Taxes in Denmark

Denmark ranks among the top two in terms of happiness, pointing to a widespread satisfaction with the state's welfare system and the benefits it offers. The World Happiness Report underscores that happiness is linked to social equality. The official Denmark website highlights that "most Danes will tell you that they are happy to pay taxes because they can see what they get in return," which includes access to free education, healthcare, and social security. Taxes in Denmark are among the highest not only in Europe, but also in the world. At the same time, they are progressive in nature - their amount depends on the amount of income. Many consider the Danish tax system to be very extensive, as there are many types of tax.

Taxation in Denmark and their rates depend on the position a person holds. For example: a company employee and a self-employed person settle under the tax rules for individuals. However, whatever you do in Denmark, on this page you will find all the information you need about the taxes that apply in Denmark. Since its inception through a significant tax reform in 1903, income tax has remained a fundamental component of the Danish tax structure. Individual income taxes are levied on an individual's or household's earnings to finance the overall operations of the government. Denmark's tax framework, in terms of the relative distribution of different taxes, varies from the average across the OECD countries. In Denmark, a smaller portion of the revenue is generated from taxes on corporate income and gains and property taxes compared to the OECD average. Conversely, the proportion derived from payroll taxes, VAT, and other taxes on goods and services aligns with the OECD average. Currently, a blend of personal and corporate income taxes contribute roughly two-thirds of the entire Danish tax revenue, with indirect taxes to the state (the taxes and duties you pay are included in the taxes on goods and services you purchase) accounting for the remaining one-third. Currently, the income tax ranges from a total of 37 percent for taxpayers in the bottom tax bracket who do not pay church tax, to a total of 53 percent for taxpayers who pay top-bracket tax and who also pay church tax. The categorization of national taxes into bottom and top tax results in the progressive taxes of personal income, while the municipal income tax functions as a proportional tax above a specific income threshold. The combination of tax policies can impact the degree to which a tax system is distortionary or neutral. Taxes on income can potentially generate more economic disruptions compared to taxes on consumption and property. When taken together, the average Danish citizen pays taxes at a rate of approximately 45%. Consequently, Denmark has the highest portion of taxes related to income and wealth, amounting to 28.9% of GDP in 2019.

The Danish tax system consists of direct and indirect taxes: 1. direct taxes (pension contributions, employee contributions, health insurance contributions (sundhedsbidrag), church tax (kirkeskat, imposed at a flat rate; tax varies from municipality to municipality and is solely levied on members of the Danish National Church (Evangelical Lutheran Church), municipal tax (kommuneskat), tax on hiring foreign labour to work in Denmark, tax that is deducted from the source of income of natural and legal persons, tax that is not deducted from the source of income, land tax (on real estate), property tax); 2. indirect taxes (customs duty, excise duty (punktafgift), VAT (moms), environmental taxes). Your total tax contribution will be contingent on the municipality in which you reside. In total, the marginal tax rate cannot surpass 52.07% in 2023. Notably, this rule does not encompass labor market tax, share tax, property value tax, and church tax. Products subject to excise duties encompass wine and beer, batteries, chocolate, sweets, and soft drinks. Additionally, purchasing a car or motorcycle incurs an additional registration tax. An additional tax is mandatory if commercial vehicles are utilized for personal purposes. Failure to pay this tax and the subsequent private use of the vehicle can result in significant penalties.

Income from the previous 12-month year (calendar or otherwise) is taxed in Denmark. The most common option is online accounting - on the website, via www.skat.dk (for both income tax rate and VAT). For this, you will need a Tastselv, possibly a NemID, and obligatorily a CPR number (submit an application for at the Danish Customs and Tax Administration). You have up to six months from the end of the tax year to settle the tax. If it ends between 1st February and 31st March, the tax return must be submitted by 1st August and the tax must be paid on 20th March and 20th November.

Regarding corporate tax, the notable alteration is the rise in the limit for offsetting carried-forward losses, from DKK 8,872,500 in taxable income for 2022 to DKK 9,135,000 for 2023 (any taxable income exceeding this amount is subject to a 60% offset limit). For the year 2023, the bottom and top state personal income tax rates remain at 12.09% and 15.0%, respectively. Furthermore, the maximum tax rate ceiling is sustained at 52.07%, inclusive of state, municipal, and specific other taxes. The corporate tax rate also remains at 22%. It is worth recalling that under Danish tax law, tax liability is linked to tax residence. Danish tax residents are persons who reside in Denmark for more than six months and persons who are living in Denmark permanently. They are obliged to pay taxes in Denmark not only on their income earned in Denmark, but also on income from outside the borders (if they have any). The owner of a sole proprietorship has a choice of one of three options for taxing his/her business:

• taxation as for normal employees in Danish companies;
• taxation partly as capital income, partly as private income (under the terms of the Company Capital Act);
• taxation under the rules of the Danish Companies Act.

