Taxes in Denmark

Taxes in Denmark

Taxes in Denmark are very high but at the same time progressive, meaning that the amount of the tax threshold depends on the amount of income of legal and natural entities. Among other things, pension and insurance contributions, alimony, food costs and transportation from home to work can be deducted from Danish taxes, and the Danish Tax Authority (SKAT) has 7 years to audit whether the expenses are correct.

Danish tax rates vary greatly depending on whether you are an employee of a Danish company, a sole proprietor, the CEO of a company or a shareholder.

What should you know about taxes in Denmark?
  1. The income tax percentage rates for 2019 are:
    I. 8% for income less than DKK 50,217,
    II. 39.2% for income between DKK 50,217 and DKK 558,043,
    III. 56.5% for income higher than DKK 558,043.
  2. The laws concerning Danish income tax are:
    - Personskatteloven, or the Personal Income Tax Act,
    - Skattekontrolloven, the Tax Audit Act,
    - Kildeskatteloven, the Withholding Tax Act,
    - Ligningsloven, the Tax Assessment Act.
  3. Danish income tax consists of state tax, city tax, contributions to health insurance (sundhedsbidrag) and contributions to the labor market (arbejdmarkedsbidrag, or AM-bidrag).
  4. Denmark has a voluntary church tax averaging 0.92%.
  5. The mobile municipality tax in Denmark is paid to regional governments and averages 24.92%.
  6. You have to register with the regional Customs and Taxation office through the Agency for Enterprise and Trade.
  7. Tax on income from shares is 27% (between 0 and 54 thousand DKK) or 42% (over 54 thousand DKK).
  8. If you set up and run a company in Denmark, there is a 22% corporate tax - CIT, but when the company's 12-month turnover exceeds DKK 50 thousand, it becomes liable for 25% VAT.
  9. Exported goods and services are subject to 0% VAT rate, which means that no VAT is charged on their sale, however the recipient can deduct VAT on their purchase.
  10. Tax year in Denmark is a calendar year, i.e. income for the previous calendar year (or other, but always 12-month period) is taxed.
  11. Employees of Danish companies are subject to full or limited tax liability (begrænset skattepligt), the latter applies to people who have a fixed-term contract and Danish employees who live outside Denmark.
  12. We have 3 years to make the mandatory settlement with the Danish tax office - SKAT.
  13. In Denmark in 2019, the tax-free amount was DKK 46,630 (people whose annual Danish income was lower than this amount are exempt from paying income tax).
  14. In Denmark, the tax return must be filed via the website up to 6 months after the end of the tax year (calendar year or other but 12 months). If the tax year ends between February 1 and March 31, the tax return should be submitted by August 1 and the tax paid on March 20 and November 20.

The Danish tax system consists of direct taxes:
- church tax(kirkeskat),
- municipal 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, have to pay this tax also for their real estate that is located in Poland (rate 1% per year - real estate worth less than 3,04 million DKK; rate 3% per year - real estate worth more than 3,04 million DKK,
- tax on the value of the real estate, which was assessed during the public valuation,
- tax on hiring foreign labor to work in Denmark (according to Act No. 921 of September 19, 2012, now Act No. 117 of January 29, 2016, a Danish company hiring foreign labor is required to pay a 38 percent tax to the Danish Tax Authority - net 35.6 percent, including an 8 percent contribution to the Danish Employment Fund and a 30 percent tax on hiring labor),
- tax that 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 taxes (pointafgift),
- VAT (moms).

The Danish tax system is quite complicated, so before you set up your own business in Denmark or work for a Danish company, it is a good idea to familiarize yourself with the rules, rates, documents and deadlines regarding all taxes applicable in the Kingdom of Denmark.

Taxes from the company side

Danish taxes apply to everyone who lives and earns money in Denmark, whether they are unemployed people receiving benefits from a-kasse (arbejdsløshedskasse), pensioners, students receiving state grants, or people who work outside of Denmark or have foreign income, or entrepreneurs who run their own businesses (sole proprietorships - 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 Andelsforening/Brugsforening cooperative associations). (suggest graphic)

SKAT, or the Danish Tax Authority, recognizes self-employment income 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 who are employed in Denmark.

Once every six months or once a quarter, you have to file a tax return (income tax and VAT) through the SKAT website. Advance payments for income tax are made on March 20 (on this date you can make a higher advance payment in order to receive a tax refund with interest, which is higher than in a bank) and on November 20 (on this date the interest rate is reduced by 0.4, i.e. the interest is lower than in a bank). If you set up and run a company in Denmark, there is a corporate tax - 22 percent CIT. If the annual turnover of a Danish company exceeds DKK 50,000, it becomes a payer of 25 percent VAT.

