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  • Service: Tax, Global Mobility Services
  • Type: Regulatory update, Survey report
  • Date: 1/22/2014

Denmark - Income Tax 

Taxation of international executives
Tax returns and compliance
Tax rates
Residence rules
Termination of residence
Economic employer approach
Types of taxable compensation
Tax-exempt income
Expatriate concessions
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).


Tax returns and compliance

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?


31 December.


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 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 (3.4 percent P.A. for income year 2012) 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 5.4 percent (2012) is applied instead of the day-to-day interest.


Unpaid remaining tax liability of up to DKK18,300 will automatically be carried forward plus the related 5.4 percent fee and collected along with the preliminary taxes the following year. Outstanding taxes exceeding DKK18,300 will be collected in September, October and November together with the related 5.4 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.


Residents


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-residents


Non-resident individuals do not receive a pre-printed tax assessment. They must fill out an individual tax return and send it to the tax authorities no later than 2 July.


Non-resident individuals only have to declare Danish source income in their Danish tax return.


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Tax rates

What are the current income tax rates for residents and non-residents in Denmark?


Residents and non-residents


Personal income tax table 2012


Taxable income bracket Marginal tax rate including labor market tax*
From DKK To DKK Percent
0 46,630 0.0
46,631 423,804 40.23
423,805 Over 55.4

* Without voluntary church tax of an average of 0.74 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 14,100 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 2012 tax rates are as follows.


Local tax rates


Local tax rates vary, but the average local tax rate for 2012 is approximately 32 percent, excluding voluntary church tax.


State tax rates


The state tax rates are as follows.


Basic tax rate


The tax rate for aggregate taxable income plus positive net investment income is 4.64 percent (2012).


High tax rate


The tax rate for personal income plus positive net investment income plus contributions to lump sum pensions exceeding DKK389,900 after AM-contribution is up to 15 percent.


Taxation of investment income and capital gains


Please see further below.


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Residence rules

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 he/she no longer has accommodation 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.


No.


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.


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Termination of residence

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.


Communication between immigration and taxation authorities


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).


Filing requirements


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.


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Economic employer approach

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. However, 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.


De minimus number of days


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?


No.


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Types of taxable compensation

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:


  • reimbursement of Danish and/or home country taxes
  • reimbursement of school fees
  • cost-of-living allowances
  • housing allowances.

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.


  • A moving allowance is taxable. However, if the individual is seconded within the same company or the same group of companies, he/she will be entitled to deduct actual expenses. In addition, he/she can deduct a lump sum ranging from between DKK3,000 and DKK6,000, depending on the size of his/her family and the level of personal belongings. Reimbursement by the employer of deductible moving expenses upon the presentation of vouchers will not impact taxable income, provided the employee is still employed by the same company or group.
  • Low-interest loans to employees are considered a taxable benefit-in-kind. For employees within the finance sector, the taxable value is calculated as the difference between the actual interest paid and the cost price for the employer. For other employees, the taxable value is calculated as the difference between the actual interest paid and the amount which would have been paid if the interest rate had equaled a prescribed minimum interest rate of 0 percent per year (1 January until 30 June 2012). The total interest, whether paid or calculated as a benefit, is tax deductible.
  • Other benefits-in-kind are generally taxable.

The following rules apply to a company car available for private use.


  • The taxable value of a company car equals 25 percent of the tax basis up to DKK300,000 and 20 percent of the exceeding tax basis. The minimum tax basis is DKK160,000. An "environment allowance" is added to the calculated tax value of the car. The value of the "environment allowance" depends on the size of the car.
  • For cars acquired within three calendar years from the first registration, the tax basis is the original purchase price.
  • After two calendar years following the year of registration, the tax basis is reduced to 75 percent.
  • For cars purchased three full calendar years or more after the first registration, the tax basis is the employer’s purchase price including expenses for improvements paid by the employer.
  • The calculated tax value of company cars includes fuel costs, insurance, etc.
  • The taxable value of company cars is subject to withholding taxes and AM-contributions.

The private use of a telephone paid by the employer is taxed by maximum DKK2,500/year (2012).


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. However, there are a number of approved plans which may defer or reduce taxation.


A lump sum received on termination of employment is taxed as personal income. The first DKK8,000 (2012) is tax exempt. The full amount is subject to AM-contributions.


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Tax-exempt income

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 DKK5,500 (2012).


Certain employer provided housing allowances (employer’s contribution to rent)


Taxable.


Certain employer provided housing allowances (cost of utilities)


Taxable.


Living away from home allowance (LAFHA)


Employees are entitled to receive tax exempt compensation or reimbursement for business travel within Denmark and abroad if:


  • the duration of the business travel is at least 24 hours and the employee sleeps away from his/her ordinary residence
  • it is not possible for the employee to spend the night at home due to the distance between the employee’s ordinary home and the temporary workplace.

