Taxable income in Denmark is taxed at progressive rates up to 51.5% in Denmark, down from 59% in 2009.
Individuals in Denmark are subject to a number of taxes, including:
- National Income Tax (State Tax)
- Healthcare Contributions
- Local Income Tax (City Tax)
- Church Tax
- Real Estate Tax
- Inheritance Tax
The Danish individual tax system is progressive, and the tax payment is divided into the payment of county municipal, church and national income taxes.
National Income Tax (State Tax)
The three income tax brackets model for the state tax was forfeited beginning 2010. The tax bracket for ordinary low income is now 3.76% instead of 5.04%. Middle bracket of 6% is forfeited, and the top bracket is now DKK 389,900 instead of DKK 347,200. The ordinary personal allowance of DKK 42,900 stayed the same in 2010. The marginal tax rate, exclusive of church tax is 51.5%. Church tax is automatically levied unless the taxpayer informs the Danishauthorities notified that they are not a member of the Danish Church.
Taxable Income (DKK) / Tax Rate %
DKK 0 - 42,900 Tax Exempt
DKK 42,900 - 389,900 3.76%
Above DKK 389,900 15%
Individuals are deemed to be residents of Denmark for tax purposes if they occupy accommodation in Denmark as their permanent place of abode or remain in the country for a period of six months or more.
Tax residency is normally terminated on emigration. Some assets will be deemed to be taxed as sold at market value on the date of departure. Any profit will be taxed in Denmark.
Residents are subject to Danish taxation on their worldwide income. Non-resident individuals are subject to tax on Danish-sourced income, including dividends, royalties, profits from Danish permanent establishments; profits from real estate; and salaries earned from work performed in Denmark.
Profits made by more than 50% held (shares/votes) financial companies established in low tax countries are taxable in Denmark at 25% (CFC). The CFC taxation generally only applies if the company's financial income is more than 50% of its total income but may not apply if the company is established in an EC or a tax treaty country.
Dividends and gains and losses on the disposals of shares are taxed jointly. The tax rate on this income is 28% on amounts up to DKK 48,300 and 42% on the surplus (2010).
Personal income includes all remuneration received from the taxpayer's employer, whether in cash or kind, such as free lodging, free use of a car, free use of the telephone etc.
Basis – Resident individuals are taxed on their worldwide income; nonresidents are taxed only on Danish-source income.
Residence – An individual is resident if he/she has a permanent residence and a "qualifying" stay in Denmark, or spends more than 6 months in Denmark.
Filing status – A married couple may file a joint assessment.
Taxable income – Taxable income comprises employment income, including employment benefits, income from self-employment, directors' fees, interest income, dividends, etc. Income derived from self-employment can be taxed in the same way as income derived by a company.
Capital income – Income up to DKK 40,000 for singles and DKK 80,000 for married couples are taxed as capital income at a maximum tax rate of approximately 37.3%. Income exceeding DKK 40,000/80,000 is taxed at progressive rates up to 51.5%.
Deductions and allowances – A personal allowance of DKK 42,900, as well as an employment allowance, are available to most taxpayers. Deductions include interest expense, child maintenance payments, pension contributions up to a maximum of DKK 100,000 per year, trade union fees, unemployment fund fees and expenditure in connection with transport between home and work. The self-employed can deduct most business-related expenses.
Tax Rates – Taxable income is taxed at progressive rates up to 51.5%. The municipal taxes are determined by each county and range from 22.8% to 27.8%; the health tax is 8% and the church tax, which is optional, ranges from 0.44% to 1.5%. The state tax consists of a bottom bracket tax of 3.76%, and a top bracket tax of 15% for income exceeding DKK 389,900. A special 25% (or 33%) taxation scheme may be available for approved scientists or employees/individuals that meet the high salary qualification. Capital gains on shares and dividends are taxed progressively as share income at 28% for income up to DKK 48,300, and 42% thereafter.
Other taxes on individuals:
Capital duty – No
Stamp duty – Stamp duty is levied at rates of 0.6% -1.5%, plus a fee of DKK 1,400.
Real property tax – A property value tax is levied on real estate. The basis is 1% of the value up to DKK 3,040,000 and 3% of the value exceeding that amount.
Inheritance/estate tax – A 15% tax is imposed on inheritance by the closest family members.
Capital acquisitions tax – No
Net wealth/net worth tax – No
Social security – Individuals pay a Danish social security contribution at a rate of 8% of personal income. A monthly fixed contribution of DKK 90 also is due.
Administration and compliance:
Tax year – The tax year is generally the calendar year.
Tax Filing and payment – The return must be filed by 1 May or 1 July of the year after the tax year.
Tax Penalties – The main penalty is a 7% interest charge due on tax underpayments.
Tax rate for expatriates
Certain foreign employees may elect the special expatriate taxation rules where a flat tax rate applies, which is either 25% for 36 months or 33% for 60 months. The employer must withhold the tax on the gross cash remuneration.
To be eligible for the 25% or the 33% tax, the employee's remuneration, including the taxable value of a company car and multimedia must be at least DKK 63,800 per month after the deduction of employee pension contributions to an approved pension plan withheld by the employer and either 8% Danish AM (labour market) contributions and ATP (compulsory labour market pension) or foreign social security employee contributions (see page 8 for deductible foreign contributions).
