Taxes in Denmark
Taxes in Denmark are very high, but at the same time progressive, i.e. the amount of the tax threshold depends on the income of legal and natural entities. Among other things, pension and insurance contributions, alimony, food costs and transport from home to work can be deducted from Danish taxes, and the Danish Tax Authority (SKAT) has seven years to audit whether the expenses in question are correct.
What do you need to know about taxes in Denmark?
- The income tax percentage rates for 2019 are:
- 8% for income below DKK 50 217,
- 39.2% for income between DKK 50,217 and DKK 558,043,
- 56.5% for income higher than DKK 558,043.
- The laws relating to Danish income tax are:
- Personskatteloven, or the Personal Income Tax Act,
- Skattekontrolloven, or the Tax Control Act,
- Kildeskatteloven, or the Withholding Tax Act,
- Ligningsloven, or the Tax Assessment Act.
- Danish income tax consists of state tax, city tax, health insurance contributions (sundhedsbidrag) and contributions to the labour market (arbejdmarkedsbidrag, or AM-bidrag).
- Denmark has a voluntary church tax of 0.92% on average.
- The mobile municipality tax in Denmark is paid to the regional government and averages 24.92%.
- Registration has to be made with the regional Customs and Taxation Office through the Enterprise and Trade Agency.
- Tax on income from shares is 27% (DKK 0 to 54,000) or 42% (over DKK 54,000).
- There is a 22 per cent corporation tax – CIT – on setting up and operating a company in Denmark, but when the company’s 12-month turnover exceeds DKK 50,000, it becomes liable for 25 per cent VAT.
- Exported goods and services have a VAT rate of 0 per cent, i.e. no VAT is charged on their sale, but the recipient can deduct VAT on their purchase.
- The tax year in Denmark is the calendar year, i.e. income for the previous calendar year (or any other year, but always 12 months) is taxed.
- Employees of Danish companies are subject to full or limited tax liability (begrænset skattepligt), the latter applying to those who have a fixed-term contract and Danish employees who live outside Denmark.
- There is a three-year time limit for compulsory settlement with the Danish tax authority, SKAT.
- In Denmark in 2019, the tax-free amount was DKK 46,630 (persons whose annual Danish income was lower than this amount are exempt from paying income tax).
- In Denmark, the tax return must be submitted via the website up to six months after the end of the tax year (calendar year or other, but 12 months). If the tax year ends between 1 February and 31 March, the tax return should be submitted by 1 August and tax paid on 20 March and 20 November.
The Danish tax system consists of direct taxes:
- church tax(kirkeskat);
- city tax (kommuneskat);
- pension contributions (ATM);
- employee contributions;
- health insurance contributions (sundhedsbidrag);
- land tax (real estate tax). Ejendomsværdiskat is a Danish state tax on the value of real estate, covering real estate regardless of where it is located. All residents of Denmark are obliged to pay this tax. Poles who are Danish residents must also pay this tax on their real estate that is located in Poland (rate of 1% per year – real estate worth less than DKK 3.04 million; rate of 3% per year – real estate worth more than DKK 3.04 million;
- tax on the value of real estate that has been assessed during the public valuation;
- tax on the hiring of foreign labour to work in Denmark (according to Act No. 921 of 19 September 2012, now Act No. 117 of 29 January 2016, a Danish company employing foreign labour is obliged to pay a 38 per cent tax to the Danish Tax Administration – net 35.6 per cent, including an 8 per cent contribution to the Danish Employment Fund and a 30 per cent tax on the hiring of labour);
- tax, which is deducted from the source of income in individuals and corporations;
- tax that is not deducted from the source of income;
and indirect taxes:
- customs duties;
- environmental taxes;
- excise duties (punktafgift);
- VAT (moms).
The Danish tax system is quite complex, so before you set up your own business in Denmark or employ a Danish company, it is worthwhile to familiarize yourself with the regulations, rates, documents and deadlines for all taxes applicable in the Kingdom of Denmark.
Taxes from the company side
Danish taxes apply to everyone who lives and earns in Denmark, whether unemployed people receiving benefits from a-kasse (arbejdsløshedskasse), pensioners, students receiving state grants, people who work outside Denmark or have foreign income, or entrepreneurs who run their own companies (sole proprietorship – Enkeltmandsvirksmhed, Aktieselskab – A/S, Interesselskab – I/S, Anpartsselskab – ApS, Kommanditselskab – K/S, a branch of a foreign company Filial af udenlandsk selskab, a representative office of a foreign company Salgskontor or cooperative associations Andelsforening/Brugsforening).
