Denmark Personal Income Tax

Residents in Denmark are subject to Danish tax on their worldwide income. Nonresidents are taxed on Danish-source income, including the following:

  • Income from a permanent establishment in Denmark
  • Salary related to work performed in Denmark
  • Directors’ fees
  • Income from real property in Denmark
  • Dividends
  • Royalties

Individuals are generally considered to be resident if they perma­nently reside or are present in Denmark for more than six months.

Denmark applies a rather strict interpretation for determining Danish-source income in connection with the hire-out of labor if individuals legally employed abroad are being, in fact, regarded as working for and on behalf of a Danish employer. As a result, individuals normally not covered by the ordinary tax regimes may be subject to tax liability, and reporting, withholding and registration may be required. This matter, as well as taxation under the hydrocarbon tax legislation, is not covered by this guide.

Income subject to tax. Income is divided into personal income and net capital income. Accordingly, taxable income consists of personal income plus or less net capital income or loss and less allowable deductions.

Employment income. Personal income from employment consists of wages, salaries, directors’ fees, pensions, allowances and fringe benefits. In principle, all benefits in kind are taxable at their fair market value. However, the values assigned to the per­sonal use of a company car, company phone and certain other benefits is determined according to special tables.

School fees paid by employers on behalf of their employees, such as international school fees, are deemed to be salary income and taxed accordingly.

A special tax regime applies to expatriates employed by a Danish resident employer. Salary income is taxed at a flat rate of 31.92%, including the 8% labor market tax, for one or more periods up to a total of 60 months.

To qualify for the special tax regime, the individual cannot have been tax resident or otherwise tax liable to Denmark on salary or similar income or business income within the last 10 years. In addition, the individual cannot have had a controlling influence in the employing company five years before or during the employment. Additional criteria apply.

Two alternatives exist for individuals to qualify for the special expatriate tax regime. Under the first alternative, the individuals’ cash salary must be at least DKK62,300 per month (2016). Under the second alternative, the individual must be acknowledged as a scientist or researcher by the Danish Council for Independent Research. No minimum salary requirement applies for the sec­ond alternative.

After the 60-month period, the expatriate is taxed according to ordinary income tax rules. Income other than salary earned dur­ing the use of the special regime is subject to tax at the normal progressive tax rates.

Self-employment or business income. Business or self-employ­ment income is taxed as ordinary income (personal income) for the business owner. Expenses are deductible to the extent they are incurred to obtain, secure or maintain business income.

Persons with business income may choose to tax this income under the Business Tax Act. Under these rules, taxable income from a trade and industry, including income from partnerships, is assessed in accordance with the principles used for companies, including rules for depreciation and write-offs.

Investment income.  Net capital income includes interest income (less interest expenses), taxable gains on securities, rental income and other investment income. It is generally subject to tax as or­dinary income. Dividends and capital gains on the sale of shares are taxed separately at 27% or 42%, depending on the level of income. Royalties received by residents are taxed as personal income. Royalties received by nonresidents are subject to a 22% withholding tax.

Dividends are subject to a 27% withholding tax. If total dividend income exceeds DKK50,600 (DKK101,200 for married couples), residents are subject to a supplementary 15% tax.

Taxation of employer-provided stock options. Gains realized by an employee on the exercise of an option obtained under an employer-provided stock option plan are taxable. No tax is due at the time of vesting. In general, the gains are subject to the highest mar­ginal rate of income tax, which is 51.95% in 2015. The gains are subject to labor market tax at a rate of 8%.

Tax may be deferred until the disposal of the shares awarded before November 2011. In the event of such deferral, the employ­ee is taxed at the lower rates for capital gains on shares and the Danish entity cannot claim a tax deduction for the costs. Several requirements have to be fulfilled to obtain a tax deferral, includ­ing the following:

  • The employee and the employer must enter into an agreement on the matter.
  • The accountant of the Danish entity must issue a statement certifying that the requirements for a tax deferral are satisfied.

