Personal Tax in Denmark

1.    Introduction

Individuals are subject to full tax liability if

  • they are resident in Denmark, or
  • they stay in Denmark for six months or more consecutively.

Individuals subject to full tax liability are taxed on their world wide income whether originating from Denmark or abroad.

Even if an individual buys a property in Denmark, the individual will not be subject to full tax liability to Denmark until moving to Denmark. However, the individual may stay in Denmark for a period not exceeding three months running, or for 180 days within a 12-months’ period, without becoming fully tax-liable, as long as the individual stays in the nature of holidays and is not associated with any form of gainful employment.

If an individual has an income deriving from Denmark without living there, the individual may be subject to tax to Denmark on a limited liability basis.

2.    Rate

2.1    Income tax
The Danish income tax rate for individuals is progressive and comprises state, county and municipal taxes. On average, the progressive total income tax rates for 2012/13 are as follows:

Tax allowance bands 2012 – DKK 2013 – DKK
Personal allowance 42,000 42,900
In work allowance – percentage of annual salary 4.40% (max 14,100) 6.95% (max 22,300)
Top tax rate tax allowance  (note medium rate tax rate has been abolished from 2010) 421,000 389,900
Tax bands 2012 2013
Labour market contributions 8% 8%
Tax to municipality and church

between 23-29%

Health care contribution 6% 7%
Lower rate state tax 5.83% 4.64%
Higher rate state tax 15% 15%

Tax calculation

The initial DKK 42,900 of taxable income, which is tax free, is characterised as a personal allowance.

By deducting 8% in labour market contributions (equivalent to NI contributions) from the gross wage income you are left with an amount referred to as personal income.

From the personal income you deduct the capital income and allowances such as trade union membership contributions and unemployment insurance contributions and you are left with the taxable income.

Tax to the municipality and church

Taxable income less the personal allowance is taxed by the applicable percentage (average is 2.25% (2012/13).

Tax to the municipality varies from area to area and depends on the local budget. It is possible to elect out of paying tax to the church. About 85% of the taxpaying population pays tax to the church.

National Health Care Contribution
Taxable income less the personal allowance is taxed by 8%.

Lower rate state tax

Personal income and any positive capital income less personal allowance is taxed at 5.83% (2012) and 4.64% (2013).

Top rate state tax
Personal income and any positive capital income as well as employer’s pension contributions only less top rate tax allowance, DKK389,900 is taxed at 15%. Top rate state tax is capped when reaching a ceiling of 51.5%.

2.2    Dividends and capital gains on shares
From 2010 the tax rate on dividend and capital gains on shares held for more than 3 years is 27% of the first DKK 48,300 and 42% of dividends and capital gains above DKK 48,300.

Capital gains on shares are as of 1 January 2006 taxed regardless of the length of period of ownership. Capital gains on portfolios of shares in listed companies valued at less than DKK136,600 (or for married couples DKK273,000) and held since 31 December 2005 are tax free if the shares have been held for a minimum of 3 years at the point of sale. This is mirrored by the fact that capital losses on such portfolios are not tax deductible.

When calculating tax on capital gains on shares a distinction is made between listed and unlisted shares. Capital losses on listed shares can only be offset against dividends and capital gains on listed shares whilst capital losses on unlisted shares can be offset against any dividends and gains on shares. It should also be noted, the right to offset capital losses is conditional on having reported the share purchase to the tax authorities.

2.3    Property value tax

Property tax is a tax on the property value of an owner-occupied dwelling. It is calculated on the basis of the value of the property, which value is determined by a tax assessment of real property. Property tax is payable on Danish as well as foreign properties.

The rate for values up to DKK3,040,000 is 1% and for values above the rate is 3%.

2.4    Taxable income

Basically all income is taxable, whether it is paid in cash or as fringe benefits, for example company car or housing. The taxable income comprises salary, fringe benefits, profit from letting real estate, interest, capital gains on shares held for less than three years, bonds etc.

With effect from 2012, the benefit of having a work telephone provided including internet access is taxed by adding a fixed amount of DKK2,500 to the personal income per year for the employee.
Interest on debt, mortgage etc is tax deductible; however the deductible amount will gradually be reduced from 2012 by 1% per year up to and including 2019 for interest above DKK50,000 per person per year (DKK100,000 per married couple). The tax value of the allowance is thereby gradually reduced from 31.7% to 25.7%.

As mentioned above capital gains on shares that are listed on the stock exchange and held for more than three years are only subject to tax under certain conditions. Capital gains on securities are likewise only subject to tax under certain conditions.

Capital gains on sale of real estate is, as a general rule, tax exempt if the owner has used the property as private residence and the plot is less than 1,400m2.

Furthermore, a number of allowances can subject to various limits be offset against taxable income, such as pension scheme, transport allowance, double housekeeping and trade union membership fees.

2.5    Tax losses

As a general rule tax losses incurred after 2002 may be carried forward for an indefinite period. Losses on public listed shares can be offset against capital gains and dividends on public listed shares any remaining losses may be carried forward indefinitely. Losses on private limited shares may be offset against not only other capital gains but also against other income under certain circumstances.

3. Special treatment for researchers & ex-pat highly skilled employees

Denmark offers a favourable tax regime for highly paid key employees and researchers recruited abroad.

Employees may elect to be taxed at a flat rate of 26 % in up to 60 months instead of normal taxation.

All other income, including benefits-in-kind other than company car and free telephone, are taxed at the ordinary rates. Such income includes any private income received by the expatriate from outside Denmark.

Taxation under the special regime is subject to the following conditions being met:

The monthly pay must be at least DKK69,390 inclusive of labour market contributions.

The employee must work for a Danish employer subject to full Danish taxation or Danish branch offices or permanent establishments which have a legal representative in Denmark. The employee must not have been subject to full or limited tax liability in Denmark for ten (previously three) years prior to the employment.

The employee must not within five years prior to the commencement of the employment have been directly or indirectly involved in the management or control of the capital of the business of the employer.

The employee must not within three years prior to and one year after becoming liable to tax in Denmark have been employed by the research institution, business, Danish or foreign group company or business with whom the employment relationship is entered into.

In order to limit exposure to tax liability professional advice should always be sought in this matter.

4.    Tax return

For individual tax payers the income tax year is the calendar year.

Employees must submit a tax return no later than 1 May after the end of the tax income year. Most people will receive a pre-completed tax return based on information known to the tax authorities. Unless, satisfied that the pre-completed tax return is accurate, the individual must inform the authorities by submitting the amended form on-line.

Self-employed tax payers must complete a tax return no later than 1 July after the income tax year.

5.    Labour market contribution

In addition to income tax, all employees and self-employed persons must pay a labour market contribution. For the income year 2013 the rate of labour market contribution is 8%.

The labour market contribution may be linked to the social security contribution, and foreign employees may be exempt from paying Danish labour market contribution if the employee is still under a social security scheme in his home country.

The material contained in this guide is provided for general purposes only and does not constitute legal or other professional advice. Appropriate legal advice should be sought for specific circumstances and before action is taken.

© , March 2013

Please contact:

Pia Dalziel

DD +44 (0)20 7553 4070

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