Taxes in Denmark

Danish tax system

In the Kingdom of Denmark, taxes are characterized by their high level and ability to progressively adjust to the income of subjects, both legal and physical. It is possible to deduct various expenses, such as pension or insurance premiums, alimony, food expenses or commuting costs from home to work. It is important to note that the Danish Tax Authority (SKAT) has up to seven years to audit and verify the compliance of these expenses.

Tax rates in Denmark vary depending on the role of the subject - employee of a Danish company, sole proprietor, company president or shareholder.

Highlights of taxation in Denmark:

1. Income taxes, for 2019, are as follows:
   • 8% for income below DKK 50,217,
   • 39.2% for income between DKK 50,217 and DKK 558,043,
   • 56.5% for income above DKK 558,043.
     
     
2. The scope of the laws that regulate Dansk taxation are:
   • Personskatteloven - personal income tax,
   • Skattekontrolloven - tax control regulations,
   • Kildeskatteloven - source tax regulations,
   • Ligningsloven - tax assessment regulations.
     
     
3. Taxable income includes state tax, city tax, health insurance premiums (sundhedsbidrag) and labor market contributions (arbejdmarkedsbidrag, or AM-bidrag). It is worth mentioning that the voluntary church tax accounts for about 0.92%.
   
   
4. In addition, the Danish municipal tax, payable to regional governments, averages 24.92%.
   
   
5. The procedure for registration with the regional Customs and Tax Administration is through the Agency for Enterprise and Trade.
   
   
6. Taxation related to share income is 27% (up to DKK 54,000) or 42% (above DKK 54,000).
   
   
7. When a company operates in Denmark, corporate tax is 22% CIT. However, if its annual turnover is above DKK 50,000, it becomes liable for 25% VAT.
   
   
8. For exports of goods and services, the VAT rate is 0%, but purchasers have the option to deduct the tax on their purchase.
   
   
9. ​The accounting period in Denmark follows the calendar, i.e. income for the previous calendar year (or other 12-month period) is taxable.​
   
   
10. Employees of Danish companies are subject to full or limited tax liability (begrænset skattepligt), depending on their contract and place of residence.
    
    
11. The obligation to file a tax return with the Danish Tax Authority (SKAT) is three years.
    
    
12. In 2019, the tax-free limit was DKK 46,630. This means that those whose Danish income was below this amount were exempt from taxation.
    
    
13. A tax return in Denmark must be filed via the website within 6 months of the end of the tax year. When the year ends between February 1 and March 31, the return must be filed by August 1, and tax must be paid by March 20 and November 20.
    
    
14. The taxation system in Denmark includes:
    • church tax (kirkeskat),
    • municipal tax (kommuneskat),
    • pension contributions (ATM),
    • employee contributions,
    • health insurance premiums (sundhedsbidrag),
    • land tax (on real estate) - Ejendomsværdiskat, applicable to all residents of Denmark, including Poles who are residents there. Covers real estate, regardless of location. Rates are 1% for values below DKK 3.04 million and 3% above that amount,
    • a tax on the value of real estate, assessed through a public valuation process,
    • a tax on the hiring of foreign workers, imposed on Danish companies employing workers from outside the country, amounting to 38% - 35.6% net, including an 8% contribution to the employment fund and a 30% tax on the hiring of labor, paid to the Danish Tax Office,
    • tax on income in both individuals and legal entities,
    • source tax, deducted from income,
    • and indirect taxes: customs duties, environmental taxes, excise taxes (punktafgift), VAT (moms).
      

The Danish tax system is complicated, so it's worth exploring the regulations, rates, documents and deadlines related to taxation before starting a business or working in Denmark.