Capital gains and losses. Capital gains tax is levied on individuals at rates of up to 42%.

Gains derived from the disposal of bonds are generally taxable, and losses are deductible.

Gains derived from the disposal of shares are taxable as share income at a maximum rate of 42%. On departure from Denmark, certain shareholders are deemed for tax purposes to have dis­posed of their shares at the fair market value and are taxed on the deemed gain. If a shareholder applies for an extension and does not pay the exit tax, the shareholder may obtain a refund of the difference between the tax on the deemed gain and the tax on any subsequent lesser gain actually realized. The tax on the deemed gain applies only to individuals who have been subject to unlim­ited tax liability for one or more periods, totaling 7 years within the 10 years before departure.

Gains derived from the disposal of residential property are not taxable if the owner occupied the property and if certain other conditions are met. Gains derived from the disposal of other real property are taxable as capital income.

Deductions

Deductible expenses. Contributions to pension schemes with limited annuities are deductible up to an annual maximum of DKK52,400 (2016), while contributions to certain employer-administered life annuity schemes are fully deductible.

Interest paid on all types of debt is deductible from capital income. If this results in a negative amount, approximately 33% (2016) of the negative amount may be offset against tax payable on other income.

Items that may be deducted from taxable income include, among others, the following:

  • Commuting costs to and from work (special rates)
  • Fees paid to labor unions and unemployment insurance
  • Child support and spouse support or alimony payments

Personal deductions and allowances. Each taxpayer is permitted a personal allowance of DKK44,000 (2016) and a supplementary allowance for salaried employees of 8.3% of salary income, up to a maximum amount of DKK28,000 (2016). Both are applied automatically during the tax calculation process. A further allow­ance may apply for single parents. A personal allowance not used by one person may be transferred to the spouse. This does not apply to individuals taxed under the special expatriate tax regime.

Rates. For 2016, income tax is levied on residents at the mar­ginal rates shown in the table below. Dividends are taxed sepa­rately (see Investment income).

An 8% mandatory labor market tax is imposed on all salary income. Income taxes are calculated on the income after labor market tax and the following shows the approximate total mar­ginal income and labor market tax rates applicable for 2016.

Taxable income Tax rate Tax due Cumulative tax due
DKK % DKK DKK
First 47,826 8 3,826 3,826
Next 460,108 42 193,245 197,091
Over 507,934 56 ­

 

The above rates are estimates based on the average municipality tax rates and do not reflect the voluntary church tax.

Nonresidents. The tax rates applicable to residents also generally apply to nonresidents.

Relief for losses. Trading losses and interest expenses may be offset against other income and taxable gains. Tax losses may be carried forward for an unlimited number of years, but carrybacks are not allowed. Losses from certain types of passive partnership interests, such as a business with more than 10 non-working own­ers, may be offset only against income from the same business.

Other taxes

Home-ownership tax. Home-ownership tax applies to homes or vacation houses in Denmark. The tax also applies to properties located abroad that are owned by Danish tax residents. However, home-ownership tax is not imposed if the property is rented out. The tax rate is 1% of the public value of the property up to DKK3,040,000, and 3% of the value exceeding DKK3,040,000. Similar tax paid abroad on foreign property may be credited.

Inheritance tax. Assets inherited by a spouse or registered partner (see Section G) are not subject to inheritance tax.

Inheritance tax at a rate of 15% is levied on the total value of estates exceeding DKK276,600 (2016). No additional tax is lev­ied for beneficiaries closely related to the deceased (for example, cohabiters, descendants, stepchildren and their descendants, parents, sons- and daughters-in-law, and divorced spouses). For other beneficiaries, an additional tax at a rate of 25% is levied, resulting in a total effective tax rate of 36.25% of the inheritance. Further conditions apply to the calculation.

Inheritance tax applies to estates of nonresidents only if the estate includes property located in Denmark or if a Danish probate court administers the estate.