Corporation tax

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 account for income tax on their total income (including income from property and capital) up to six months after the end of the tax year.

What should you know about the Danish corporate tax system?
  1. Corporate income tax is 22%.
  2. Non-resident companies only account for 22% tax on profits from Denmark.
  3. Capital gains that are included in the Danish company's income are also taxed at 22 percent.
  4. If a Danish shareholder sells company shares, group shares, unlisted portfolio shares or shares in subsidiaries, the capital gain from such sale is not taxed.
  5. The entire capital gain from listed portfolio shares is taxed at 22 percent.
  6. If a foreign shareholder sells its Danish shares, the capital gain from such sale is not subject to Danish taxation.
  7. All Danish companies are required to pay environmental taxes to companies that provide energy, and these companies settle with the Danish Tax Authority.
  8. Income from the Danish head office is accounted for along with income from foreign subsidiaries (however, income from a foreign subsidiary of a Danish company may be exempt from paying taxes in Denmark).

VAT

The Danish value added tax VAT (MOMS) is uniform and amounts to 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,
- insurance,
- arts and culture,
- charity work,
- real estate,
- sports,
- games,
- passenger transportation,
- postal charges.

The 0% VAT rate applies to all Danish services and goods that are exported, but those who purchase the services or goods can deduct the tax.

What else should you know about VAT?
  1. All Danish companies with an annual turnover of more than DKK 50,000 are subject to VAT.
  2. The rate of VAT is 25%.
  3. The Danish VAT of 25% applies to agricultural and industrial products and almost all services.
  4. The tax rate for services such as the sale or rental of real estate (including energy, water and gas), medical care, education, banking, insurance transactions and cultural activities is 0%.
  5. Foreign workers who have been employed in Denmark for a period between 3 months and 3 years and whose minimum wage is DKK 47,500 are subject to a flat tax of 25% which is increased by a 9% contribution to the Danish labour market.
  6. The uniform 25% VAT is paid by all companies selling services or goods in Denmark. This is a value added tax added to the price of services and goods that are sold by the company.
  7. A business owner in Denmark has 8 days to register for VAT (before starting to supply goods or services).
  8. A Danish business can be registered for VAT through the website of the Register of Foreign Suppliers (RUT, virk.dk).
  9. The reverse charge procedure means that foreign companies that want to sell goods and services to Danish businesses do not have to charge Danish VAT. In this case, no tax is charged on the invoice, only the net value of the goods or services, 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). Taxes in Denmark - subjects
  10. SE number (given by SKAT) is given by a Polish company that is registered in Denmark as a VAT payer (if it is not registered, it only gives its TIN).
  11. If the owner of a Danish company is also the employer and thus hires employees, he/she is obliged to register in Denmark as the employer.
  12. Foreign employees (both permanent and seasonal) that the owner of a Danish company intends to employ are subject to various tax rules related to their origin and the time they have lived in the Kingdom of Denmark.
  13. Polish companies, even if they are not VAT payers in Denmark, are entitled to a VAT refund on taxable Danish costs.
  14. The recipient of services in Denmark is required to register for and pay VAT even if it provides services to companies that are not registered for VAT.

CIT

Danish direct CIT is about 8% of all taxes in Denmark and is based on the income of Danish companies, together with income from capital. Taxes in Denmark - CIT

Excise tax

The 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 other things:
- confectionery,
- cigars, cigarillos and Hawaiian cigars,
- chocolate,
- chewing tobacco, cigarettes, snuff and pipe tobacco,
- cigarette papers,
- liquefied gas
- electricity
- car tires,
- natural gas,
- tea,
- coffee,
- spirits,
- wines, including fruit wines,
- beer.

The Europe Agreement of December 16, 1991 normalizes trade between the European Union and Poland and thanks to this agreement a free trade zone was created for industrial goods (since 1999), i.e. preferential customs duty rates, the same for all EU countries, amounting usually to 0% (except for agricultural, processed agricultural and food articles), in order to apply the preferential rate it is necessary to present EUR1 (certificates of origin of products) to Danish customs officers.

Customs duty is calculated on the customs value of the goods, i.e. on the invoice price plus insurance and transport costs.

Differentiated excise duty includes:
- ice cream,
- coffee,
- video cassettes,
- tobacco products,
- spirits,
- chocolate products,
- light bulbs,
- beer,
- wine,
- tea,
- cars,
- fuel,
- disposable packaging.

Tax free amount

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

Taxes in Denmark - 3 types of thresholds

Double tax treaty

The 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 required to pay tax from the country where the tax rate is higher).