The employer must be a Danish entity or a foreign entity carrying out activities through a permanent establishment in Denmark. It is a condition that the employee was not taxable in Denmark as a resident or a non-resident on various types of income (e.g. on salary for work performed in Denmark or on fees as a member of the board of a Danish company) during the three years preceding the assignment.
If the employee was taxable in Denmark at some point within the preceding five years, he/she must leave Denmark no later than 48 months after the 36 months on 25% tax or after the 60 months on 33% tax and remain non-resident for three years in order to benefit from the scheme. During this three-year period, it is a condition that they do not become tax liable to Denmark as a non-resident due to work for the previous Danish employer or any company within the same group. If these requirements are not met, the expatriate taxation will be revoked retroactively, and the tax saved must be paid.
Other income from Danish or foreign sources is subject to general Danish taxation depending on whether the employee is a resident or a non-resident in Denmark.
Expenses connected with the 25% or the 33% taxed work are non-deductible.
Exit tax may be triggered if an individual terminates his/her residency in Denmark or becomes treaty resident abroad.
Exit tax generally means that certain assets such as shares, options, warrants, bonds, Danish employer pension schemes and foreign business assets are taxable as if they were disposed of on the date of departure.
With some exceptions, exit taxation is only triggered if the individual has been resident in Denmark for a period of seven years within the latest 10 years before departure.
In most cases portfolio shares are not subject to exit tax if the total market value of the shares at the date of departure does not exceed DKK 100,000.
For pension schemes generally, only increased contributions over a certain level made during the four years preceding departure and the year of departure will trigger exit taxation.
Stock options granted due to work services will generally be subject to exit tax regardless of the residence period.
The corporate company tax rate in Denmark is a flat 25%.
Resident corporations are subject to Danish corporate income tax on their profits in Denmark and, to some extent, on income sourced abroad. Non-resident companies are required to pay tax on income sourced in Denmark.
Resident corporations include all Danish companies registered with the Danish Commerce and Companies Agency, as well as certain non-registered companies that are treated as residents. Companies incorporated under the laws of another country may be considered to be resident in Denmark if central management and control is exercised in Denmark.
Corporate income tax is charged at 25% for the income year 2009. Tax is paid on account on a current year basis in two instalments on 20 March and 20 November during the tax year, with a final instalment due on 20 November following the end of the tax year.
CAPITAL GAINS TAX
Capital gains/losses on disposals of assets are, in general, included in taxable income and subject to tax at the normal corporate tax rate.
Capital gains on disposals of shares are exempt unless the disposal occurs within three years of acquisition.
Capital losses on disposals of other shares are deductible, if they can be offset against gains on other shares.
Capital gains on disposals of assets and liabilities of a Danish permanent establishment are taxable in Denmark. This applies also to Danish real estate.
Capital gains derived by non-residents from disposals of Danish shares or bonds are not subject to tax in Denmark unless voluntary global joint taxation is elected.
BRANCH PROFITS TAX
Branches of foreign companies are taxed on income derived from their activities in Denmark. Tax is calculated at the corporate tax rate of 25%.
FRINGE BENEFITS TAX (FBT)
The tax value of most benefits in kind is, in principle, the fair market value. Employees are taxed on benefits in kind received. The cost of benefits in kind is deductible for tax purposes by the company.
Property Tax: Owners of real estate are subject to a local property tax based on the value of the land. The tax is levied at various local rates ranging from 1.6% to 3.4%.
Transfer tax is levied on registration only. A change in ownership of real estate is charged at the rate of 0.6% + DKK 1,400 and on mortgages at 1.5% + DKK 1,400. Different rates apply to registrations of ships and aircraft. Stamp duty only applies to certain insurance policies.
SOCIAL SECURITY TAXES
Social security is funded almost entirely through income taxes. The only exceptions are the ATP and Health Contribution.
ATP is a supplementary State pension scheme. The employer pays DKK 2,160 (2010) annually and employees pay DKK 1,080 (2010) annually.
Health Contribution is collected from employees and self-employed persons. The contribution is levied on gross salary and business income respectively at the rate of 8%. The employer withholds the contribution for the employee and the amount of contribution is deductible when computing the employee's personal income.
Pension contributions of 1% (2009) are levied, together with general social security contributions, on the same taxable base. However, this may be suspended for 2010.
Assets which cost less than DKK 12,300 (2010) or have an estimated useful life of less than three years can be written off immediately.
Ships less than 20 tons, machinery, furniture and other equipment are generally depreciated collectively using the declining-balance method. The balance may be written off at a maximum rate of 25%.
Buildings for manufacturing etc. are depreciated under the straight-line method according to the useful life. The normal rate is 4% per annum. If the useful life is less than 25 years, the rate will be increased accordingly. Depreciation of office buildings and dwelling houses is not allowable for tax purposes.
The cost of goodwill, know-how etc, may be depreciated over seven years using the straight-line method.