Taxes from the company side

Taxation in Denmark applies to all persons residing and earning in the country, whether they are unemployed persons benefiting from a-kasse, pensioners, students receiving state subsidies, or persons working abroad with foreign income, and entrepreneurs running various forms of companies (such as sole proprietorship - Enkeltmandsvirksomhed, joint-stock company Aktieselskab - A/S, general partnership Interesselskab - I/S, limited liability company Anpartsselskab - ApS, limited partnership Kommanditselskab - K/S, branch of a foreign company Filial af udenlandsk selskab, representative office of a foreign company Salgskontor or cooperative associations Andelsforening/Brugsforening). (please note the illustration)

The Danish Tax Authority, known as SKAT, treats self-employment income as income of the business owner. Accordingly, self-employment tax is reported on a single tax return. The business owner, who pays taxes and contributions, is entitled to pension and health benefits analogous to those enjoyed by employees working in Denmark.

Every six months or quarter, through the SKAT online platform, you have to file a tax return covering both income tax and VAT. Income tax advances are due on March 20 (at which time one can also make a higher advance payment in order to get a tax refund with interest above that of the bank) and November 20 (in which case the interest rate is reduced by 0.4 percentage points, which means lower interest compared to the bank).

When someone sets up and runs a company in Denmark, a corporate tax of 22% applies. If the annual turnover of a Danish company exceeds DKK 50,000, the company becomes liable for 25% VAT.

Taxes imposed on legal entities

All corporations in Denmark, from associations and cooperatives to limited liability companies, joint stock companies and foreign branches based in Denmark, are required to settle income tax on their general income (which includes income from property and capital) within six months of the end of the tax year.

What is worth knowing about a particular corporate entity tax system?

• ​The corporate income tax rate is 22%.
• Non-resident companies settle 22% tax only on income generated in Denmark.
• The same 22% tax rate also covers capital gains, which are included in the company's Danish income.
• Capital gains from the sale of company shares, a group of shares, portfolio shares and shares in subsidiaries are not taxable if you are a Danish shareholder.
• The total capital gain from the sale of listed portfolio shares is subject to 22% tax.
• If a foreign shareholder sells his shares in a particular company in Denmark, the capital gain from this transaction is not subject to the taxes in question.
• All local companies are required to pay environmental taxes if they are energy suppliers, and these companies settle with the tax authority in question.
• Income generated by company headquarters in Denmark is combined with the income of foreign subsidiaries (but profits from these foreign subsidiaries may be exempt from tax in Denmark).
  
  

Tax thresholds in Denmark

There are three levels of taxation within the Kingdom of Denmark:

•  For earnings below DKK 50,217, the rate is 8%.
  Earnings between DKK 50,217 and DKK 558,043 are taxed at a rate of 39.2%.
  Earnings above DKK 558,043 are taxed at a rate of 56.6%, one of the highest levels in Europe.

Tax-free amount

For 2019 in Denmark, it was determined that individuals whose annual income for the period did not exceed DKK 46,630 were not required to pay income tax for the period.

VAT

Denmark has a uniform VAT (MOMS) of 25%, applicable to both goods and services. However, there are exceptions where some services are exempt from this tax, such as:

• ​ravel services,
• services related to funeral arrangements,
• social benefits,
• medical care,
• financial operations,
• insurance,
• artistic fields and culture,
• charitable activities,
• real estate transactions,
• sports fields,
• games,
• passenger transportation,
• postal fees.
  
  

Despite the 25% VAT rate, there is also a zero rate (0%), which covers services and goods intended for export. The value of this tax can be deducted by purchasers of these services and goods.

The following services are covered by the reverse charge procedure:

• ​construction work,
• entertainment,
• conferences,
• employee leasing,
• exhibitions,
• maintenance work and all repairs,
• sports events,
• cleaning.
  
  

Other important information regarding the tax in question:

•  All Danish companies with an annual turnover of more than DKK 50,000 are subject to VAT.
• The standard VAT rate is 25%.
• The 25% VAT rate covers virtually all industrial services and products.
• Some services, such as medical care, education, cultural activities or banking, are subject to a 0% rate.
• Non-Danish employees employed for a period of 3 months to 3 years, earning a minimum of DKK 47,500, are subject to a 25% flat income tax with an additional 9% labor market contribution.
• Companies selling products and services in Denmark are required to pay a uniform 25% VAT, which is added to the price of the final product or service.
• Registration of a business as a VAT payer must take place within 8 days of starting operations, a process that can be accomplished through the Registry of Foreign Suppliers (RUT, virk.dk) portal.
• The reverse charge mechanism allows foreign companies to supply services and goods to Denmark without charging Danish VAT. In this case, the net value of the goods or services is shown on the invoice.
• Polish companies, even if they are not VAT payers in Denmark, can seek reimbursement of taxed VAT for costs incurred in Denmark.
• Recipients of services in Denmark, even if not registered as VAT payers, are required to register and pay VAT.
  