EU citizen working in Denmark

Due to the free movement of labour within the European Union countries, you do not need to meet any special requirements to obtain a work permit in Denmark. However, registration with the local social security and tax authorities is required.

A consultant Peter from Germany finds an interesting position with a Danish end client through Right People Group, and applies for the project. He gets the job and a 6-month project, requiring full-time work in Denmark. It was agreed that consultant Peter would be paid on an hourly/day basis, and his qualifications were confirmed by the end client. Consultant Peter will work under terms and conditions agreed upon 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 perspective

In the Kingdom of Denmark, there is income tax consisting of 3 thresholds (basic, middle and highest). Individuals pay a flat tax (to the municipality) of 32.6% and a progressive tax of 5.64% (income higher than DKK 42,000 plus income from capital) and 15% (income higher than DKK 42,000 100 plus income from capital) to the State Treasury. Progressive taxation is applied to income from work 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 a tax return at the end of each tax year - by July 1 at the latest, unless the taxpayer requests a postponement. If you have no income or if you only have income from paid employment in Denmark, you must submit a tax return in a simplified form at the end of the tax year, no later than 1 May. Married individuals are required to submit their income tax returns separately.

Income tax

Income tax has been in effect in Denmark since 1903, it has been divided into a state progressive income tax and a flat local income tax.

In 2019, the Danish income tax percentage rates are:
1. 8% for income less than DKK 50,217.
2. 39.2% for income between DKK 50,217 and DKK 558,043.
3. 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).

A Danish taxpayer is required to register with the regional Customs and Taxation Office through the Danish Commerce and Companies Agency.

What can I deduct from my 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 you will find a list of Danish tax reliefs and the documents you need to claim them:
  1. Accommodation tax credit (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 a rental agreement for the premises and receipts for accommodation or bank statements confirming utility and rent payments. If the employer has deducted a percentage of the costs from the employee's wages, pay slips for the period in question must also be provided.
  2. Commuter tax allowance (related to the distance covered and the number of commutes and determined annually by SKAT) is available to all employees of Danish companies whose round trip from their place of residence to the 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, plane tickets, coach tickets, freeway gate tickets or ferry tickets must be presented, depending on the mode of transport. In 2018, the allowance was DKK 1.94 per 1 km for distances between 25 km and 120 km round trip, and DKK 0.97 per 1 km for distances over 120 km round trip.
  3. Bridge crossing tax relief available to all employees of Danish companies who have to cross a toll bridge to get to their place of work (depending on the bridge and mode of transport).
  4. Tax relief for meals (determined annually by SKAT, in 2018 it was 498 Danish kroner per 1 day), which can be used by all temporary employees of Danish companies.
  5. The tax deduction for interest expenses on consumer and mortgage loans is intended for employees of Danish companies who have the relevant loan and whose minimum 75% of annual income is from Denmark (married persons are also required to include their spouse's income). To take advantage of this allowance, you must present on your annual tax return, translated by a sworn translator into Danish or English, a certificate (stating the borrower's details, 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 you also have to deduct 1% of the value of the property, which you do not necessarily pay.
  6. Cross border tax relief is for employees of Danish companies with at least 75% of their annual income coming 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 need to present your marriage certificate (it may be a marriage certificate in EU form) translated into Danish or English by a sworn translator and a certificate from Polish tax office stating your and your spouse's income, which also needs to be translated into Danish or English by a sworn translator.
  7. The dual-occupancy 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 claim this relief, you must present your marriage certificate (which may be an EU marriage certificate) translated into Danish or English by a sworn translator, and a certificate from the Municipality stating that you and your spouse have the same registered address, which must also be translated into Danish or English by a sworn translator.

Denmark - tax refund

In Denmark, all the most important matters concerning both Danish employees and Danish business owners, related to tax returns, documents and deadlines, are best handled online, through the website of the Danish Tax Authority (SKAT, www.skat.dk).

In order to settle your tax online, you need to order a special code in advance - TastSelv-kode (www.tastselv.skat.dk), consisting of 8 digits, which is also a password to the system. The individual TastSelv-kode (or NemID) gives you access to your own tax information.

Folkeregistret, the Danish Citizen Service (or Citizen Service Offices located in Odessa, Copenhagen, Aarhus and Aalborg) is responsible for issuing Danish employees or entrepreneurs with a Central Person Register (CPR) which entitles them to a health insurance card that guarantees free medical care. In order to obtain the CPR you will need proof of identity, a tenancy agreement and an employment contract.

Documents and deadlines

Taxes in Denmark - documents Oplysningsseddel,
which is a document (equivalent to PIT-11) that summarizes your earnings. Every Danish employer is obliged to issue such a document to their employees after the end of their employment.

