An individual may be taxed in Denmark as having full tax liability to Denmark, as having limited tax liability to Denmark, or according to special expatriate rules or rules regarding work force hire.
Individuals who are residents in Denmark are subject to full tax liability (i.e. liable to tax on their worldwide income unless the individual is considered to be tax resident in another country according to a double taxation treaty [DTT]).
An individual who is fully tax resident in Denmark will, as a main rule, be taxed according to the ordinary tax scheme by up to 52.06% (55.89% including AM tax, which is also income tax for DTT purposes) in 2020. A number of deductions are applicable; consequently, the effective tax rate is lower in most cases.
An individual not fully tax liable may have limited tax liability to Denmark. Limited tax liability is restricted to income from Danish sources, listed in the Danish Tax at Source Act, Section 2, including:
- salary for work performed in Denmark paid by or on behalf of an employer with a legal venue in Denmark
- salary for work performed in Denmark where the stay exceeds 183 days within 12 months
- certain other types of personal income, including directors fees, pension distributions, and social security benefits
- remuneration covered by the special rules on hiring out personnel (see Work force hire scheme below)
- income arising from a business enterprise with a permanent establishment (PE)
- income from property located in Denmark
- dividends from Danish companies
- royalty income from Denmark, and
- remuneration for advisory assistance, under certain circumstances.
An individual with limited tax liability to Denmark will, as a main rule, be taxed by up to 52.06% (55.89%, including AM tax) on income from sources in Denmark in 2020.
Personal income tax rates
Generally, individuals are subject to national income tax, municipal tax, regional tax, labour market tax, and church tax (all described below).
When assessing the tax under the ordinary scheme, the following types of income apply:
- Personal income (salary, benefits in kind, self-employment income, pension income, etc.).
- Capital income (interest income, interest expenses, net taxable capital gain, etc.).
- Taxable income (personal income added to capital income and adjusted for certain itemised deductions).
- Share income (dividends, capital gains on shares).
- Property value (value of property situated in Denmark or abroad).
The different types of income are subject to different taxes and are consequently taxed with different rates. This also means that the value of a deduction differs depending on in which income the deduction can be made.
The tax rates are as follows:
|Taxes (2020)||Income basis||Tax rate (%)|
|Bottom tax||Personal income||12.14|
|Top tax||Personal income||15.00|
|Municipal tax (average)||Taxable income||24.954|
|Labour market tax||Personal income||8.00|
|DKK 0 to 55,300||Share income||27.00|
|More than DKK 55,300||Share income||42.00|
Note that tax bands and local taxes may be adjusted annually.
Altogether, the marginal tax rate cannot exceed 52.06% (2020). However, labour market tax, share tax, property value tax, and church tax are not comprised by this rule.
Net capital income is taxed at a rate up to 42% (in 2020). Negative net capital income and other allowances may be deducted but not with full effect.
National taxes are categorised as bottom and top tax, due to which personal income becomes subject to progressive taxation.
The bottom tax base is represented by the personal income plus positive net capital income. Bottom tax implies a taxation of 12.14% (2020).
The base for top tax for a single person is the personal income plus positive net capital income. Top tax is 15% of the part of the top tax base exceeding DKK 531,000 (2020).
Local income tax (municipal tax) is calculated on taxable income at a flat rate dependent on the municipality in question. The country average is 24.954% (2020).
Labour market tax
Labour market tax amounts to 8% of the personal income.
Share income up to DKK 55,300 (2020) (DKK 110,600 for a married couple) is taxed at 27%. Share income in excess of this amount is taxed at 42%.
Church tax is imposed at a flat rate dependent on the municipality in question. The country average for church tax payers is approximately 0.674% (2020). Church tax is imposed by municipalities and is only charged for members of the Danish State Church (Lutheran). When registering in Denmark, all individuals should explicitly state if they should not be comprised.
Other income taxes
Special expatriate scheme
According to the special expatriate tax regime, expatriates who are employed in Denmark and scientists assigned to Denmark may be able to apply for a flat tax rate of 27% on their gross salary for up to 84 months. A number of conditions must be met, including that the guaranteed monthly salary, before deduction of deductible employee pension contributions, must be at least DKK 68,100 (2020) in average in the calendar year. Special rules apply for researchers. The 27% tax rate is calculated on cash salary, employer-provided telephone/Internet, the taxable value of employer-provided company cars, and employer paid taxable health insurance. All other income is taxed in accordance with normal rules. No deductions are allowed against the flat rate taxed income. The employee’s stay in Denmark may be longer; however, after the 84-month period, the employee’s income is taxed at ordinary rates.
As the labour market tax also applies, the combined tax rate is 32.84% each year during the 84-month period.
Work force hire scheme
The work force hire scheme is a separate Danish limited tax liability. The concept of ‘work force hire’ implies that the employee continues to be formally employed by the employer in the home country, but is hired out to a company in Denmark as the host country under terms similar to a normal employment relationship. The company in Denmark is therefore deemed to be the employer for tax purposes in order to be covered by the work force hire rules. First and foremost, it must be possible to substantiate that the company in Denmark (the deemed employer) is also responsible for the work performed by the employee. Also, work performed as part of the activity of the Danish company may be seen as work force hire due to a recent change of the rules concerning work force hire. Employees who are hired by a Danish company under a work force hire arrangement are taxed in Denmark at a flat rate of 30% of the gross remuneration, etc. No deductions are allowed. Labour market tax should be paid as well. This gives a combined tax rate of 35.6%. The work force hire rules only apply to employees who are not liable to either ordinary limited tax liability or full tax liability in Denmark. Consequently, if their stay in Denmark is expected to exceed six consecutive months or 183 days within any 12-month period, it is not possible to use the work force hire rules. The six-month period is not interrupted by stays abroad due to holiday, etc. However, the period will be interrupted if the stay abroad involves a work assignment.
Note that there is particular focus from the tax authorities on the work force hires rules and compliance in general.