Tax returns and compliance
Termination of residence
Economic employer approach
Types of taxable compensation
Salary earned from working abroad
Taxation of investment income and capital gains
Additional capital gains tax (CGT) issues and exceptions
General deductions from income
Tax reimbursement methods
Calculation of estimates/prepayments/withholding
Relief for foreign taxes
General tax credits
Sample tax calculation
All income tax information is summarized by KPMG Statsautoriseret Revisionspartnerselskab based on the Danish Individual Tax Act (personskatteloven), the Danish Tax Control Act (skattekontrolloven), the Danish Withholding Tax Act (kildeskatteloven), and the Danish Tax Assessment Act (ligningsloven).
When are tax returns due?
Individual tax returns must normally be filed no later than on 1 July of the year following the tax year. However, if the individual receives a pre-printed tax assessment from the tax authorities, any change to the pre-printed tax assessment must be filed no later than 1 May. The tax authorities send out a pre-printed tax assessment if the tax authorities deem the income statement to be very simple. It is possible to extend the due date from 1 May to 1 July upon a written application.
What is the tax year-end?
What are the compliance requirements for tax returns in Denmark?
Individuals who are Danish residents or who have had Danish source income are obliged to file a Danish tax return.
Individuals who become taxable in Denmark during the calendar year are obliged to file a preliminary tax assessment ("pre-assessment") for the remaining part of the year.
The Danish tax authorities will issue a tax card to the employee on the basis of the preliminary tax assessment for the coming income year. The tax card information automatically becomes available to the Danish employer. If no valid tax card is available at the time of payment, the Danish employer must withhold 55 percent tax. Employees of a foreign employer with no Permanent Establishment in Denmark must must meet their preliminary tax liability by paying the taxes themselves in 10 equal installments during the year (June and December are exempt).
The final tax is calculated when the tax return has been filed in the year following the income year. Overpaid tax is refunded together with a non-taxable interest of 0.5 percent.
Outstanding taxes for the income year in question should be paid at the latest on 31 December (or the last bank day of the year) in the income year to avoid interest and extra charges. There will be a day-to-day interest (2.2 percent P.A. for income year 2016) on outstanding taxes from 1 January in the year following the income year. If the outstanding tax is not paid by 1 July in the year following the income year, a fixed fee of 4.2 percent (2016) is applied instead of the day-to-day interest.
Unpaid remaining tax liability of up to DKK19,000 (2015) will automatically be carried forward plus the related 4.9 percent fee and collected along with the preliminary taxes the following year. Outstanding taxes exceeding DKK19,000 will be collected in September, October and November together with the related 4.9 percent fee.
Statute of limitations: The tax assessments may be changed by either the tax authorities or the taxpayer until 1 May of the fourth year after the end of the income year. In certain situations, the Danish tax authorities can only make changes until 1 July two years following the end of the income year.
Tax formalities on entering Denmark: The employee must register for a tax card.
Tax formalities on leaving Denmark: The employee must notify the registration authorities and the tax authorities.
Every year in March/April following the tax year, a resident will receive either a pre-printed tax assessment or an information letter from the Danish tax authorities. If the pre-printed tax assessment does not contain the correct taxable income or deductions, corrections must be returned to the tax authorities by 1 May at the latest. The filing deadline may be extended to 1 July by written application.
If the individual receives an information letter instead of a pre-printed tax return, the tax return must be filed no later than 1 July following the tax year.
If the individual has foreign income (such as rental income, salary, shares, or a house abroad), one or more special tax forms must be filed. Foreign wealth must also be declared on a separate tax form.
Non-resident must fill out an individual tax return and send it to the tax authorities no later than 1 July.
Non-resident individuals only have to declare Danish source income in their Danish tax return.
What are the current income tax rates for residents and non-residents in Denmark?
Personal income tax table 2016
|Taxable income bracket||Marginal tax rate including labor market tax*|
|From DKK||To DKK||Percent|
* Without voluntary church tax of an average of 0.702 percent and based on an average municipality tax rate. The marginal tax rate may vary approximately + 1-2 percentage point depending on which municipality the taxpayer lives in. The calculation of the marginal tax rate includes the taxable value of a mandatory employment allowance. The allowance is maximized to DKK 28,000 (2016) for employed individuals.
Taxation is based on categories of income. For example, interest is classified as investment income, and employment income is classified as personal income. Different tax rates apply to the different categories. The 2016 tax rates are as follows.
Local tax rates vary, but the average local tax rate for 2016 is approximately 27.91 percent, excluding voluntary church tax.