Self-employed persons usually consider their company's income as their personal income. This is the option most people prefer, as it allows them to account only once. Personal income from shares, including dividends and realized capital gains, is taxed at 27 % up to a certain threshold. Danish CIT accounts for approximately 8% of all taxes in Denmark. It is based on the income of Danish companies (including capital income). A Danish company is subject to 22 per cent CIT (corporation tax). However, when a company's annual income in Denmark exceeds the sum of fifty thousand kroner, the law calls them liable for 25 per cent VAT. Twenty-five per cent VAT is payable by any company selling services or goods in Denmark. This is a uniform value-added tax added to the price of services and goods. It is worth noting that companies must also account for this tax in their annual tax return. The reduced rate of VAT - 0%, covers services such as banking, sale or rental of real estate (with supply of energy, water and gas), insurance transactions, cultural activities education and medical care.

Owners must register their Danish business as a VAT payer up to eight days before the start of operations. The registration obligation also applies to all businesses with an annual turnover of more than DKK 50,000. Registration can be done electronically - via the RUT website, the Register of Foreign Service Providers (virk.dk).

Danish companies can use the reverse-charge procedure. The reverse-charge procedure means that the purchaser of the service transfers the VAT to itself, thereby relieving the seller of the service of this obligation. In practice, this means that foreign companies that wish to sell goods and services to Danish companies do not have to charge Danish VAT. It is then not necessary to include the tax on the invoice. You only need to enter the net value of the goods or services and then use a ready-made formula, e.g. Reversed charge (meaning that it is the purchaser who should charge and pay VAT) and enter the purchaser's registration number (CVR or SE-number). Although Denmark has introduced many of its, own excise taxes, Danish excise duty (punktafgift) continues to be levied on goods in accordance with European Union directives. The excise duties (differentiated rates) cover, among others: electricity, spirits (including wine and beer), chocolate, natural and liquefied petroleum gas, coffee and tea, chewing tobacco, cigarettes, snuff and pipe tobacco, car tyres, confectionery, cigars, cigarillos and Hawaiian cigars, and cigarette papers. Denmark has an income tax which consists of 3 thresholds (basic, middle and highest). In practice, this looks as follows:

• 8% for incomes below DKK 50 217,
• 39.2% for incomes between DKK 50,217 and DKK 558,043,
• 56.5% for income higher than DKK 558,043.

In Denmark, matters related to tax returns, documents, and deadlines are best dealt with online, through the website of the Danish Tax Authority (www.skat.dk). To settle your tax online, you must order a special code in advance - the TastSelv-kode (preferably from www.tastselv.skat.dk). This consists of eight digits and is also your password to the system. The individual TastSelv-kode (or NemID) provides access to your, own tax information. You also need to apply for a tax card.

The basis for the highest rate of taxes on personal income is the amount of the taxpayer's personal income added to the positive net capital income. The highest tax amounts to 15% of the portion of the highest tax base surpassing DKK 568,900 (2023) after a deduction of 8 % labour market tax.

Entrepreneurs (and Danish non-tax residents) who are self-employed in Denmark have until 1st July to file a return. They will receive the document - Årsopgørelse, which contains the tax decision, after 2nd July.

A person who is considered a full tax resident in Denmark will typically be taxed based on the regular tax structure, with rates reaching up to 52.07% (55.90% including AM tax, which is also regarded as income tax for DTT purposes) in 2023. Several deductions apply, leading to a reduced effective tax rate in the majority of cases.

Under the special expatriate tax regime, individuals employed in Denmark and scientists assigned to work in Denmark may be eligible to apply for a fixed tax rate of 27% on their gross salary for a period of up to 84 months. After the 84-month period, the employee’s income is taxed at ordinary rates.