Inventory may be valued at cost or market value. Cost may be determined by using the FIFO method or some other averaging principle but not on a LIFO method.
CAPITAL GAINS AND LOSSES
See discussion above.
Dividends received from a subsidiary are basically exempt from tax if the parent company owns 10% or more of the share capital throughout a 12-month period in which the dividend is received. It is a requirement that the dividend-paying company is resident within the EC or in a tax treaty country and that it is not a 'flow-through' entity. Specific rules apply to dividends received from a subsidiary in a non-EC and non-treaty country.
Withheld tax will be considered as a tax payment on account.
Interest income, except interest on overpaid corporate tax, is included in taxable income. Companies must compute this income on an accruals basis.
In general, interest paid is deductible whether due to foreign or resident creditors and regardless of the purpose of the debt. However, limitations may apply due to Danish thin capitalisation rules and limitations apply if net financial expenses exceed DKK 21.3 million (2010).
Interest on overdue tax is not deductible.
Losses may normally be carried forward indefinitely. However, losses may not be offset against interest and other capital income, net of interest paid, if more than 50% of the shares in the company have changed ownership since the beginning of the previous year in which the loss was incurred. If a company enters into a settlement with creditors, losses carried forward are reduced by the nominal amount of debt cancelled.
In cases where the company receives a capital contribution in connection with a reconstruction from a principal creditor and the company subsequently repays its debts to the creditor, tax losses from income years up to and including the year of the capital contribution will be reduced by an amount equal to the capital reduction. Furthermore, tax losses cannot be offset against future taxable income if the company has no activity at the time the transfer was agreed. Losses cannot be carried back.
CONTROLLED FINANCIAL COMPANY INCOME (CFC)
Profits made by Danish financial companies or foreign subsidiaries will be taxed in Denmark if the Danish parent company (directly/indirectly) controls the company (votes/decisive influence), and:
- the business of the company is mainly of a financial nature (ie more than half of its gross income is derived from certain financial activities), and;
- the financial assets of the company exceed 10% of the assets of the company.
Credit is given for foreign taxes paid on foreign income.
Losses resulting from activities in foreign countries cannot generally be deducted from the Danish source income unless voluntary global joint taxation has been chosen.
FOREIGN TAX RELIEF
Danish tax law provides for unilateral relief for foreign taxes paid on some types of income (dividends, royalties, etc). Such relief may not exceed the Danish tax liability that relates to the foreign income concerned. If a tax treaty is in force, relief may be restricted to the tax that the foreign state is entitled to levy under the treaty.
If income is earned in a country with which Denmark has no treaty, any foreign tax is relieved by the credit method under domestic tax rules.
No Danish tax credit is given for foreign permanent establishment profit or real estate profit unless voluntary global joint taxation is elected for. Thus, Denmark has adopted the principle of territoriality for Danish companies.
Danish companies within a group, along with Danish permanent establishments and real estate of foreign subsidiaries are subject to compulsory Danish joint taxation. Such companies must have the same financial year.
The group taxation allows the pooling of profits and losses. Losses of one company can be offset against profits of another company.
Such a group may elect to enter into a voluntary global joint taxation arrangement with foreign group companies and foreign permanent establishments and real estate.
If voluntary global joint taxation is opted for, all foreign group companies, permanent establishments and real estate 'above' and 'below' Denmark must be included in the joint taxation (cf 'global'). In this case, capital gains derived by non-residents from disposals of Danish shares or bonds may be subject to tax in Denmark.
The foreign entities' income, assessed according to Danish rules, is then included in the Danish taxable income of the group but normally no additional Danish tax is imposed because a tax credit for foreign corporate tax paid is allowed. The inclusion may allow foreign tax losses to be offset against Danish taxable profits. Special rules apply with respect to exemption/credit for foreign taxes and claw back provisions respectively.
RELATED PARTY TRANSACTIONS
Related party transactions must be in accordance with the arm's length principle.
Danish outward dividends are generally subject to a 28% withholding tax. Outward interest payments are generally subject to a 30% Danish withholding tax. However, several modifications apply and under most tax treaties this withholding tax is reduced or refunded.
Outward royalty payments under industrial, commercial or scientific agreements are subject to a 30% withholding tax. Under most tax treaties, this withholding tax is reduced or refunded.
In general, Denmark does not impose exchange controls on business activities.
Denmark tax year is the calendar year.
Danish value added tax (VAT) is levied at a standard rate of 25% of the sale price of most goods and services and the legislation generally follows EC Directives. No graduated rates exist.
Certain services are exempt, including most banking, real estate and medical services. Instead, a pay-roll tax of between 3.08% and 10.5% is charged on the actual pay-roll or, in certain cases, on the result before interest and capital gains.
Exports are zero VAT rated.
VAT Registration – The registration threshold for VAT purposes is EUR 6,720. Nonresidents that make taxable supplies of goods or certain services in Denmark are required to register; there is no threshold in such cases.
Filing and payment – The standard VAT period is the quarter year. For large
companies (turnover exceeding EUR 2 million), the VAT period is a month.
Income Tax Rate
Corporate Tax Rate
Sales Tax / VAT Rate
Last Update: Nov 2010
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