companies also provide around 64% of the Denmark’s jobs, employing an average of 5.1 people, which is over the EU average of 3.9 people. The average SME productivity, or the value added per person, is €79,200.

CountryDenmark
CapitalCopenhagen
No. of States/Provinces5 regions, split into 11 provinces
Principal CitiesCopenhagen, Aarhus, Odense, Aalborg, Frederiksburg, Esbjerg, Randers, Kolding, Vejle, Horsens
Language(s)Danish (German, for certain regions)
Local CurrencyDanish Krone (DKK)
Major ReligionChristianity
Date Formatyyyy-mm-dd
Time ZoneCentral European Standard Time (GMT +1)
Country Dial Code+ 45
Population5,823,516
Border CountriesGermany, Norway, Sweden, Poland, Netherlands
Tax Year1st January – 31st December
VAT %25%
Minimum WageNo national minimum wage; but approximately earn DKK 17, 000 per month ($2,647) or DKK 204,000 per year ($31,766) – gross pay.
Taxpayer Identification NumbersDanish Tax Number [ID Number] (CPR)
Danish Tax Number [Corporations] (CVR)
Danish Social Security Number (CPR)
Leading Sectorsagriculture, energy, wind turbines, shipbuilding and refurbishment, chemicals, food processing, textiles and clothing, electronics, wood products, construction, machinery and transportation equipment, steel, and medical equipment
Main importsCars, refined petroleum, packaged medicaments, crude petroleum, broadcasting equipment
Main exportsPackaged medicaments, electric generating sets, pig meat, refined petroleum, blood, antisera, vaccines, toxins, and cultures
Main trading partnersGermany, United States, Sweden, United Kingdom, Norway, Netherlands, and China
Government TypeUnitary parliamentary constitutional monarchy
Current Prime MinisterMette Frederiksen

The Main Sectors of the Danish Economy

The country focuses on the following key sectors, which all have a significant impact on the country’s economy:

  1. Agriculture – This sector accounts for about 1.6% of Denmark’s total output/

    More than 60% of Denmark’s land is used for agricultural purposes, which allows the country to produce two time more than its national food requirements. Denmark produces a variety of food products for both domestic and exports, which include vegetables, seeds, grass, milk, meat, and other organic products.  

    There are approximately 33,000 farms, with about 10,000 being owned by full-time farmers. Agriculture also accounts for more than 20% of the total commodity exports for Denmark.

    The sector employs about 62,000 people for agriculture and horticulture, and another 2,000 for fishing.
     
  2. Energy – this sector is diverse and plays an important role in the country’s economy. Coal power covers about 21% of the country’s total energy needs, crude oil approximately 33%, and natural gas about 18%.  

    However, a good percentage of the country’s energy demand (approximately 27%) comes from renewable sources, including biomass solar energy, wind power, nuclear power, and geothermal energy.

    Denmark derives around 3.1% of its GDP from renewable energy technology and efficiency, which comes to around $9.4 billion.
  3. Tourism – This sector contributes around $125 billion of revenue in the country’s economy and employs around 79.9% of the country’s workforce. Denmark has a world-renowned reputation as one of the top travel destinations in the world, with a number of tourist attractions enticing millions of visitors to the country per year.
  4. Transportation – Denmark has made major investments in this sector, developing a modern transport network of motorways and railways. The country’s infrastructure can be described as resilient and flexible, with next-day delivery to over 500 million consumers.

    It has 3 major airports, which serves more than 33 million passengers per year. The country also has a number of ports, which handles around 50 million passengers per year, as well as more than 100 million tons of freight per year.

    Exports of goods and services account for around 54% of the country’s GDP and employs over 600,000 people.
  5. Manufacturing – The total output of manufacturing industries amounts to about 14,4% of the GDP and employs about 325,000 people with amounts to about 12% of the workforce, according to 2016-2017 statistics.

    The main sub-industries are the manufacturing of pharmaceuticals, machinery, and food products.

Compliance Highlights

  • The Danish Tax Agency – an agency under the Ministry of Taxation, which helps ensure the collection of taxes, provide a steady flow of revenue to the public sector, and provide a solid tax rules and policies to ensure the efficiency of the tax administration system.
  • The Danish Working Environment Authority – ensures that the occupational safety and health of employees in Denmark. This is done through work inspections, providing information to both employers and employees on this subject, as well as creating the rules and policies on health and safety at work.
  • The Danish Agency for Labor Market & Recruitment – this agency is responsible for implementing and following up on employment policy in Denmark, which includes recruitment of foreign labor. This agency also supports the Minister of Employment in policy formulation, legislation, and relations to the Danish Parliament.