SKAT, the Danish Tax Authority, recognizes income from self-employment as income for the business owner, so business tax is declared on one tax return, and the business owner, who pays taxes and contributions, is entitled to pension and health benefits like those for employed persons in Denmark.
If you set up and run a company in Denmark, there is a corporate tax – 22 per cent CIT. If a Danish company’s annual turnover exceeds DKK 50,000, it becomes subject to 25 per cent VAT.
All Danish companies – from associations and cooperative unions to limited liability companies, joint-stock companies and branches of foreign companies that are based in the Kingdom of Denmark – are required to settle income tax on their total income (including income from property and capital) up to six months after the end of the tax year.
What is worth knowing about the Danish corporate tax system?
- Corporate income tax is 22%.
- Non-resident companies only account for the 22 per cent tax on Danish profits.
- Capital gains that are included in the Danish company’s income are also taxed at 22 per cent.
- If a Danish shareholder sells company shares, group shares, unlisted portfolio shares or shares in subsidiaries, the capital gain from such a sale is not taxed.
- The entire capital gain from listed portfolio shares is taxed at 22 per cent.
- If a foreign shareholder sells its Danish shares, the capital gain from such a sale is not subject to Danish taxation.
- All Danish companies are required to pay environmental taxes to companies that provide energy, and these companies settle with the Danish Tax Authority.
- Income from the Danish head office is settled together with income from foreign subsidiaries (however, income from a foreign subsidiary of a Danish company may be exempted from paying taxes in Denmark).
The Danish value added tax VAT (MOMS) is uniform at 25%. It applies to all goods and services except those that are exempt from paying this tax, such as:
- travel agency services,
- funeral services,
- social benefits,
- medical care,
- financial operations,
- arts and culture,
- charitable activities,
- real estate,
- passenger transport,
- postal charges.
What else should you know about VAT?
- All Danish companies with an annual turnover of more than DKK 50,000 are subject to VAT.
- The VAT rate is 25%.
- The Danish VAT rate of 25% applies to agricultural products, industrial products and almost all services.
- The tax rate for services such as the sale or rental of real estate (with energy, water and gas supply), medical care, education, banking, insurance transactions and cultural activities is 0%.
- Foreign employees who are employed in Denmark for a period of between three months and three years and have minimum earnings of DKK 47,500 are subject to a 25 per cent flat tax, which is increased by a 9 per cent contribution to the Danish labour market.
- A uniform 25 per cent VAT is paid by any company selling services or goods in Denmark. This is a value-added tax, which is added to the price of services and goods that are sold by the company.
- The owner of a business in Denmark has eight days to register the business as a VAT payer (before starting to supply goods and services).
- A Danish business can be declared as a VAT payer through the website of the Register of Foreign Suppliers (RUT, virk.dk).
- The reverse-charge procedure is that foreign companies that wish to sell goods and services to Danish businesses do not have to charge Danish VAT. In that case, no tax is charged on the invoice, only the net value of the goods or services is entered, and a ready-made formula is used, e.g. reversed charge, which means that the buyer should charge and pay VAT on the service, and enter the CVR or SE-nummer (the buyer’s registration number).
Services that are subject to the reverse-charge procedure:
maintenance work and any repairs,
- The SE-number (given by SKAT)is given by a Polish company that is registered for VAT in Denmark (if it is not registered, it only gives the TIN).
- If the owner of a Danish company is at the same time an employer and thus has employees, he/she is obliged to register in Denmark as an employer.
- Foreign employees (both permanent and seasonal), whom the owner of a Danish company intends to employ, are subject to various tax rules, which are related to their origin and how long they have lived in the Kingdom of Denmark.
- Polish companies, even if they are not VAT payers in Denmark, are entitled to reimbursement of VAT on taxable Danish costs.
- A recipient of services in Denmark is obliged to register as a VAT payer and pay this tax, even if it provides services to companies not registered for VAT.
Danish direct CIT is approximately 8% of all taxes in Denmark and is based on the income of Danish companies, together with income from capital.
What else you need to know about CIT:
Corporate income tax is 22%;
CIT tax is levied on legal persons, i.e. limited liability companies or joint stock companies, and in the case of partnerships, only the partners of the partnerships are subject to taxation;
in Denmark, companies are taxed on a consolidated basis, i.e. the parent Danish company, its branches and subsidiaries are taxed.]
