Individual - Income determination

Last reviewed - 05 December 2019

Employment income

All remuneration from employment, whether in cash or in kind, is subject to tax when the employee has obtained a legal right to the remuneration, regardless of where payment is made and regardless of whether remitted. The liability extends to any living or housing allowance and any reimbursement of tax or other personal liability, whether paid directly to an employee or borne by the employer on the employee’s behalf.

An employee is taxed on the value of a company car. Regardless of actual use, the taxable value is calculated as a fixed percentage of the car’s original purchase price (the list price for leased vehicles). The value is fixed at 25% of the list price of the first DKK 300,000 and 20% of the remainder. An environmental amount is added. The employee will be taxed by 1/12 each month even if the car has been available for just one day during a month. As of the fourth calendar year after the first registration of the car, the basis for the calculation is reduced by 25%. The minimum basis for the calculation remains DKK 160,000.

Payments to an employee for expenses of travel, entertainment, or any other service to be performed on behalf of the employer are taxable only to the extent that they are not actually expended in the performance of the service. Special rules apply for free housing provided by the employer. For some work-related benefits in kind, a limit of DKK 6,300 (2020) applies.

Any employee who is given a free telephone from their employer is taxed on DKK 2,900 (2020), regardless of actual usage and saved private expenditures. If spouses are both comprised by this tax, a reduction of the tax is applicable (new rules may apply per 1 January 2020).

Equity compensation

Share-based payments are, as a starting point, taxed as any other remuneration from employment, with the marginal tax rate at approximately 56%. However, the rules are very complicated and dependent on the specific situation. A beneficial reward scheme has been reintroduced from 1 July 2016.

Further, special rules apply under certain conditions and limitations for 'small start up businesses', as defined in the legislation.

Business income

In general, private business owners (i.e. individuals operating a business on their own account and risk) are comprised by the general tax rates, etc. as employees. However, a number of rules and practises only apply to private business owners.

It may be possible for independent business owners to use a special tax scheme, the Business Tax Scheme. This scheme primarily ensures that private business owners get full value when deducting commercial investments (e.g. interest expenses) thereby increasing the possibilities of consolidating and expanding the business by taxing the savings more gently than savings made for private purpose.

In order to obtain the approval to apply the Business Tax Scheme, a number of formalities regarding bank accounts, withdrawals, and accounting, ensuring that private and corporate funds can be distinguished, must be observed. Basically, the business taxable profit is all taxable income with deduction of all corporate expenses. When using the Business Tax Scheme, the business profit that is not cashed for private use is taxed at 22%, which is equivalent to the corporate tax.

Capital gains and investment income

Generally speaking, Denmark imposes tax on capital gains arising from the sale of private (non-business) assets other than furniture, art, jewellery, and an individual's primary and secondary residences. Taxable gains and investment income are added to the taxable income. Certain allowances are available.

The taxable income of an individual subject to full tax liability includes interest, dividends, profits from gains on sale of shares, rents, royalties, professional fees, pensions, annuities, and alimony from all sources, wherever located, subject to any limitation that may be imposed under a tax treaty.

Capital gains on bonds and other claims are exempt from taxation if the individual's net gain on such bonds and claims does not exceed the equivalent of DKK 2,000 per year. If the limit of DKK 2,000 is exceeded, the gains are taxable in their entirety.

In general, family houses and summer cottages may be sold without triggering tax liability if the owner has lived in the property for at least part of the period of ownership, the conditions concerning the size of the ground are fulfilled, and one is not professionally engaged in buying and selling property.

Taxable capital gains from the sale of other property acquired after 1 January 1999 are taxed either as personal income or capital income. Special transitional rules apply to profits on property acquired before 1 January 1999 and sold in the income year 1999 or later.

Treatment of intellectual property (IP)

Individuals shall include profit or loss regarding sales of IP in their personal income. This means that profit from sale is subject to ordinary taxation.

Royalties, defined as payment for the right to use any patent, trademark, secret formula, etc., are subject to a fixed tax rate of 22%, which must be withheld by the payer of the royalty. According to many tax treaties, Denmark has either waived right to tax the royalties or accepted a lower tax.