The state tax rates are as follows.
The tax rate for aggregate taxable income plus positive net investment income is 9.08 percent (2016).
The tax rate for personal income plus positive net investment income plus contributions to lump sum pensions exceeding DKK467,300 (2016) after AM-contribution is up to 15 percent.
Please see further below.
For the purposes of taxation, how is an individual defined as a resident of Denmark?
An individual who has a home in Denmark where he/she lives is resident for tax purposes.
An individual who stays in Denmark for at least six consecutive months is also resident in Denmark for tax purposes. Short stays abroad for leisure or holiday will not interrupt the six-month period. The tax liability comes into effect from the date of first arrival.
Tax liability ends when the individual leaves Denmark, provided no accommodation is no longer available in Denmark (his/her house/apartment is either sold/notice given to landlord or rented out on a contract that cannot be terminated by the lesser for a period of at least three years).
Is there a de minimis number of days rule applying to residency start and end date? For example, taxpayers cannot come back to the host country for more than 10 days after their assignment has ended and they repatriate.
What if the assignee enters the country before the assignment begins?
The individual becomes resident from the day of arrival regardless of when the assignment begins.
Are there any tax compliance requirements when leaving Denmark?
When leaving Denmark permanently, the taxpayer should notify the local tax office. Exit taxes may apply.
What if the assignee comes back for a trip after residency has terminated?
Visits or holidays in Denmark do not result in tax liability; see under Residence Rules.
Do the immigration authorities in Denmark provide information to the local tax authorities about a person entering or leaving Denmark?
No. Even where a visa is required, the immigration authorities will not pass on information about the individual to the tax authorities. However, the individual is required to register with the civil register (Folkeregister) where the authorities register the names and addresses of all residents in Denmark. The civil register (Folkeregister) will pass on information to the tax authorities, and information from the immigration agency is registered with the civil register (Folkeregister).
Will an assignee have a filing requirement in the host country after leaving the country and repatriating?
Upon termination of residence in Denmark, a final tax return must be submitted to the tax authorities. The tax return is due on the ordinary tax return filing deadline, i.e. typically 1 May in the year after the income year in question; however in some cases the filling deadline is 1 July. As mentioned earlier, exit taxes may apply.
Do the tax authorities in Denmark adopt the economic employer approach to interpreting Article 15 of the OECD treaty? If no, are the tax authorities in Denmark considering the adoption of this interpretation of economic employer in the future?
Denmark does adopt the economic employer approach to interpreting Article 15 of the OECD treaty. However, a few comments are necessary. Taxation in Denmark is based on tax liability according to domestic law as ordinary tax resident or non-resident. If the employee is non-resident, salary income is taxable in Denmark only if the employer is resident in Denmark or carries out business in Denmark through a permanent establishment and the duties under the employment contract are performed in Denmark (or if the employee is hired out to a Danish entity).
Consequently, where the individual is not formally an employee of the Danish employer or an employee of the foreign entity doing business in Denmark, but his/her role in the company is similar to that of an employee, the authorities may try to categorize the Danish company as the employer. A Danish Supreme Court ruling from 2003 laid down that a non-resident employee who was assigned to work in Denmark could, under certain conditions, be treated as an employee of the Danish company even though the employment contract was concluded with a foreign group company and that foreign company paid the employee’s salary.
If treated as an employee, the employee is liable to tax in Denmark according to domestic law, and Article 15 of the double tax treaties is consequently seen as granting the right of taxation to Denmark, so that 183 days relief is not available. If the salary is recharged to Denmark, this will indicate that the individual should be categorized as an employee of the company doing business here.
Even if the salary should have been recharged according to normal business principles, failure to do so does not necessarily mean that the tax authorities will not regard the individual as an employee of the Danish entity.
Are there a de minimis number of days before the local taxation authorities will apply the economic employer approach? If yes, what is the de minimus number of days?
What categories are subject to income tax in general situations?
Virtually all types of remuneration, in-cash or in-kind, received by an employee for services performed constitute taxable income. Typical taxable items in an expatriate compensation package are:
The taxable value of employer provided free accommodation is set at fixed rates depending on the size and location. The maximum taxable amount is DKK 98,162 (2012) per year. Please note the Danish tax authorities have announced that they expect to abolish the fixed rates as per 1 January 2013 and instead tax the market value of the housing. Free heating, water, and electricity are taxed on the basis of the actual costs. Free accommodation is not subject to AM-contributions. For directors and other persons who have determining influence on their own remuneration, the taxable value is an amount corresponding to the property value tax plus 5 percent of an adjusted value of the property and actual property tax if the employer owns the property. If the accommodation is rented by the employer, the taxable value is the actual rent paid. In both cases, payment for heating and so on by the employer is taxed on the basis of the costs. Free accommodation for managing directors and other persons with influence on their own remuneration is subject to AM-contributions:
The following rules apply to a company car available for private use.