Gift tax. Gifts to a spouse or registered partner are not subject to tax.

Gift tax at a rate of 15% is levied on gifts to the following:

  • Lineal descendants
  • Stepchildren and their descendants
  • Sons-in-law and daughters-in-law
  • The spouse of a deceased child or stepchild
  • Individuals residing with the donor two years before the event
  • Foster children (if certain conditions are met)
  • Parents

Gift tax at a rate of 36.25% is levied on gifts to stepparents and grandparents. Gifts to less closely related persons and to unre­lated persons are subject to ordinary income tax, not gift tax.

Gifts of up to DKK61,500 (2016) a year may be donated free of gift tax to the following:

  • Descendants
  • The spouse of a deceased child or stepchild
  • Individuals residing with the donor two years before the event
  • Foster children (if certain conditions are met)
  • Parents
  • Stepparents
  • Grandparents

An annual tax-exempt gift of up to DKK21,500 may be made to sons- and daughters-in-law.

Nonresidents are subject to gift tax if the donor or donee is a Danish resident or if the gift is Danish real estate.

Social security

Contributions. The monthly contribution to the Danish Supple­mentary Pension Scheme (ATP) for 2016 is DKK284, of which 1/3 is borne by the employee through payroll withholding. The annual cost of insurance depends on the nature of the business and other factors. For a white-collar employee, this may be approximately DKK6,000.

Other mandatory contributions for coverage in Denmark do not apply.

Totalization agreements. To provide relief from paying double social security contributions and to assure benefit coverage, Denmark has entered into totalization agreements, which usually apply for periods up to 36 months, with the following jurisdictions.

Australia                              Greenland                   New Zealand

Bosnia and                           Iceland                        Norway

Herzegovina                         India                           Pakistan

Canada*                               Israel                           Philippines

Chile                                    Korea (South)             Serbia

China                                   Liechtenstein               Switzerland

European Union                   Macedonia                  Turkey

(EU) member states             Montenegro                United States

Faroe Islands                       Morocco

* Including Quebec

Tax filing and payment procedures

The Danish tax year is the calendar year. Before each tax year, an advance income assessment must be made for each taxpayer. Advance tax is paid through deductions (withholding) from employment income. In addition, if self-employment income or net capital income rises to a certain level, advance tax is paid through prepayments claimed from the individual by the authori­ties in 10 installments over the tax year, based on the advance assessment.

After each tax year, taxpayers must file tax returns no later than 1 July of the following year. Any overpaid tax is refunded by the tax authorities when the final tax assessment notice is issued. Underpaid tax, including interest, up to DKK19,000 (2016) is carried forward to the following year while the remainder is due in three installments in September, October and November. Married persons must file separate tax returns. In the tax calcula­tions, certain deductions may be transferred between the spouses.

Voluntary payment of tax may be made during the fiscal year and until 1 July of the following fiscal year in order to save interest on underpaid tax.

Double tax relief and tax treaties

If a Danish resident taxpayer receives income from abroad, tax relief may be provided either through a foreign tax credit or by exemption with progression. Relief is provided in accordance with either a tax treaty or Danish domestic law.

Danish law grants a foreign tax credit for income taxes paid abroad. The credit may not exceed the lesser of the income tax paid abroad or the Danish tax payable on the same income. Domestic Danish law also contains an exemption with progres­sion that applies to salary income for work performed outside Denmark during working periods exceeding six months. Further conditions must be met. The rule applies only to individuals who are tax residents in Denmark according to domestic law (that is, fully taxable) while working abroad.

Denmark has entered into double tax treaties with the following jurisdictions.