Danish excise tax (punktafgift) is levied on goods in accordance with European Union directives (Denmark has also introduced many of its own excise taxes) and covers, among others:
- cigars, cigarillos and Hawaiian cigars,
- chewing tobacco, cigarettes, snuff and pipe tobacco,
- cigarette papers,
- liquefied gas,
- car tyres,
- natural gas,
- wines, including fruit wines,
The Europe Agreement of 16 December 1991 standardizes trade between the European Union and Poland, thanks to this agreement a free trade zone was created for industrial goods (since 1999), i.e. there are preferential customs rates, the same for all EU countries, which are usually 0% (except for agricultural, processed agricultural, and food goods), in order to apply the preferential rate it is necessary to present form „EUR1” (certificates of origin of products) to Danish customs officers.
The differentiated excise duties include:
- ice cream,
- video cassettes,
- tobacco products,
- chocolate products,
- light bulbs,
- disposable packaging.
In Denmark, the tax-free amount in 2019 was DKK 46,630. Individuals whose annual Danish income for 2019 was less than this amount were exempt from paying income tax.
Danish tax thresholds
There are 3 tax thresholds within the Kingdom of Denmark:
1.8% for income below DKK 50,217;
39.2% for income between DKK 50 217 and DKK 558 043;
56.5% for income higher than DKK 558 043 (one of the highest in Europe).]
Double taxation treaty
A double taxation treaty protects citizens from double taxation. Thanks to bilateral tax treaties between Denmark and other countries, taxes paid in the country of employment will be deducted from the taxes to be paid in the country of residence or domicile, or income that is earned in the country of employment will be taxed only once (in the country where the income originates) and exempt from tax in the country of residence or domicile (citizens are obliged to pay tax from the country where the tax rate is higher).
European Union citizen working in Denmark
A consultant Peter from Germany finds an interesting position with a Danish end client through Right People Group and applies to take part in a project. He gets the job and a 6-month project, requiring full-time work in Denmark. It has been agreed that consultant Peter will be paid on an hourly / daily basis and his qualifications have been confirmed by the end client. Consultant Peter will work according to the terms and conditions agreed with Right People Group and the end client on site in Denmark.
German consultant Peter must now pay Danish taxes from his first day of work – in accordance with International Employment of Workers. If he keeps all his interests in his home country (such as place of residence, family, economic interests, etc.) and only works in Denmark, he will only be subject to limited tax liability in Denmark.
Taxes from the employee side
Within the Kingdom of Denmark, there is an income tax consisting of 3 thresholds (basic, middle and highest). Individuals pay a flat income tax (to the municipality), which is 32.6%, and a progressive tax, which is 5.64% (income greater than DKK 42,000 plus income from capital) and 15% (income greater than DKK 42,100 plus income from capital), paid to the treasury. Progressive taxation is applied to labour income and capital income, but the burden on an individual’s income cannot exceed 59%.
In Denmark, individuals who are 15 years of age or older (and younger with income) must file, at the end of each tax year, a tax return – by 1 July at the latest, unless the taxpayer requests an extension of the relevant deadline. If individuals have no income or have income from gainful activity only in Denmark, they should submit, at the end of the tax year, a tax return, in simplified form – by 1 May at the latest. Married persons are required to settle income tax separately.
In 2019, the Danish income tax percentage rates are:
- 8% for incomes below DKK 50 217.
- 39.2% for income between DKK 50,217 and DKK 558,043.
- 56.5% for income higher than DKK 558,043.
Denmark also has a church tax, which is voluntary and averages 0.92% (the rates of this kirkestat can vary from 1% to 2%, depending on the municipality) and a mobile municipality tax (kommuneskat, averaging 24.84%), which is paid to regional governments.
The tax-free amount is set in Denmark every year (in 2019 it was 10.10% on gross salary).
The Danish taxpayer is required to register with the regional Customs and Taxation Office through the Danish Commerce and Companies Agency.
What can you deduct from your Danish income tax?
If you work for a Danish company, you are entitled to a number of tax reliefs that you can take advantage of during your annual tax return with the Danish Tax Authority.
