| Denmark Income Tax Rates Denmark is currently the highest taxed country in the world, along with Sweden. Taxable income is taxed at progressive rates up to 59% in Denmark. The income tax rate ceiling will be 51.5% beginning 2010.
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. A maximum tax ceiling of 59% applies in Denmark. The tax ceiling will be 51.5% beginning 2010.
National Income Tax (State Tax)
There are three income brackets for the state tax. In 2009 income from DKK 42,900 to DKK 347,200 is taxed at 5.04% and income above DKK 347,200 is taxed at 6% and 15% (two different taxes with a common basic allowance) on top.
Taxable Income (DKK) / Tax Rate %
DKK 0 - 42,900 Tax Exempt
DKK 42,900 - 347,200 5.04%
Above DKK 347,200 6%
Above DKK 347,200 15%
This is not a typo above, taxpayers in Denmark pay both a 6% and a 15% tax on income exceeding DKK 347,200 in 2009. In 2010, the top bracket will be DKK 389,900 and the middle bracket of 6% will be forfeited. The tax bracket for ordinary low income in Denmark will also be lowered to 3.76% in 2010.
Healthcare Contributions
In Denmark, a health care contribution of 8% (Danish: Sundhedsbidrag) is levied on all income above DKK 42,900. All income originating from terms of employment or self-employment in Denmark are levied a social contribution at 8% before income tax (Danish: Arbejdsmarkedsbidrag). This contribution is widely regarded as "gross tax".
Local Income Tax (City Tax)
The local tax in Denmark varies from city to city. The highest local city tax rates in 2009 is 27.80% and the lowest city tax rate is 22.70%. Income below DKK 42,900 is tax exempt.
Church Tax
The church tax is optional in Denmark, and varies between 0.48% to 1.5%.
The Danish income tax was introduced in 1903 and is now divided into state tax and local tax. The state tax is a progressive tax while the local tax is a flat tax.
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, 43% on amounts between DKK 48,300 and DKK 106,100, and 45% on the surplus (2009).
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.
Pension payments, unemployment benefits etc are also included in personal income.
After deduction of Health Contributions of 8% (for 2008) and Pension contributions of 1% (2009) on gross salary and business income, tax due on the total taxable income and its components is determined as follows:
- a basic charge of 25.7% (average) on taxable income is due to the municipality in which the taxpayer lives;
- the basic State tax rate is 5.04% on taxable personal and positive interests income. (2009);
- a rate of 6% is charged on personal and positive interests income exceeding DKK 347.200 (2009);
- the higher rate of 15% is levied on income exceeding DKK 347.200 (2009).
Some expatriates who are employed in Denmark for a maximum period of 36/48 months can, under certain conditions, choose to be taxed on their gross salary by a final tax instead of ordinary income tax. The tax rate is 25%/33% plus Health Contributions of 8% and Pension Contributions of 1%.
Denmark CoMPANY Tax RateThe corporate company tax rate in Denmark in 2009 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.
Company tax in Denmark 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, in general, exempt unless the disposal occurs within three years of acquisition. Capital losses on disposals of shares are not deductible unless the shares were held for less than three years, in which case they may be offset against taxable gains on other shares held for less than three years.
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.
Local Taxes - 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% to 3%.
Other Taxes in Denmark: 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 on ships and aircrafts.
Stamp duty only applies to certain insurance policies.
Social Security Taxes in Denmark: 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 annually DKK 2,160 (2009) and employees pay annually DKK 1,080 (2009).
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.
Tax on Dividends: Dividends received from a subsidiary are basically exempt from tax if the parent company owns 15% (10% from 1 January 2009) 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 'flowthrough' entity. Specific rules apply to dividends received from a subsidiary in a non-EC and non-treaty country.
Further, 66% of dividends received from a company which does not comply with these conditions are included in taxable income. If received from a non-EC and non-tax treaty countries, the total dividend is included. Withheld tax will be considered as a tax payment on account.
Interest Deductions: Interest income, except interest on overpaid corporate tax, is included in taxable income in Denmark. 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 capitalization rules and limitations apply if net financial expenses exceed Million DKK 20.6 (2008) / 21.3 (2009).
Interest on overdue tax is not deductible.
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 (i.e. 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 company 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.
Corporate Groups: 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 company 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 company 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.
Withholding Tax: Danish outward dividends are generally subject to a 28% withholding tax. Outward interest payments are generally subject to a 25% 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 25% withholding tax. Under most tax treaties, this withholding tax is reduced or refunded.
Exchange Controls: In general, Denmark does not impose exchange controls on business activities.
Capital Duty: Denmark does not levy tax on the issue of shares, the increase of share capital or the transfer of shares.
Payroll Tax: There's no payroll tax in Denmark, but persons carrying out certain activities exempt from Value Added Tax are liable to payroll tax.
Stamp Duty: Registration of the transfer of certain assets is subject to stamp duty of 0.1% - 1.5% plus DKK 1,400.
Tonnage Tax: Shipping companies may opt to pay tonnage tax in Denmark, in lieu of the normal corporate income tax.
Hydrocarbon Tax: Activities carried out in connection with the extraction of hydrocarbons are subject to hydrocarbon taxation in Denmark.
Tax Year: Denmark tax year is the calendar year.
Denmark Value Added Tax RatesIn Denmark, 25% Value Added Tax is paid on virtually all goods and services. For example, VAT is paid on all groceries, clothes, cars etc. No graduated Value Added Tax rates exist.
Some goods and services are exempt from VAT. These include newspapers, real estate, the health sector and banking services. These companies pay a payroll tax instead, which is a tax paid on the total payroll. The payroll tax is 3.08% - 9.13% and charged on the actual payroll or, in certain cases, on the result before interest and capital gains.
VAT ('moms' in Danish) was introduced in 1967. This made Denmark one of the first countries to introduce a general indirect consumption tax levied as a value added tax at the different stages of production and sale. Income from VAT makes up around 22 % of the total revenue.
Exports are zero rated.
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