Argentina                        Hungary                     Philippines

Australia                          Iceland                        Poland

Austria                            India                           Portugal

Bangladesh                      Indonesia                    Romania

Belgium                           Ireland                        Russian

Bermuda                          Isle of Man                 Federation

Brazil                               Israel (c)                     Serbia

British Virgin                  Italy                            Singapore

Islands (d)                       Jamaica                       Slovak Republic

Bulgaria                           Japan                          Slovenia

Canada                            Jersey                         South Africa

Cayman Islands               Jordan (d)                   Sri Lanka

Chile                                Kenya                         Sweden

China (b)                         Korea (South)             Switzerland

Croatia                             Kuwait                        Taiwan

Cyprus                            Latvia                         Tanzania

Czech Republic               Lebanon (d)                Thailand

Egypt                               Lithuania                    Trinidad

Estonia                            Luxembourg               and Tobago

Faroe Islands                   Macedonia                  Tunisia

Finland                            Malaysia                     Turkey

Georgia                           Malta                          Uganda

Germany                         Mexico                       Ukraine

Ghana                              Montenegro                USSR (a)

Gibraltar                          Morocco                     United Kingdom

Greece                             Netherlands                United States

Greenland                        New Zealand              Venezuela

Guernsey                         Norway                      Vietnam

Hong Kong SAR            Pakistan                      Zambia

(shipping) (d)

a) The Denmark-USSR double tax treaty of 1986 probably covers Armenia, Belarus, and Kyrgyzstan, but this needs to be definitively confirmed. Denmark has entered into double tax treaties with Estonia, Latvia, Lithuania, the Russian Federation and Ukraine. Azerbaijan, Moldova, Tajikistan and Uzbekistan do not regard themselves as being covered by the Denmark-USSR double tax treaty of 1986.

b) The treaty does not apply to the Hong Kong or Macau Special Administrative Regions (SARs).

c)This treaty does not apply to Palestine.

d)These treaties primarily concern air and/or maritime traffic.

The treaties with France and Spain were terminated, effective from 1 January 2009.

Work and residence permits

Denmark is a member of the EU and of the Nordic Council. Consequently, varying rules apply for EU nationals, for citizens of

other Scandinavian countries (Finland, Iceland, Norway and Sweden) and for non-EU nationals who wish to enter Denmark.

The ordinary rules for EU citizens apply to citizens of Switzerland,

as well as to citizens of Iceland, Liechtenstein and Norway, the non-EU members of the European Economic Area (EEA).

Scandinavians. Nationals from other Scandinavian countries may

stay and work in Denmark without restrictions. However, if they take up residence in Denmark, they must register with the

National Registration Office in their local municipality.

Permission to be self-employed in Denmark is normally granted. However, for certain types of businesses, permission is granted

only if the Danish Commerce and Companies Agency finds that

a special Danish interest is served by establishing the business in Denmark.

EU nationals. EU citizens and EEA nationals may stay in

Denmark under the EU rules on free movement of persons and services. They may stay and work freely in Denmark for up to

three months. If EU citizens and EEA nationals wish to stay

longer than three months, they must within three months after their arrival in Denmark apply to the Regional State Administration

for a registration certificate, which is a formal proof of the rights

already conferred on an EU citizen/EEA national under the EU rules on free movement. Each member of an applicant’s family

must apply separately for an EU-residence certificate. The authorities process the application within two to three weeks, and the applicant is normally not prevented from working during that time. EU nationals who are commuting are not required to obtain a registration certificate.

EU-residence certificates issued to citizens from other EU member countries are valid indefinitely throughout Denmark. After five years’ uninterrupted residence in Denmark, the applicant may apply for a certificate of right to permanent residence.

Non-EU nationals. Citizens from jurisdictions other than EU/EEA countries and the Nordic Council countries may stay in Denmark for either the time period stated in their tourist or business visas or, if a visa is not required (visa-exempt nationals), up to 3 months within a 180-day period. Some citizens with biometric passports are exempt from the visa requirement. A work permit is required from the first day if the stay involves work in Denmark.