Labor Contracts Law

In Denmark, employees working for more than eight hours in a week and having been employed for more than one month, are entitled to receive a written employment contract, containing all essential elements and conditions of the role. This must be issued within one month of the date of work starting.

In addition, most businesses provide an employee manual, or display documents in the workplace detailing internal guidelines and rules on health, safety, and other areas. These are not usually mandatory; however, it is mandatory to have a non-smoking policy and a policy on e-cigarettes.

Indefinite, Open-ended Employment Contracts: The most common type of contract. If no other arrangement has been agreed, the contract is deemed to be indefinite. Either party can terminate the contract, but must abide by contracted terms of notice, severance agreements if applicable and any collective agreements.

Fixed-term Employment Contracts: These can be for a specific period, generally without a limit, or project, but can only be renewed more than once for a justified reason. These could include absence of another employee due to illness, pregnancy etc.

The Danish Employment Contract Act applies mandatory requirements to a contract. These include:

  • Full details of names and addresses of employer and employee; workplace location or primary location if more than one operating base
  • Job description, including employee’s title
  • Employment start date and duration, if not an open-ended contract, and terms of notice
  • Salary, payment schedule, any allowances or pension contributions
  • Working hours each week and any paid vacation entitlements
  • Identifying any collective agreements which affect the employment terms
  • Any proposed substantial changes to the contract must be provided to the employee on a timescale equal to their notice period, giving them the opportunity to agree or terminate the agreement

Collective Bargaining Agreements: 

There is a tradition of collective and trade union agreements in the Danish employment market, although there is no legal requirement for Danish or foreign companies to enter into them. However, close to 80% of the private sector is subject to them, while collective and trade union agreements cover most of the public sector.

Agreements cover the rights and obligations of workers and employers, for example dealing with working hours, pay and overtime, the working environment and resolving disputes. They are largely governed by guidelines developed between the Danish Employers Confederation and the Danish Federation of Trade Unions.

Payroll – Tax Contributions and Benefits

Income Tax – Tax liability is based on residency rules and individuals can be either resident or a non-resident for tax purposes.

Individuals who stay in Denmark for six consecutive months, including short breaks out of the county for holidays or trips, are tax residents. They are taxed on worldwide income. Non-residents are taxed on Danish-sourced income. Payments received from entities outside Denmark are taxable if the recipient stays in-country for more than 183 days in a 12-month period.

Employment income is classed as personal income, with interest payments classified as investment income.

The individual tax for residents is as follows:

Social Taxes – Social Insurance:  Employees contribute DKK 1,135.80 (€152, US$177) each year towards the social security fund (ATP); employers contribute around DKK 13,000 (€1,748, US$2,026) per employee each year to the ATP social security fund, maternity, and industrial injury funds plus other schemes.

These can be carried over to the following year or worked for pay in lieu. Vacation days accrued in the ‘holiday year’, which runs from September 1 until 31 August, can be taken up to December 31 of the following year.

Employees have 2.08 days of paid vacation for each employment month in the holiday year. Non-qualifying workers receive a holiday allowance of 12.5% of their pay.

Sick Leave: The employment contract should detail what entitlement an employee is due when ill. If not, the employers typically pay full salary for 30 days from the first day of illness but will require a doctor’s certificate. Subsequently, benefit is paid by the relevant municipality subject to certain restrictions:

  • The employee must have worked minimum 240 hours in previous six months and at least 40 hours per month for five of the months
  • The employee would have qualified for unemployment benefit if not taking sick leave
  • Benefits are generally restricted to a total of 22 weeks

Benefit is calculated on weekly hours worked and average hourly pay over previous three months. The maximum benefit is DKK 4,460 (€600, US$696) divided by 37 (hours) for a maximum of DKK 120 (€16, US$18) per hour.

Maternity / Paternity / Parental Leave: Parents receive 52 weeks paid leave in total which is made up of maternity and parental leave and benefit. There are four stages of leave and benefit due:

  1. Four weeks pre-natal are taken by the mother
  2. 14 weeks post-natal taken by the mother
  3. Father/co-parent can also take two weeks after the baby is born or during the first 14 weeks post-natal, which will be agreed by the employer
  4. Remaining 32 weeks benefit can be shared by the parents

If the employee is entitled to ‘paid leave’ then maternity and parental benefits are paid by the employer. This can then be re-imbursed to the employer when they report the leave.  If they take unpaid leave’, then the parents are entitled to apply for the benefit.

The employer notifies Udbetaling Danmark (UD) online so maternity / paternity and parental benefits can be applied for, but only if the employee is not receiving a salary. The maximum benefit paid (2021) is DKK 4,460 (€600, US$696) per week (before tax) which is an hourly rate of approximately DKK 120 (US$19). Benefits depend on the employment contract or collective agreements in force.

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