  

Excise tax

Excise tax in Denmark is imposed in accordance with European Union guidelines, as well as the country's own regulations. It applies to a variety of goods, such as confectionery, cigars, chocolate, chewing tobacco, cigarettes, electricity, car tires, natural gas, tea, coffee, alcohol (wine, beer) and many others.

The aforementioned Agreement of December 16, 1991 is a trade agreement between Poland and the European Union, which contributed to the creation of a free trade area for industrial goods. Under this agreement, preferential tariff rates, most of which are 0%, facilitate trade. In order to benefit from these preferences, it is necessary to provide a certificate of origin for the products, or EUR1, in order to be exempt from the higher tariff rates.

The calculation of customs duty is based on the customs value of the goods, taking into account the invoice price and transportation and insurance costs. Excise duties in Denmark vary, applying to various categories of goods, including ice cream, coffee, videotapes, tobacco products, spirits, chocolate products, light bulbs, automobiles, fuel, disposable packaging and others.

CIT tax

Denmark's CIT tax is one of the country's main sources of government revenue and accounts for about 8% of total government revenue. Its duty is to tax the income of companies operating in the country, including profits from capital investments.

Below is some important information on CIT:

1. ​The corporate income tax rate is 22%.
2. Legal entities, such as limited liability companies and joint stock companies, are subject to CIT. In the case of partnerships, only the partners of these companies are taxed.
3. In Denmark, companies are taxed on a consolidated basis. This means that the parent Danish company, its branches and subsidiaries are taxed.
   
   
   

A person from the European Union employed in Denmark

As part of the free movement of labor within the countries of the European Union, there is no need to meet special conditions to obtain an employment permit in Denmark. However, there is a requirement to register with local social security and tax authorities.

An example is the situation of Peter, a German consultant, who found an interesting job offer with a Danish final client through the intermediation of Company X. After applying, he was given a project lasting 6 months, where full-time work in Denmark was required. Consultant Peter signed a contract based on hourly/daily wages and his qualifications were confirmed by the client. Under this contract, Peter works according to the agreed terms between Company X and the client, within Denmark.

From the first day of his work, Peter, a German consultant, is required to pay taxes in Denmark, in accordance with the rules on international employment of workers. If Peter decides to abandon his ties to Germany, such as his place of residence, family or economic interests, and focus solely on working in Denmark, he will be subject to limited tax liability in Denmark.

Agreement to prevent double taxation

The double taxation treaty is designed to protect individuals from paying tax twice. Through bilateral tax treaties between Denmark and other countries, tax payments realized in the country where the employee is employed may be reduced from the amount of tax that must be paid in the country of residence, or income earned in the country where the employee is employed is taxed only once (in the country where the income is earned), and excluded from taxation in the country of residence or domicile (citizens are obliged to pay tax in the country with the higher tax rate).

Taxes from the employee's side

The Kingdom of Denmark has income taxation, which consists of three thresholds: basic, middle and highest. For individuals, a flat income tax is required (for the benefit of the municipality), which is equal to 32.6%. In addition, there is a progressive income tax, equal to 5.64% (for income exceeding 42,000 Danish kroner, plus capital gains) and 15% (for income exceeding 42,000 100 Danish kroner, plus capital gains). The latter levies affect the state budget. The progressive tax applies to both labor income and capital gains, although the total taxation of an individual's income will not exceed 59%.