If you want to terminate your employment and/or leave Denmark, it is necessary to inform the Danish tax agency, as this aids in the calculation of your tax obligations. Denmark entitles business owners and employees to a number, of tax reliefs. A person with a business in Denmark can benefit from a personal tax allowance - Personfradrag, the amount of which is determined individually each year. In addition, pension and insurance contribution payments, child support, as well as commuting and food costs are deductible. However, SKAT can check within seven years whether the declared expenses are reflected in reality. Accordingly, business owners in Denmark must store documentation for this period to prove the veracity of the tax returns they have filed.

Both the Danish business owner and the employee can take advantage of several available tax reliefs. A list of these, along with the documents needed to claim them, is provided below.

1. Accommodation allowance:

• SKAT sets this every year, in 2020 - 223 kroner per day;
• you need to present your accommodation rental agreement and your accommodation bills (including utility bills and rent).

2. Meals allowance:

• SKAT sets this every year, in 2020 - 521 kroner per day;
• all temporary employees of Danish companies are entitled to benefit;
• maximum amount: DKK 28,600 per year.

3. Bridge crossing allowance:

• may be used by all employees of Danish companies who cross a toll bridge on their way to work;
• you must present a receipt or ticket to prove the toll.

4. commuter allowance:

• all employees of Danish companies who travel more than 24 km round trip from their place of residence to their place of work are eligible;
• have to present e.g. fuel receipts, public transport tickets, air tickets, coach tickets, motorway toll tickets or ferry tickets (depending on the mode of transport);
• SKAT sets it annually, in 2020 - 1.96 kroner per km (25-120 km round trip) and 0.98 kroner per km (over 120 km).

5. Cross border tax credit (person crossing the border):

• can be used by persons whose minimum 75% of annual income is from Denmark;
• in order to qualify for the cross border allowance, you must do so no later than 1 June of the following year after you have stopped working in Denmark;
• married persons must include their spouse's income in their joint annual tax return (spouse's 2020 income must not exceed DKK 46,500) - income from shares up to DKK 58,900 (DKK 117,800 for a married couple) in 2023 is taxed at 27%, while share income in excess of this amount is taxed at 42%.
• you must provide a marriage certificate and a certificate from the Polish Tax Office about your and your spouse's income. The documents must be translated by a sworn translator (into Danish or English); - maximum amount: DKK 16,000.

6. Tax relief for interest expenses on consumer and mortgage loans:

• you are entitled to benefit if you have a loan and at least 75 per cent of your annual income is from Denmark;
• you must present a certificate from your bank (including details of the borrower, the amount of interest paid, the type of loan and the name of the bank), translated by a sworn translator into Danish or English, showing the amount of interest paid during the tax year.

7. Tax relief for running a dual household:

• persons who also run a household in their place of residence are entitled to benefit;
• you must present a marriage certificate translated by a sworn translator and a certificate from the City Hall of the same place of registration with your spouse. These documents must be translated by a sworn translator (into Danish or English).

Several additional deductions are applicable, including the union fees not surpassing DKK 6,000 annually that are tax deductible, along with certain other work-related expenses. Moreover, the majority of contributions to funded pension funds are deductible for both national and municipal taxes. For taxpayers, the double taxation treaty (a tax agreement between your home country and Denmark) provides protection against double taxation. Under this act, two options arise:

1. taxes paid in the country of employment will be deducted from taxes in the country of residence;
2. income earned in the country of employment, will be taxed only once (in the country where it was earned) and will be exempt from tax in the other country.

It is worth remembering that, according to the legal changes, if the first option is chosen, the amount of deduction will be able to be at most PLN 1 360. This limit applies to persons whose foreign income is earned from sources such as: employment relationship, contract work, cooperative employment relationship, economic activity and activity performed personally or, from artistic, literary, scientific, educational and journalistic activity performed outside the territory of Poland.

1. How much is the tax-free amount?
   In 2023, the tax-free amount in Denmark is DKK 46 700. It follows that persons whose annual Danish income for 2022 was lower are exempt from paying income tax.
2. By when do you have to file your Danish tax return?
   
   • By 1st July - Danish entrepreneurs (and Danish non-tax residents) who are self-employed in Denmark. They will receive the document - Årsopgørelse, which includes the tax decision, after 2nd July.
   • From 1st March to 1st May - persons with limited tax liability and Danish tax residents.
   • From 1st March to 1st June - those who wish to settle with their spouse for the previous tax year (and thus take advantage of the Cross Border Tax Credit).
3. What are the penalties for failing to meet the deadline for filing a return with the Danish tax authorities?
   As settlement with SKAT is obligatory, failure to do so or failure to meet the deadline will result in a fine of up to DKK 5,000.
4. What is the tax on share income in Denmark?
   Tax on income from shares in Denmark is 27% (from 0 to 54 thousand kroner) or 42% (over 54 thousand kroner).
5. Who is subject to limited tax liability in Denmark?
   Limited tax liability applies to persons who have a fixed-term contract and employees who live outside Denmark. In this situation, only income earned in Denmark is taxed.
6. In which laws can I find information about income tax in Denmark?
   