Below is a list of Danish tax reliefs and the documents needed to obtain the relief in question:
- accommodation tax relief (determined annually by SKAT, in 2018 it was DKK 214 per day), which can be used by temporary employees of Danish companies upon presentation of the rental agreement for the premises and accommodation receipts or bank statements confirming utility and rent payments. If the employer has deducted a percentage of the costs from the employee’s pay cheque, payslips for the period in question must also be presented;
- the commuting tax credit (related to the distance travelled and the number of commutes and determined annually by SKAT), which can be used by all employees of Danish companies whose round trip from their place of residence to their place of work is more than 24 km (even the commute from Poland to work in Denmark), regardless of the mode of transport. In order to benefit from this relief, fuel receipts, Danish public transport tickets, air tickets, coach tickets, motorway gate tickets or ferry tickets must be presented, depending on the mode of transport. In 2018, the allowance was DKK 1.94 per km for distances between 25 km and 120 km round trip, and DKK 0.97 per km for distances above 120 km round trip;
- bridge crossing tax relief available to all employees of Danish companies who have to cross a toll bridge to reach their place of work (depending on the bridge and mode of transport);
- tax relief for meals (determined annually by SKAT, in 2018 it was DKK 498 per day), which can be used by all temporary employees of Danish companies;
- the tax relief for interest expenses on consumer loans and mortgages, is intended for employees of Danish companies with the loan in question and whose minimum 75% of annual income is from Denmark (married persons are also required to include their spouse’s income). In order to benefit from this relief, you must present in your annual return, translated by a sworn translator into Danish or English, a certificate (containing the details of the borrower, the amount of interest paid, the type of loan and the name of the bank) from the bank showing the amount of interest paid during the tax year. In the case of a mortgage loan, you must also deduct 1% of the value of the property, which is not necessarily paid by you;
- the cross border tax credit is for employees of Danish companies with a minimum of 75% of their annual income from Denmark. If you are married, you must include your spouse’s income in your joint annual tax return (however, your spouse’s domestic income cannot be more than DKK 42,000). In order to take advantage of this tax relief, you must present a marriage certificate translated into Danish or English by a sworn translator (this can be a marriage certificate on an EU form) and a certificate from the Polish tax office stating your and your spouse’s income, which must also be translated into Danish or English by a sworn translator;
- the dual household tax credit is available to all employees of Danish companies who can certify that they also run a household in their place of residence. In order to take advantage of this relief, you must present a marriage certificate translated into Danish or English by a sworn translator (it can be a marriage certificate on an EU form) and a certificate from the Municipality of the same place of residence with your spouse, which must also be translated into Danish or English by a sworn translator.
Denmark – tax return
In Denmark, all the most important matters concerning both employees of Danish companies and owners of Danish companies, related to tax returns, documents and deadlines, are best dealt with online, through the website of the Danish Tax Office (SKAT, www.skat.dk).
Folkeregistret, the Danish Citizen Service Office (or the Foreigners Service Offices located in Odessa, Copenhagen, Aarhus and Aalborg), is responsible for issuing Danish employees or entrepreneurs with a tax identification number, the Central Person Register (CPR), which entitles us to a health insurance card that guarantees us free medical care. In order to obtain a CPR, you will need proof of identity, a tenancy agreement and an employment contract.
Documents and deadlines
Danish tax-related documents are:
which is a document issued and sent out after 2 July by SKAT that contains the tax decision (the amount of the refund or surcharge).
which is a document (equivalent to a PIT-11) that summarizes an employee’s earnings. Every Danish employer is obliged to issue such a document to its employees upon termination of employment.
which is a tax return form that is issued by the Danish tax office (SKAT) and sent to the taxpayer’s address (Danish or Polish) provided at registration.
i.e. weekly or monthly payslips.]
- How do I establish my tax residency in Denmark?
According to Danish law, the tax liability of Danish entrepreneurs and employees, is linked to tax residence. Persons who have been residing in Denmark for more than 6 months or persons who have decided to settle permanently in Denmark will be considered Danish tax residents and are obliged to pay taxes on their income, earned within and outside Denmark, in Denmark.
- Who is entitled to a full refund of tax paid in Denmark?
A full refund of tax paid in Denmark is due to anyone whose annual income was no more than DKK 42,900.
- When is the deadline for filing my tax return in Denmark?
The deadline for submitting your tax return to the Danish Tax Authority (SKAT) is 1 May (or 1 July).
- Is it compulsory to file a return with the Danish tax authorities?
Yes, it is compulsory for every Danish employee to file an annual return with SKAT, as failure to do so results in a penalty of approximately DKK 5,000.
- What is NemKonto?
A NemKonto is an employee bank account into which SKAT’s tax refund and payment for work is transferred.
- How much time do I have to submit my tax return and correction of my tax return in Denmark?