In Denmark, individuals who have attained at least 15 years of age (and younger income earners) are required to file tax returns at the end of each tax year. The deadline for this is July 1, unless the taxpayer requests an extension. If individuals do not generate income or earn income only through gainful activity in Denmark, they are required to file a simplified tax statement no later than May 1. For married couples, the couple is required to file income tax separately.

Income tax

The Kingdom of Denmark, since 1903, has had income taxation, which is divided into two categories: a progressive state tax and a local income tax of the linear type.

For 2019, Denmark's income tax percentage rates are as follows:

• ​8% for earnings below DKK 50,217.
• 39.2% for earnings between DKK 50,217 and DKK 558,043.
• 56.5% for earnings above DKK 558,043.
  
  

Within Denmark, there is also a voluntary church tax, which averages 0.92% (kirkestat rates can oscillate between 1% and 2%, depending on the local municipality). In addition, there is a mobile municipal tax (kommuneskat), which averages 24.84% and is remitted to the local government.

Each year a new tax-free amount is set in Denmark (in 2019 it was 10.10% on gross wages).

Those paying taxes in Denmark must also register with the local tax office and the Trade and Companies Office through the Danish Commerce and Companies Agency.

 What expenses can be deducted from income tax in Denmark?

If you are employed by a Danish company, there are a number of tax deductions that help reduce the tax you have to pay, and which require certain documents to obtain them.

Below is a list of tax credits applicable in Denmark and the required documents for each:

1. ​An accommodation tax credit (an annual amount set by SKAT, was, for example, 214 Danish kroner per day in 2018), available to temporary employees of Danish companies. To obtain it, you need a housing rental agreement, accommodation bills and bank statements confirming utility and rent payments. If the employer deducted a certain portion of the costs from the employee's salary, it is also necessary to present pay slips for the period in question.
   
   
2. Commuting allowance (annual rate set by SKAT, depending on distance and number of commutes), available to all employees of Danish companies whose daily commute to and from work is more than 24 km round trip (including commuting from Poland to Denmark). In order to obtain this relief, you need fuel receipts, public transportation tickets, airline tickets, coach tickets or freeway gates, depending on the mode of transport. In 2018, this relief was 1.94 Danish kroner per 1 km for distances between 25 km and 120 km round trip, and 0.97 Danish kroner per 1 km for distances over 120 km round trip.
   
   
3. Bridge crossing relief available to employees who must cross toll bridges to commute to work.
   
   
4. Relief related to food (the annual rate set by SKAT, for example, was 498 Danish kroner per day in 2018), available to all temporary employees of Danish companies.
   
   
5. Interest expense relief on consumer loans and mortgages, available to employees of companies with at least 75% of their annual income from Denmark. To take advantage of it, one must present a certificate from the bank on the interest paid in a given year and a deduction of 1% of the value of the property on the mortgage.
   
   
6. Cross border relief, intended for employees of Danish companies whose at least 75% of annual income is from Denmark. Married individuals must include their spouse's income in their annual tax return. To take advantage of it, you'll need a Danish- or English-translated marriage certificate and an income certificate from the Polish Tax Office.
   
   
7. The dual household allowance, available to all employees who can confirm their household at their place of residence. To take advantage of it, translated documents confirming residence and marriage are needed.
   
   

Necessary documents and important deadlines related to paying taxes

There are various documents involved in Danish tax paperwork, and here are some of them:

• ​Arsopgorelse, is an official letter prepared by SKAT that is sent out after July 2 and contains important tax-related information, such as the final balance to be paid or to be refunded.
• Oplysningsseddel, is an equivalent document to the PIT-11, focusing on a summary of an employee's income. Employers in Denmark are required to issue this document to their employees upon termination.
• Selvangivelse, is a tax return form issued by the Danish Tax Authority (SKAT). Subsequently, it is sent to the taxpayer's address provided at registration, regardless of whether it is in Denmark or Poland.
• Lonseddel, are payroll documents that appear weekly or monthly, depending on the pay period. These are records of paychecks regularly delivered to employees.
  
  
  

Tax return in Denmark

In order to handle key tax returns, documents and deadlines for both Danish company employees and business owners in Denmark, it is recommended to use the online services available on the Danish Tax Authority website (SKAT, www.skat.dk).

