Tax Laws and Regulations
Global expansion is a great way to grow your business and Denmark offers many appealing opportunities. However, the tax laws can be complex and require time-consuming research. With over 20 years’ experience in the front rank of international payroll providers, Bradford Jacobs ensures our clients comply with every level of tax and employment law across the globe. Our knowledge is vital for foreign companies expanding into Denmark. By using our PEO-service, we will take care of the complicated legwork so that you can focus on your business goals.
We have made it our goal to keep track of the latest changes in the tax policies to always ensure complete compliance. To keep you informed and updated too, we created this guide which includes the basic facts regarding tax regulations in Denmark.
Overview of Denmark
* Although a member of the European Union, Denmark is not in the European Monetary Union ‘Eurozone’ and has the Krone, DKK, as its currency
Individual Income Tax: 8.0%, 38.9%, 56.5% (Applies to residents and non-residents; Three bands from DKK 50,542 (€6,796, US$8,097 to above DKK 577,174 (€77,617, US$92,260) for the highest band
Social Insurance Taxes:
- Annual employee contribution to Danish Labor Market Supplementary Fund (ATP) – DKK 1,135.80 (€152, US$177)
- Annual employer contributions – ATP DKK 2,271.60 (€305, US$354); Maternity fund DKK 1,150 (€154, US$180); Industrial injuries insurance (estimate) DKK 5,000 (€672, US$780); Extra public social security funds (part estimate) DKK 5,300 (€712, US$826)
Corporate Income Tax (CIT): 22%
Capital Gains Tax: 22% (generally included as corporate taxable income)
Withholding Tax: 27% (applied to dividends paid to non-resident companies)
Indirect Taxes: 25% (Value Added Tax on goods and services)
- Municipal Tax, average depending on municipality – 25%
- Labor Market Tax (percentage on personal income) – 8%
- Share Tax: Up to DKK 56,500 (€7,593, US$8,800) – 27%; Excess over DKK 56,500 – 42%
Denmark Individual Tax – Single, Married
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 or capital income. Taxable Income for residents in Denmark are progressive, and divided into the following bands:
- 0 – DKK 50,542 (€6,796 or US$8,097): 8.0%
- DKK 50,543 – DKK 577,174 (€77,617 or US$92,260): 38.9%
- DKK 577,174 & above: 56.5%
The complex Danish tax rates include voluntary Church Tax (Dutch State Church, Lutheran), averaging 0.67% based on average municipal tax, and also take account of various categories of income. Local tax rates average 24.95%. There are no joint tax returns in Denmark; married couples must file independently.
Special Expatriate Income Tax Scheme:
- A flat rate of 27% of salary applies for up to 84 months. In 2021 the minimum monthly salary for such highly qualified expats is DKK 69,600 (€9,354, US$10,850). After 84 months the individual is taxed at usual rates.
Employee Social Insurance Taxes:
- All employees make an annual contribution of DKK 1,135.80 (€152, US$177) into the Danish Labor Market Supplementary Fund (ATP).
Denmark Individual Tax Rules
Danish residents are taxed on worldwide income. Categories of taxation include:
- personal – which consists of employment, business, and pension income
- capital – which consists of interest, capital gains, property, and dividends income
- taxable – the total of personal and capital income less deductions
The tax year runs from January 1 to December 31. Tax returns are due by May 1 but can be extended to July 1, in which case the Danish Tax Customs and Tax Administration (SKAT) must be informed. Outstanding tax is charged at 4% interest and added to the next income year. Married couples must file returns independently Foreign workers in Denmark can choose a 27% flat rate on some categories of remuneration or benefits such as taxable company car, health insurance for example. High-earning expats can pay a reduced rate of 27% on taxable income for up to seven years.
Value Added Tax (VAT) is set at 25% on goods and services. Zero-rated categories include such as newspapers, medical treatments, and insurance.
Denmark Employers’ Social Security and Statutory Contributions
Social Insurance: All Danish employers must pay into Danish Labor Market Supplementary Fund (ATP). They contribute DKK 2,271.60 (€305, US$354) into the ATP; DKK 1,150 (€154, US$180) into the maternity fund and an average of DKK 5,000 (€672, US$780) into the industrial injuries fund. Additionally, an average of DKK 5,300 (€712, US$826) is paid into a variety of other public social security funds. Other statutory employer costs include the National Minimum Wage. Denmark does not have a mandatory national minimum wage, with rates negotiated between employer associations, trade unions and Collective Bargaining Agreements (CBAs). The monthly average minimum in 2021 is around DKK 40,600 (€5,456, US$6,350)
Denmark Corporate Taxes
Corporate Income Tax (CIT): The rate is 22%, below the average for members of the Organization for Economic Cooperation and Development (OECD). Danish companies are taxed on worldwide profits, excluding any from Permanent Establishments (PEs) based abroad or foreign property. Foreign companies based in Denmark are taxed on their locally sourced profits. Returns should be filed no later than six months after the end of the fiscal year and by September 1 at the latest. Where their tax year ends between January 1 and March 31, returns must be filed that same year.
Withholding Tax (WHT): Dividends paid to non-resident companies are subject to 27% withholding tax, though this is reduced to 15% by any applicable tax treaties. Non-Danish companies subject to the Parent-Subsidiary Directive can be exempt.
Capital Gains Tax: Generally included in corporate taxable income at 22%
Corporate Deductions and Capital Allowances:
Annual depreciation on machinery and equipment may be claimed at 25%, with depreciation on office buildings at 4% per year. Other rates apply to distinct categories. There are no specific regulations covering start-up expenses, which come under general tax law, unless costs are related to research and development. Bad debt can be deductible, but not for intra-company losses. Charitable donations are deductible up to a maximum DKK 17,000 (€2,284, US$2,650) per tax year as of 2021.
Avoid risks – make the right move
Denmark’s tax regulations demand expert advice for incoming foreign companies. Businesses cannot risk stumbling into mistakes over payroll and taxation, with the chance of fines and sanctions. Interested in learning more about how we can help you with your payroll and tax issues?