Selvangivelse,
tax return form which is issued by the Danish tax office (SKAT) and sent to the taxpayer's Danish or Polish address given at registration.

Lonseddel,
which are weekly or monthly pay slips.)

FAQ

  1. How to determine tax residency in Denmark?
    According to Danish law, the tax liability of Danish entrepreneurs and employees is connected to tax residency. If you have been resident in Denmark for more than 6 months or if you have decided to settle permanently in Denmark, you will be considered as a Danish tax resident and you will be obliged to pay tax on your income in Denmark and abroad.

  2. Who can receive a full tax refund?
    A full tax refund is due to anyone whose annual income is no higher than DKK 42,900.

  3. When is the deadline to submit a tax return in Denmark?
    The deadline to submit a tax return to the Danish tax office (SKAT) is 1st May (or 1st July).

  4. Is it mandatory to file a tax return with the Danish Tax Agency?
    Yes, it is obligatory for every Danish employee to file an annual tax return with SKAT because there is a fine of 5 000 DKK for not doing so.

  5. What is NemKonto?
    NemKonto is an employee bank account into which your tax refund from SKAT and your salary is transferred.

  6. How much time do I have to file a tax return and a correction to my tax return in Denmark?
    In Denmark we can file a tax return and a correction or appeal up to 3 years and 4 months back.

  7. Who has limited tax liability?
    Limited tax liability applies to all persons who work in Denmark but are not resident there. In this case only income earned in Denmark is taxed.

  8. What is Personfradrag?
    Personfradrag is a personal tax allowance that Danish residents who have worked in Denmark for 12 months are entitled to.

  9. What are NemID and Tastselv?
    NemID and Tastselv are special codes that a taxpayer can order online at www.skat.dk that are needed when filing a tax return in Denmark.

  10. What is ejendomsværdiskat?
    Ejendomsværdiskat is a Danish state tax on the value of real estate, which covers 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 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).

    Reliefs and exemptions regarding cadastral tax:
    - The discount for people over 65 is 0.4%, but no more than DKK 2,000 for holiday homes and DKK 6,000 for year-round homes,
    - If the housing is owned jointly, then only one person over 65 is required,
    - People before the age of 65 whose deceased spouse was over 65 retain the relief granted,
    - Taxpayers are exempt 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 property sale agreement 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 tax exemption may be applied for,
    - If the property is rented out, then it is possible to apply for total exemption (if the whole property is rented out) or partial exemption (if a part of the property is rented out), but one has to pay higher than cadastral tax for the rent,
    - Taxpayers who own property in another country and pay tax there, may be exempted from paying tax on the same property in Denmark (proof of payment must be provided),
    - The tax rate can be reduced by 0.2% if the property was bought before July 1, 1998,
    - The tax rate can be reduced by 0.4% (up to a maximum of DKK 1,200) if the person lives in the property all year round.

  11. 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 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 your own home are not taxed because 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.

  12. What is Skat til udbetaling?
    Skat til udbetaling is the wording on the tax office's decision that means the amount of tax refund.

  13. What does Restskat til betaling mean?
    Restskat til betaling is a wording that appears on your tax assessment notice.

  14. What is Forskudsopgorelse and Selvangivelse?
    ForskudsopgorelseandSelvangivelse are Danish tax cards on which you can find the number of your TastSelv code when you settle your tax electronically with the Danish tax authorities.

  15. What is Feriepenge and who is entitled to it?
    Feriepenge is a vacation benefit to which all persons legally working in Denmark are entitled. Danish workers are entitled to 2.08 days of vacation for every month worked, which is 5 weeks, but a minimum of 3 weeks of the 5 weeks must be taken during the Danish summer holiday period (between May 1st and September 30th). You can also apply for Feriepengem up to 6 months after you finish working in Denmark, but you have to register at Folkeregister before you leave the country. Feriepenge is paid to NemKonto for up to 3 months, for the previous tax year, which runs from January 1 to December 31, and can only be used in the following vacation year from May 1 to April 30.

  16. What is a Personnummer?
    Personnummer, or CPR (personal TIN) is assigned by the Customs and Tax Agency - SKAT, which is needed for income tax and VAT.

  17. What is Sundhedsbidrag?
    Sundhedsbidrag is an 8% contribution to Danish health insurance.

  18. What is Arbejdmarkedsbidrag (AM-bidrag)?
    Arbejdsmarkedsbidrag, or AM-bidrag, is an 8% 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.

  19. What is Danish Skattestyrelsen?
    Skattestyrelsen is the tax authority in Denmark.