The private use of a telephone paid by the employer is taxed by maximum DKK 2,700/year (2016).
Employee stock options are normally taxed when the option is exercised. Please see Capital Gains Taxation on Disposal of Shares regarding taxation on gains on a subsequent sale of shares.
A lump sum received on termination of employment is taxed as personal income. The first DKK 8,000 (2016) is tax exempt.
Are there any areas of income that are exempt from taxation in Denmark? If so, please provide a general definition of these areas.
Benefits-in-kind are taxable at market value. However, some benefits-in-kind are tax exempt if they are provided by the employer mainly for use in the course of the employee’s work. The amount must not exceed DKK 5,800 (2016).
Some benefits-in-kind can be tax free if the value of these benefits during the income year is below DDK 1,100.
Employees are entitled to receive tax exempt compensation from the employer or reimbursement for business travel within Denmark and abroad if:
An expatriate working temporarily in Denmark can also deduct expenses for food in Denmark for up to two years. For the first 12 months, a fixed deduction may be used and in the following 12 months actual expenses can be deducted. In addition, lodging expenses incurred during the two years are deductible. The annual deduction is capped at DKK 26,200 (2016). These special allowances do not apply if the 26 percent tax scheme has been chosen or the above-mentioned allowance has been granted.
Employer provided accommodation and food is exempt from income taxation.
Moving expenses reimbursed or paid directly by the employer are tax exempt for employees transferred within a group of companies. Vouchers must support the expenses.
Generally taxable.; however may be exempt from income taxation if work place is temporary and the family stays in the home country.
Employer provided education costs are tax exempt if they are provided to the employee in connection with his/her work.
If the employee uses his/her own car as business transportation, the employer can offer a tax-free travel allowance as follows (2016):
|Distance||Tax-free travel allowance|
|Up to 20,000 kilometers per year||DKK3.63/kilometer|
|More than 20,000 kilometers per year||DKK1.99/kilometer|
Business travel is defined as:
If the employer does not offer the business travel allowance, even if the conditions are fulfilled, the employee can deduct a travel allowance. Please see General Deductions from Income.
Health care benefits provided by the employer are tax exempt provided the benefits are offered as a general scheme to all employees and there is a medical referral for the treatment.
Are there any concessions made for expatriates in Denmark?
Expatriates assigned to Denmark can opt for a 31,92 percent (26 percent flat rate plus labor market contribution) gross tax on their cash remuneration, taxable value of company car and company paid telephone and company paid halth care insurance. All other income, including other benefits, is taxed at ordinary tax rates.
The conditions are as follows.
Unused personal allowances and tax exempted thresholds cannot be transferred from an expatriate taxed under the 26 percent scheme to his/her spouse. Employees (and their spouses) who commence employment under the expatriate tax scheme on 1 July 2004 or later cannot carry forward non-business related negative taxable income (such as interest expenses related to mortgage on real estate that is not let out).
Interest expenses must be allocated to the periods to which the interest expenses relate.
Special rules apply to research and development employees who are approved by the Danish Research Council.
Thirty percent withholding tax applies to income earned by non-residents working in Denmark in connection with oil and gas exploration and extraction on the Danish Continental Shelf, provided the employer does not have a permanent establishment in Denmark, and the employee is not hired out to a Danish entity.
In addition, a 30 percent withholding tax may be levied on salaries of non-resident employees on a hired out scheme (i.e. employees who perform services in Denmark for a Danish company other than the employer).
The entity receiving the services of the employee must withhold taxes. Danish labor market contributions apply in addition resulting in an effective rate of 35.6 percent.
Is salary earned from working abroad taxed in Denmark? If so, how?
According to domestic law Danish residents who perform duties abroad for more than six months may under certain circumstances be exempt from Danish tax on the remuneration attributable to the work abroad. In addition, tax treaties may grant exemption from Danish tax (often by the credit method).In connection with business trips, employees may receive a tax-free allowance together with reimbursement of all documented expenses. The tax-free allowance equals 25 percent of the applicable fixed travel allowance for meals. Instead of the reimbursement, the employee may receive 100 percent of the fixed tax-free travel allowance of DKK 682 per day (DKK 477 meals plus DKK 205 lodging) (2016). In this case the employee must pay for the actual expenses.