   • The laws relating to Danish income tax are:
   • The Personal Income Tax Act (Personskatteloven),
   • The Tax Audit Act (Skattekontrolloven),
   • The Withholding Tax Act (Kildeskatteloven),
   • Tax Assessment Act (Ligningsloven).
7. What is the Danish Skattestyrelsen?
   Skattestyrelsen is the tax authority in Denmark (otherwise known as SKAT).
8. What is a Personfradrag?
   Personfradrag is a personal tax credit to which Danish residents who have worked in Denmark for 12 months are entitled.
9. What is Ejendomsværdiskat?
   Ejendomsværdiskat is a land tax on real estate (a.k.a. cadastral tax). It covers real estate regardless of where it is located. All residents of Denmark are obliged to pay this tax. Poles who are Danish residents must also pay this tax on their real estate that is located in Poland (rate of 1% per year - real estate with a value below DKK 3.04 million; rate of 3% per year - real estate with a value above DKK 3.04 million). However, there are reliefs and exemptions regarding the cadastral tax:
   • persons over 65 years of age - 0.4 per cent, but no more than DKK 2,000 for holiday homes and DKK 6,000 for year-round homes;
   • taxpayers in the process of moving (a period of a maximum of a few months between the purchase of the property and the move to the property; a longer period involves a tax surcharge from the time the property sale contract is signed);
   • taxpayers whose property has been damaged by forces beyond the taxpayer's control;
   • taxpayers who own property in another country and pay tax for it there - exemption in Denmark (proof of payment must be provided);
   • if the property is rented out, it is possible to apply for full exemption (when renting out the entire property) or partial exemption (when renting out part of the property), but you must pay more than the cadastral tax on the rent;
   • the tax rate can be reduced by 0.2 per cent if the property was bought before 1 July 1998;
   • the tax rate may be reduced by 0.4% (up to a maximum of DKK 1,200) if a person lives in the property all year round.
10. How do I order a NemID?
    Persons who hold a Danish driving licence or passport and are registered in Denmark can order a NemID electronically at www.nemid.nu. You can also go to the residents' service point. There you will need to show a valid identity document (e.g. passport, driving licence or Danish-issued permanent residence card with photo), proof of your CPR registration number (e.g. health insurance card) and answer a few questions about yourself (or take witness). If you have online banking, you can ask your bank about your NemID.
11. Is the Tastselv code necessary?
    Yes, it is fair to say that the Tastselv code in Denmark is necessary, as it allows you to log on to the SKAT website, i.e. the Danish tax office (this is where you file your tax return online). This code can be ordered at tastselv.skat.dk/borger/bestilkode.
12. What is the maximum that can be charged to an individual's income?
    A tax-free amount and a maximum tax burden ceiling are set for each tax period, but the burden on an individual's income cannot exceed 59%.
13. What is a Personnummer?
    The Personnummer, or CPR (personal TIN), which is issued by the Customs and Tax Office - SKAT, is needed for income tax and VAT.
14. What is Årsopgørelse?
    Årsopgørelse is a tax decision that the taxpayer usually receives after 2nd July (if they have made their return on time). It contains the amount of the refund (shown in green) or surcharge (shown in red).
15. What is the Folkeregistret?
    Folkeregistret, the Danish Citizen Service, is responsible for issuing Danish employees and entrepreneurs with a tax identification number - the Central Person Register (CPR). In order to obtain it, you will need proof of identity, an employment contract and a rental agreement. This number is extremely important as it guarantees all those working in Denmark access to a health insurance card and thus free medical care.
16. Who is considered a tax resident in Denmark?
    A tax resident in Denmark is a person who has earned income in Denmark, but also outside the country.
17. What is a NemKonto?
    A NemKonto is a (employee) bank account into which your salary and tax refund form SKAT is transferred.
18. Who has to pay VAT in Denmark?
    Payment of VAT is compulsory in Denmark for companies that record more than DKK 50,000 in revenue during the year.