The complex Danish tax system is reflected in a number of possible deductions. The tax value of a deduction varies depending on in what type of income or in what tax base the deduction can be made. A deduction in personal income has a higher tax value than a deduction in taxable income, as only health tax, church tax, and municipality tax is calculated on taxable income, whereas personal income is subject to the calculation of top tax where almost no deductions are possible. The actual effect of a deduction will also vary with the level of local taxes.
Deductions that have not been taken into consideration in connection with the preliminary tax return and therefore have not led to a reduction of the monthly withheld tax may lead to a refund of tax when the final tax for an income year is assessed.
Deductions can only be made related to income from sources that are taxable in Denmark, and it is not possible to deduct expenses exceeding the income.
In general, an employment allowance is available for any individual engaged in active employment. The allowance amounts to 9.50% of the employment income and cannot exceed DKK 33,300 (in 2018).
Salary earners may deduct travelling expenses from home to work, travelling expenses necessitated by different work places, contributions to unemployment insurance, membership fees to professional trade associations, and union subscriptions.
Furthermore, under certain circumstances, salary earners' expenses related to the performance of their work, such as technical literature, work clothes, etc., may be deductible from the taxable income if they exceed a basic amount (DKK 6,100 in 2018).
Travel to and from work
A deduction is granted for daily travel to and from work, provided the employees are not granted a company car. The distance from home to the place of work and back must be more than 24 kilometres. The deduction is DKK 1.94 for 25 to 120 kilometres and DKK 0.97 per kilometre exceeding 120. For individuals living in certain outskirts, the allowance is DKK 1.94 per kilometre exceeding 120.
Usage of the Øresund connection (the bridge and tunnel between Denmark and Sweden), or the Storebælts connection (the bridge and tunnel between Jutland/Fuen and Sealand) also entitles one to an extra mileage allowance. The allowance amount depends on the means of transport.
Deductions for travel expenses
The right to deduct travel expenses has been maximised to DKK 27,400 annually (2018). The maximum applies to both the deduction of standard rate and actual expenses, but does not affect an employer’s ability to pay tax-free allowances, reimburse the employees expenses, or provide free food and lodging.
In general, the rules regarding deductions of travel expenses imply that employees in relation to a work-related trip can either get their expenses reimbursed by the employer as a business expense or make deductions when determining taxable income.
Allowances/deductions can either be based on actual documented expenses or on standard rates. In 2018, the standard rates are DKK 498 per day for diet and necessaries and DKK 214 per day for lodging.
Contributions to pension schemes
Contributions to a lifelong annuity pension plan established with a Danish pension fund, an insurance company, or a financial institution are tax-exempt if made by the employer and, within certain limits, tax deductible if made by the individual.
In addition to the tax benefit from the above-mentioned exemption/deduction for contributions, the contributions will also trigger an additional tax deduction in the tax calculation; up to a certain limit. The rate depends on the age of the taxpayer; the closer to the retirement age, the higher the deduction rate.
As a general rule, deductible contributions to a pension plan may not exceed DKK 54,700 (in 2018) if paid by the individual into a private pension plan, whereas contributions paid by the employer are subject to a general ceiling of DKK 54,700 unless it is a lifelong annuity plan. However, due to special regulations applicable in connection with later repatriation, the contribution paid by/for an expatriate to a Danish pension plan should be handled carefully.
Contributions to a foreign pension scheme may be tax exempt/tax deductible if certain circumstances are observed or according to certain DTTs.
Expenses in connection with an assignment may be deductible from ordinary taxable income, provided the expatriate continues to work for the same employer. If an employer reimburses business related moving expenses that are supported by vouchers, the reimbursement is not taxable.
For 2018, certain approved expenses regarding household services may be deducted. The deduction is capped at DKK 6,000 (2018) per individual. Additionally, a deduction for the use of craftsmen for certain types of services may be applicable. The deduction is capped at DKK 12,000 (2018) per person.
A married assignee whose spouse remains in the home country may be eligible for a double-household deduction if the conditions are met. The deduction amounts to DKK 400 per week or actual expenses with the proper documentation.
Donations to certain approved charities, foundations, institutions, etc. are deductible in the determination of taxable income. The maximum deductible amount per year is DKK 15,900 (in 2018), regardless of whether the contributions are spread out among different foundations. The foundation must report the donations made annually to the tax authorities.
In 2018, a tax-free child benefit of DKK 11,232 per annum is payable to the custodial parent of children aged 7 to 14 (inclusive) if the parent is fully tax liable to Denmark and is not covered by the social security system in the home country. The annual benefit for children aged 0 to 2 is DKK 18,024 and for children aged 3 to 6 is DKK 14,268 and is paid on a quarterly basis. For children aged 15 to 17, the amount is DKK 3,744 per year.
An individual who pays child support maintenance because of divorce is entitled to an annual deduction per child.
Interest expenses are deductible from capital income and are generally deducted in the year in which they fall due. Penalty interest paid in connection with late payment of taxes is non-deductible. Deduction of interest expenses covering a period of more than six months and falling due more than six months before the end of that period must be allocated to the period to which the expenses relate.
In general, losses on debt are not deductible or refundable.
A taxpayer can deduct expenses incurred for quotas for membership of employer associations, unions, and other professional associations that aim to defend the economic interests of the professional group to which the taxpayer falls. Furthermore, contributions to unemployment insurance schemes and pre-retirement schemes are deductible. Deductions are made in the determination of taxable income. The associations must annually report the payments received from each member to the tax authorities.
Fines and penalties
Private persons cannot deduct any fines or penalties. If an employer pays fines imposed on employees in carrying out their work, the employer may deduct the amounts, but the payout will be considered taxable income for the employee who cannot deduct the fine.
In Denmark, personal allowances take the form of tax credits (see the Other tax credits and incentives section for more information).
The treatment of losses depends on whether the shares are quoted or unquoted. Losses on shares quoted on a regulated stock exchange can be offset against gains (i.e. dividends and capital gains) on other quoted shares within the same year. Any unused losses may be carried forward for an unlimited period of time. If the taxpayer is married, any unused losses can also be offset against the spouse’s gains on quoted shares.
Losses on unquoted shares can be offset against gains (i.e. dividends and capital gains) on both quoted and unquoted shares within the same year. If the total annual share income becomes negative, the tax value of the loss on unquoted shares (27%/42%) may be deducted from the ordinary income taxes of the individual liable to taxation.