The tax-free travel allowance for meals can only be paid for overnight trips which last more than 24 hours and only for a period of 12 months in the same place. The allowance for lodging can be paid as long as the trip is temporary.
Are investment income and capital gains taxed in Denmark? If so, how?
All investment income, irrespective of source, is subject to Danish tax when the recipient is resident in Denmark. Investment (or capital) income includes for example:
Interest expenses are deductible in computing net investment income.
Interest and rental income are taxable as investment (or capital) income with a marginal tax of 42 percent (2016). For positive net investment income up to DKK 41,400 per year per spouse the tax rate is approx. 37 percent.
Dividends are taxed separately at fixed rates of 27 percent/42 percent. The rate of 27 percent applies up to a limit of DKK 50,600 and the rate of 42 percent applies to gains above DKK 50,600 (2016). For married couples, a double threshold applies.
Are there additional capital gains tax (CGT) issues in Denmark? If so, please discuss?
Gains or losses on shares are generally taxable and calculated as the difference between the market value in DKK at disposal and the market value in DKK at purchase. However, if the shares were acquired before the individual became resident in Denmark the market value of the shares at the time of arrival in Denmark is used as the purchase price for Danish tax purposes.
Gains are taxed as income from shares, irrespective of the period of ownership.
Losses on unlisted shares can be offset against income from shares without restrictions. The tax value of a negative income from shares can be offset against the final tax on ordinary income.
Losses on listed shares in general can be offset against gains, dividends, and sales proceeds from other listed shares. The availability of a tax deduction for realized losses on listed shares is conditioned upon the Danish tax authorities receiving information - within a certain deadline - regarding the acquisition of the shares including identity, number of shares, acquisition time and purchase price.
Gains and losses are normally calculated based upon the average purchase price for shares in the particular company.
Transitional rules apply for certain shares purchased before 1 January 2006.
Taxable gains and losses derived from bonds are treated as capital income, and are taxed at a marginal percentage of 42 (2016). Transitional rules apply for certain bonds in Danish currency purchased before 27 January 2010 implying that the gain is tax exempt.
Capital gains and losses are only taxable/deductible if the total net gain/loss exceeds an annual amount of DKK 2,000, in which case the full amount is included in the capital income.
Gains and losses are generally taxed or deductible upon realization.
Gains on assets and liabilities in foreign currencies are taxable and losses are deductible. The provisions cover all types of financial assets and liabilities, including bank accounts. The gains or losses include changes in the exchange rate as well as changes in the market value of the asset or liability. Net gains and losses of less than DKK 2,000 on financial assets and liabilities etc. are not included in the tax basis.
A gain from the sale of a private residence in which the owner has lived is tax exempt, provided that the site is less than 1,400 square meters. If the site exceeds 1,400 square meters, it must be illegal to parcel out the property for further buildings or impossible to parcel out the property without significant value depreciation. Otherwise, capital gains on property are taxed as investment income. Recaptured depreciation is taxable.
Gains on private personal assets, such as jewelry, paintings, cars, and boats, are normally tax exempt.
What are the general deductions from income allowed in Denmark?
Contributions to approved Danish pension plans are tax deductible.
According to the tax treaty with the United Kingdom, Switzerland, the Netherlands, and Sweden, contributions to pension schemes set up in those countries may be tax deductible under certain circumstances.
Expatriates contributing to an exempted English pension plan may apply to the Danish tax authorities for permission to deduct contributions to the plan during residence in Denmark. It is a condition for the deduction that the expatriate contributed to the plan before coming to Denmark and that the U.K. employer has assigned the expatriate to Denmark.
Dutch employees may also under certain conditions be granted permission to deduct Dutch pension contributions for up to 60 months. For Swiss nationals, contributions to public saving pension plans are deductible for Danish tax purposes under certain conditions. No application to the Danish tax authorities is needed.
It is possible for a Swedish resident who commutes to his/her work in Denmark from his/her residence in Sweden to deduct payments to a Swedish private pension scheme in his/her Danish taxes if 75 percent of the individual's global income in the tax year is taxable in Denmark.
Contributions made to pension schemes set up and approved in other EU/EEA countries may be deductible for Danish tax purposes. Certain requirements must be fulfilled by the pension scheme, the pension provider and the individual owning the pension scheme if the pension scheme is to be approved for Danish tax purposes.