An expatriate working temporarily in Denmark can also deduct expenses for food in Denmark for up to two years. For the first 12 months, the deduction is at fixed rates and in the following 12 months actual expenses can be deducted. In addition, lodging expenses incurred during the two years are deductible and employer provided accommodation is tax exempt. The deduction is capped at DKK 50,000. These special allowances do not apply if the 26 percent tax scheme has been chosen or the above-mentioned allowance has been granted.


Certain employer provided tax reimbursements


No.


Certain employer provided relocation reimbursements


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.


Home leave


Taxable.


Certain employer provided education costs


Employer provided education costs are tax exempt if they are provided to the employee in connection with his/her work.


Certain bonus payments


Taxable.


Certain interest subsidies


Taxable.


Certain auto allowances


If the employee uses his/her own car as business transportation, the employer can offer a tax-free travel allowance as follows:


Distance Tax-free travel allowance
Up to 20,000 kilometers per year DKK3.80/kilometer
More than 20,000 kilometers per year DKK2.10/kilometer

Business travel is defined as:


  • travel between several different work places for the same employer
  • travel inside the same work place or
  • travel between home and work for up to 60 work days within the previous 24 months.

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 insurance


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.


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Expatriate concessions

Are there any concessions made for expatriates in Denmark?


Expatriates assigned to Denmark can opt for a 26 percent (60 months) gross tax on their cash remuneration, taxable value of company car and company paid telephone. All other income, including other benefits, is taxed at ordinary tax rates.


The conditions are as follows.


  • The employee must become a resident or a non-resident for tax purposes in Denmark in connection with the commencement of the employment. The 26 percent tax scheme does not apply to an employee if he/she performs work outside of Denmark under such circumstances that the right to taxation shifts to another country according to a double tax treaty.
  • The Danish exemption rule for outbound expatriates (minimum six months abroad under section 33 A of the Danish Tax Assessment Act) does not apply to income taxed under the expatriate concession.
  • In the ten years preceding the beginning of the assignment, the employee has not been taxable in Denmark as a resident or a non-resident (certain types of income).
  • It is a condition that the employee has not been employed by the company (or a group company) for a period of three years before and one year after the employee terminated a previous Danish tax residence status or non-resident tax liability status. However, this rule does not apply if the employee has had no employment relation to that company or group for three years prior to commencing the work in Denmark.
  • The employee can only opt for the 26 percent tax rate for 60 months. If the employment in Denmark is prolonged, ordinary tax rates apply to the following years.
  • Guaranteed gross cash salary including taxable value of free car and free phone according to the employment contract must be at least DKK 69,390 (2012) in average per month in each calendar year before deduction of Danish labour market contribution of 8 percent and the Danish labor market supplementary pension scheme Arbejdmarkedets TillaegsPension (ATP) of DKK 90 per month (2012).
  • The employer is a Danish entity or a foreign entity with a permanent establishment in Denmark.

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.


Special rates – for employees working in the hydrocarbon sector and for employees working as hired out labor in denmark


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. The foreign employer must withhold taxes.


In addition, a 30 percent withholding tax is 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 Danish entity receiving the services of the employee must withhold taxes. ATP and Danish labor market contributions apply.


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Salary earned from working abroad

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 DKK650 per day (DKK455 meals plus DKK195 lodging). 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.


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Taxation of investment income and capital gains

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
  • capital gains on bonds and financial instruments
  • capital gains on assets and liabilities in foreign currencies

Dividends, interest, and rental income


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 approximately 45.5 percent (2012). Please note the marginal tax rate will be lowered gradually to 42% in 2012.For positive net investment income up to DKK 40,000 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 48,300 and the rate of 42 percent applies to gains above DKK 48,300 (2012). For married couples, a double threshold applies.


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Additional capital gains tax (CGT) issues and exceptions

Are there additional capital gains tax (CGT) issues in Denmark? If so, please discuss?


Capital gains taxation on disposal of shares


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. If the shares were acquired before the individual became resident in Denmark however, the market value of the shares at the time of arrival in Denmark is generally used as the purchase price for Danish tax purposes.


Capital gains on shares for individuals


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 and irrespective of the period of ownership. 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. This applies irrespective of the period of ownership. 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.


Capital gains tax on bonds


Taxable gains and losses derived from bonds are treated as capital income, and are taxed at a marginal percentage of 45.5 (2012). 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 upon realization.


Capital gains tax on assets and liabilities in foreign currencies


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.


Capital gains tax on real property


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 real 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.


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General deductions from income

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.


Cross-border commuter rules


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.


Pension schemes set up in EU/EEA country


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.