In Denmark, we can file a tax return and tax return correction or appeal up to 3 years and 4 months back.
- Who has a limited tax liability?
All persons who work in Denmark but are not resident there have a limited tax liability. Then only income earned exclusively in Denmark is taxed.
- What is a Personfradrag?
Personfradrag is a personal tax credit to which Danish residents who have worked in Denmark for 12 months are entitled.
- What is NemID and Tastselv?
NemID and Tastselv are special codes that a taxpayer can order via www.skat.dk, which are needed when filing a tax return in Denmark.
- What is ejendomsværdiskat?
Ejendomsværdiskat is a Danish state tax on the value of real estate, covering real estate regardless of where it is located. All residents of Denmark are obliged to pay this tax. Poles who are Danish residents must also pay this tax on their real estate that is located in Poland (rate of 1% per year – real estate worth less than DKK 3.04 million; rate of 3% per year – real estate worth more than DKK 3.04 million).
Discounts and exemptions regarding the cadastral tax:
- relief for persons over 65 years of age – 0.4%, but no more than DKK 2,000 for holiday homes and DKK 6,000 for year-round homes;
- if the flats are jointly owned, then it is sufficient that only one person is over 65;
- persons under 65 whose deceased spouse was over 65 retain the relief granted;
- taxpayers are exempted from paying this tax for the duration of the move (a period of a maximum of a few months between the purchase of the property and the move to the property; a longer period involves a tax surcharge from the time the contract of sale of the property is signed);
- taxpayers who have moved out of the property before the sale are also exempt from paying this tax;
- if the property has been damaged by forces beyond the control of the taxpayer and is uninhabitable, then a discretionary exemption from paying the tax may be applied for;
- if the property is rented out, then it is possible to apply for full exemption (when renting out the entire property) or partial exemption (when renting out part of the property), but you have to pay more than the cadastral tax on the rent;
- taxpayers who own property in another country, and pay tax there, may be exempt from paying tax on the same property in Denmark (proof of payment must be provided);
- the tax rate may be reduced by 0.2% if the property was purchased before 1 July 1998;
- the tax rate may be reduced by 0.4 per cent (up to a maximum of DKK 1,200) if a person lives in the property all year round.
- What is ejendomsskat (Municipal Property Tax)?
Ejendomsskat (Municipal Property Tax) is a Danish land value tax that taxes the base value of the land at the total value of the property less the value of the improvements or at the value of the property for the last tax year, modified by a percentage of decrease or increase. Proceeds from the sale of one’s own home are not taxed, as the marginal rate on capital gains (friværdi) from housing savings is approximately 0%. Property tax ejendomsskat is paid to the Danish municipalities twice a year.
- What does Skat til udbetaling mean?
Skat til udbetaling is the wording on the tax decision from the authority, which indicates the amount of tax refund.
- What does Restskat til betaling mean?
Restskat til betaling is the wording on the tax decision from the office, which means the amount of the SKAT surcharge.
- What is Forskudsopgorelse and Selvangivelse?
Forskudsopgorelse and Selvangivelse are Danish tax cards, on which you can find the number of your TastSelv code needed when you settle your tax electronically with the Danish tax authorities.
- What is Feriepenge, and who is entitled to it?
Feriepenge is a holiday benefit to which all persons legally working in Denmark are entitled. A Danish employee is entitled to 2.08 days’ holiday for every month worked, i.e. 5 weeks, but a minimum of 3 weeks of the 5 weeks’ holiday must be taken during the Danish holiday period (between 1 May and 30 September). You can also apply for Feriepenge up to six months after you have finished working in Denmark, but you must check out at the Folkeregister municipal office before you leave the country. Feriepenge is paid into your NemKonto for up to 3 months, for the previous tax year, which runs from 1 January to 31 December, and can only be used in the following holiday year from 1 May to 30 April.
- What is a Personnummer?
The Personnummer, or CPR (personal TIN) assigned by the Customs and Taxation Office – SKAT, which is needed for income tax and VAT.
- What is a Sundhedsbidrag?
Sundhedsbidrag is the 8 per cent contribution to Danish health insurance.
- What is Arbejdsmarkedsbidrag (AM-bidrag)?
Arbejdsmarkedsbidrag, or AM-bidrag, is an 8 per cent contribution to the labour market (Danish labour fund). This tax is referred to as gross tax; all income from self-employment or employment is taxed at 8% before tax.
- What is Danish Skattestyrelsen?
Skattestyrelsen is the tax authority in Denmark.