Non-EU/EEA nationals who want to work in Denmark must apply for a work and residence permit. Applications for work and residence permits must be sent to the Danish Agency for International Recruitment and Integration or to the Danish embassy or consulate in the area in which the individual has resided for longer than three months, depending on the type of work and residence permit for which the individual is applying.

Normally, profession or labor market considerations must war­rant a residence and work permit. When processing the applica­tion, the Danish Agency for International Recruitment and Integration pays particular attention to the following:

  • Whether professionals residing in Denmark or the EU/EEA who are qualified to carry out the relevant job are available (only applicable for certain types of permits).
  • Whether the nature of the relevant job is specialized enough to warrant a residence and work permit. Normally, work permits are not granted for ordinary skilled-labor vacancies or unskilled positions.

Regardless of the specific circumstances, a written job contract or offer specifying the salary and employment conditions is required. This must correspond to Danish employment law and standards.

Certain special schemes are designed to allow highly qualified professionals from abroad to obtain a residence and work permit in Denmark. Under a Fast-track Scheme, which is effective from 1 April 2015, certified companies with a Danish entity can more easily, and with shorter notice, obtain work and residence permits for recruited foreign employees.

In some cases, the Danish Agency International Recruitment and Integration obtains a statement from the relevant branch organi­zation or regional labor market council to process an application.

If the applicant still meets the condition of the original work and residence permit, the permit can be extended. If the individual applies for the extension before the expiration of the current work permit, he or she remains compliant and is allowed to continue working until the extension application has been processed.

If an individual already holds a Danish residence permit based on family reunification, asylum, or humanitarian grounds or holds a dependent residence permit, a work permit is not required.

Family members. After specific consideration, residence permits may be granted to family members of individuals who have resi­dence and work permits in Denmark.

Biometric residence cards. Citizens of non-EU jurisdictions are issued biometric residence cards, which include the holder’s facial image and fingerprints stored on a microchip embedded in the card. The residence card allows the non-EU national to travel within the Schengen area. If the individual does not have a valid residence card in his or her possession, he or she is required to apply for a re-entry permit.

Family and personal considerations

Marital property regime. Under Danish law, a regime of “ordinary community property” (fwlleseje) applies between spouses and between persons of the same sex who have formed a registered partnership. (The legal consequences of a registered partnership are the same as those of a marriage.) Community property in cludes all property brought into the marriage and all property acquired during the marriage.

Driver’s licenses. Different rules apply to citizens from Nordic countries, EU member countries and non-EU member jurisdic­tions who wish to use their home jurisdiction driver’s licenses in Denmark.

Nordic and EU nationals. Expatriates from Nordic countries and EU nationals may drive legally in Denmark with their home jurisdiction driver’s licenses until expiration. Certain time limita­tions apply depending on the expiration date of the EU driver’s license.

Non-EU nationals. As a general rule, non-EU and non-Nordic individuals may drive in Denmark for only up to 90 days after registration of residence. After the 90 days, the driver must pass a Danish driving test and accordingly obtain a Danish driver’s license to continue to drive in Denmark.

Individuals from specified jurisdictions may legally drive using a foreign driver’s license for up to one year from the date of regis­tration. The foreign license may be changed into a Danish license without passing a driving test. Special further conditions may apply, depending on the jurisdiction.

For 2016, individuals from the following jurisdictions may exchange their driver’s licenses for Danish driver’s licenses with­out having to pass a Danish driving test.

Australia                     Chile                                Switzerland

Bosnia and                 Japan                               Taiwan

Herzegovina               Korea (South)                  Ukraine

Brazil                          Russian Federation          United States

Canada                       Singapore

To exchange the foreign driver’s license for a Danish license, the following items must be presented to the driver’s license bureau:

  • The home jurisdiction driver’s license
  • A residence permit
  • A photograph
  • A fee of DKK280

Passing a driving test results in further fees. English-speaking driving instructors and/or interpreters are available in certain Danish driving schools. Individuals may also be required to pass a physical examination.