Expatriates with existing pension schemes set up in EU/EEA country


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.


Child benefit


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 Payment
Age 0-2 years DKK17,064 (2012) per year per child
Age 3-6 years DKK13,500 (2012) per year per child
Age 7-14 years DKK10,632 (2012) per year per child
Age 15-17 years DKK10,632 (2012) per year per child

Under certain conditions, maintenance and child support payments to children under the age of 18 are deductible.


Interest expenses are tax deductible. Certain limitations apply to non-residents and to individuals who, according to Danish law, are residents and who are also residents in their home country under a tax treaty between Denmark and the home country.


Commuting deduction


Commuting between home and work can be deducted at the following rates.


Distance Deduction
0 - 24 kilometers per day No deduction
25 - 120 kilometers per day DKK2.10/kilometer
120+ kilometers per day DKK1.05/kilometer

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Tax reimbursement methods

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.


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Calculation of estimates/prepayments/withholding

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.


PAYE for employees


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.


PAYG for business income and other non-salary income


If the income is defined as B-income (income not subjected to taxation at the source), the income is subject to B-tax. B-taxes are normally paid in up to 10 installments directly to the tax authorities.


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 and the employee must pay the 10 monthly installments. The payment is due by the 20th of each month. No payment is due in June and December.


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Relief for foreign taxes

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.


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General tax credits

What are the general tax credits that may be claimed in Denmark? Please list below.


There are no general tax credits in Denmark.


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Sample tax calculation

This calculation assumes a married taxpayer resident in Denmark with two children (spouse is not working), whose three-year assignment begins 1 January 2012 and ends 31 December 2014. The taxpayer’s base salary is USD100,000 and the calculation covers three years.


2012
USD
2013
USD
2014
USD
Salary 100,000 100,000 100,000
Bonus 20,000 20,000 20,000
Cost-of-living allowance 10,000 10,000 10,000
Housing allowance 12,000 12,000 12,000
Company car 6,000 6,000 6000
Moving expense reimbursement 20,000 0 20,000
Home leave 0 5000 0
Education allowance 3,000 3,000 3,000
Interest income from non-local sources 6,000 6,000 6,000

Exchange rate used for calculation: USD1.00 = DKK5.44.


Other assumptions


  • All earned income is attributable to Danish sources, except interest income.
  • Current 2012-tax rates are applied for 2013 and 2014 tax calculations.
  • Bonuses are paid at the end of each tax year, and accrue evenly throughout the year.
  • The company car is used for business and private purposes and originally costs in 2012 USD50,000.
  • The employee is deemed resident throughout the assignment.
  • Tax treaties are ignored for the purpose of this calculation, i.e. this is only a Danish tax calculation.
  • The employee lives in Copenhagen, Denmark.

Calculation of taxable income


Year-ended 2012
DKK
2013
DKK
2014
DKK
Days in Denmark during year 365 365 365
Earned income subject to income tax
Salary 544,000 544,000 544,000
Bonus 108,800 108,800 108,800
Cost-of-living allowance 54,400 54,400 54,400
Housing allowance 65,280 65,280 65,280
Company car 68,000 68,000 68,000
Moving expense reimbursement 108,800 0 108,800
Home leave 0 27,200 0
Education allowance 16,320 16,320 16,320
AM-contribution 8 percent (77,248) (70,720) (77,248)
Personal income 888,352 813,280 888,352
Interest income 32,640 32,640 32,640
Employment allowance 14,100 14,100 14,100
Total taxable income 906,892 831,820 906,892

Calculation of tax liability


2012
DKK
2013
DKK
2014
DKK
Taxable income as above 906,892 831,820 906,892
Total Denmark tax (including AM-contribution) 443,665 399,271 443,665
Less:
Foreign tax credits 0 0 0



1Certain tax authorities adopt an ‘economic employer’ approach to interpreting Article 15 of the OECD model treaty which deals with the Dependent Services Article. In summary, this means that if an employee is assigned to work for an entity in the host country for a period of less than 183 days in the fiscal year (or, a calendar year of a 12-month period), the employee remains employed by the home country employer but the employee's salary and costs are recharged to the host entity, then the host country tax authority will treat the host entity as being the ‘economic employer’ and therefore the employer for the purposes of interpreting Article 15. In this case, Article 15 relief would be denied and the employee would be subject to tax in the host country.


2For example, an employee can be physically present in the country for up to 60 days before the tax authorities will apply the ‘economic employer’ approach.


3Sample tax calculation generated 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).




© 2014 KPMG Statsautoriseret Revisionspartnerselskab, a Denmark Limited Liability Partnership and a member firm of the KPMG network of independent member firms affiliated with KPMG International Cooperative (KPMG International), a Swiss entity. All rights reserved.

 

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Taxation of international executives