When an individual applies for an approval of an EU/EEA pension scheme for Danish tax purposes and thereby deducts the contributions to the pension scheme, the individual must agree to be taxed in Denmark on the distributions from the pension scheme, corresponding to the contributions for which a deduction was granted. Taxation is, however, dependent upon the applicable tax treaty.
An individual who moves to Denmark and has an existing pension scheme approved in an EU/EEA country may continue to contribute to the pension scheme for up to 60 months after arrival in Denmark under certain conditions. The contributions during the 60 months will be considered deductible for Danish tax purposes. Distributions from the pension scheme are not taxable in Denmark if the individual is not liable to taxation as a resident at the time of distribution.
There are no allowances for children or other dependents, but all residents who are insured under the Danish social security system and who have children under 18 years of age will receive a tax-free payment.
|Age 0-2 years||DKK 17,880 (2016) per year per child|
|Age 3-6 years||DKK 14,148 (2016) per year per child|
|Age 7-14 years||DKK 11,136 (2016) per year per child|
|Age 15-17 years||DKK 11,136 (2016) per year per child|
Under certain conditions, maintenance and child support payments to children under the age of 18 are deductible.
Commuting between home and work can be deducted at the following rates (2016).
|0 - 24 kilometers per day||No deduction|
|25 - 120 kilometers per day||DKK 1.99/kilometer|
|120+ kilometers per day||DKK 1.00/kilometer|
What are the tax reimbursement methods generally used by employers in Denmark?
Local employees generally have gross salary contracts. For international assignees net salary contracts with current year gross-up are often implemented.
It is not possible to use the one year roll-over method in Denmark.
How are estimates/prepayments/withholding of tax handled in Denmark? For example, Pay-As-You-Earn (PAYE), Pay-As-You-Go (PAYG), and so on.
Normally, the employer withholds tax in accordance with the tax rate on the tax card, which is issued along with the preliminary income assessment. The tax card information is electronically available for the employer. If no valid tax card is available at the time of payment 55 percent must be withheld by the employer on salary, etc.
If the income is defined as B-income (income not subjected to taxation at source), the income is subject to B-tax. B-taxes are normally paid by 10 installments directly to the tax authorities based on a pre-assessment. The payment is due by the 20th of each month. No payment is due in June and December.
When are estimates/prepayments/withholding of tax due in Denmark? For example, monthly, annually, both, and so on.
Normally, the employer withholds taxes each month from the employee’s salary and reports the income to the Danish tax authorities every month.
If the income is subject to B tax the employer does not withhold taxes but must report on a monthly basis.
Is there any Relief for Foreign Taxes in Denmark? For example, a foreign tax credit (FTC) system, double taxation treaties, and so on?
Credit relief is granted under Danish legislation if income from abroad is taxable both in Denmark and in the country of source. The relief is granted as a tax credit in computing the Danish withholding percentage and the final Danish tax calculation. The employer cannot apply a FTC at the source outside the tax card system.
In addition the Danish tax authorities can issue a certificate of non-withholding on income not subject to Danish taxation which allows the employer to pay out without withholding taxes at the source.
Denmark has concluded a broad network of double tax treaties. Most of the treaties apply the credit method, but some are still based on the exemption principle, which means that foreign income is not taxed in Denmark. The relief is granted in the same way as under the internal rules; see above.
What are the general tax credits that may be claimed in Denmark? Please list below.
There are no general tax credits in Denmark.
This calculation assumes a married taxpayer resident in Denmark with two children (spouse is not working), whose three-year assignment begins 1 January 2016 and ends 31 December 2018. The taxpayer’s base salary is USD100,000 and the calculation covers three years.
|Moving expense reimbursement||20,000||0||20,000|
|Interest income from non-local sources||6,000||6,000||6,000|
Exchange rate used for calculation: USD1.00 = DKK6.73.
Calculation of taxable income
|Days in Denmark during year||365||365||365|
|Earned income subject to income tax|
|Moving expense reimbursement||134,600||0||134,600|
|AM-contribution 8 percent||-95.566||-87.490||-95.566|
|Total taxable income||1,111,389||1,018,515||1,111,389|
Calculation of tax liability
|Taxable income as above||1,111,389||1,018,515||1,111,389|
|Total Denmark tax (including AM-contribution)||575,844||520,514||575,844|
|Foreign tax credits||0||0||0|
Sample tax calculation generated by KPMG Acor Tax based based on the Danish Individual Tax Act (personskatteloven), the Danish Tax Control Act (skattekontrolloven), the Danish Withholding Tax Act (kildeskatteloven), and the Danish Tax Assessment Act (ligningsloven).
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