To do your tax return online, you must first register and obtain a special TastSelv-kode (www.tastselv.skat.dk), consisting of 8 digits, which also serves as a password to access the system. Having an individual TastSelv-kode (or NemID) allows you to access your own tax information.

The Citizens Service Office in Denmark, also known as Folkeregistret, or Foreigners Service Offices located in various towns such as Odense, Copenhagen, Aarhus and Aalborg, is responsible for assigning tax identification numbers to Danish employees and businesses, known as the Central Person Register (CPR). This number is necessary to obtain a health insurance card, which guarantees free medical care. In order to obtain a CPR number, it is necessary to provide proof of identity, a rental agreement and an employment contract.

Frequently Asked Questions

1. ​How to determine tax residency in Denmark?
   Danish regulations link tax liability to tax residency for employees and entrepreneurs. This means that individuals who stay in Denmark for more than 6 months or settle permanently are considered Danish tax residents. As a result, they must pay taxes on their income from both Denmark and abroad exclusively in Denmark.
   
   
2. For whom is a full refund of tax paid in Denmark provided?
   A full refund of tax paid in Denmark is available to anyone whose annual income did not exceed 42,900 Danish kroner.
   
   
3. What is the deadline for filing a tax return in Denmark?
   The deadline for filing a tax return with the Danish Tax Authority (SKAT) is May 1 or July 1, as the case may be.
   
   
4. Is it mandatory to file a tax return with the Tax Authority in Denmark?
   ​Yes, every employee in Denmark is required to file an annual settlement with SKAT. Failure to file a settlement exposes you to a penalty of about 5,000 Danish kroner.
   
   
5. What is a NemKonto?
   A NemKonto is an employee's special bank account into which SKAT tax refunds and work pay are transferred.
   
   
6. What is the period for filing a tax return and correction in Denmark?
   In Denmark, a tax return, correction or appeal can be filed up to 3 years and 4 months back.
   
   
7. Who has limited tax liability?
   Limited tax liability applies to those who work in Denmark but are not registered residents there. It only covers income earned in Denmark.
   
   
8. What does Personfradrag mean?
   Personfradrag is a personal tax credit that Danish residents who work for 12 months are entitled to.
   
   
9. What are NemID and Tastselv?
   NemID and Tastselv are special codes needed for electronic tax return in Denmark, which can be ordered online.
   
   
10. What is ejendomsværdiskat?
    Ejendomsværdiskat is a Danish property value tax that covers real estate regardless of its location. It requires residents of Denmark to pay, even for properties outside the country.
    
    
11. What are the reliefs and exemptions for cadastral tax?
    There are various concessions and exemptions, including for people over 65, those who rent property, or those who own property abroad.
    
    
12. What is ejendomsskat (Municipal Property Tax)?
    Ejendomsskat is a Danish land value tax, taxing the value of real estate including improvements.
    
    
13. What is Skat til udbetaling?
    Skat til udbetaling is the tax refund information on a tax decision.
    
    
14. What is Restskat til betaling?
    Restskat til betaling is information about a tax surcharge on a tax decision.
    
    
15. What are Forskudsopgorelse and Selvangivelse?
    Forskudsopgorelse and Selvangivelse are tax cards in Denmark that contain the TastSelv number needed for online tax return.
    
    
16. What is Feriepenge and who is eligible?
    Feriepenge is a vacation benefit for legally working people in Denmark. It is earned for each month worked.
    
    
17. What is a Personnummer?
    Personnummer is the Danish equivalent of TIN, necessary for tax and VAT settlements.
    
    
18. What is Sundhedsbidrag?
    Sundhedsbidrag is the contribution to health insurance in Denmark.
    
    
19. What is Arbejdmarkedsbidrag (AM-bidrag)?
    Arbejdsmarkedsbidrag is an 8% contribution to the labor market in Denmark.
    
    
20. What is the Danish Skattestyrelsen?
    Skattestyrelsen is the tax authority in Denmark.