Moving to Denmark

Taxation – when moving to Denmark

Sprog Engelsk
Resumé This guide describes some of the rules and factors to be aware of as a new taxpayer in Denmark.
Hvad er nyt? In this version the term „Labour letting”  has been substituted with the term „Hiring-out of labour”. Otherwise there are no changes in relation to the previous version.
Hvor fås vejledningen? Vejledningen findes kun på SKATs hjemmeside

Preface

This guide describes some of the rules and factors to be aware of as a new taxpayer in Denmark. Among other things, you can read about the rules governing tax liability, about how your tax is calculated and how income and allowances are stated. The guide primarily describes matters of relevance to employees and is published in Danish and also in English and German, which you may find under „International” at www.toldskat.dk.

For a more detailed explanation of how Danish tax is calculated and works, please refer to the leaflet „Forskud 2005” (Tax 2005 – Preliminary Income Assessment) in either digital or printed format. The guide is also available in English, „Tax 2005 – Preliminary income assessment„, only in a digital format.

All leaflets and guides by the Danish Customs and Tax Administration are available at www.toldskat.dk. Some of the leaflets are also available in a printed version from your local authority or at certain libraries. You are always welcome to contact your local tax administration. They offer personal guidance and information about your specific tax situation.

Unless otherwise indicated, the stated rates and amounts apply to 2005. Some of the amounts are adjusted every year.

When you have moved to Denmark

Obtain a taxcard

Working in Denmark

The tax year

Tax card

In your first year as a taxpayer in Denmark you must make all information concerning your financial situation available to your local tax administration. This will allow the tax administration to calculate the level of your taxation and prepare your tax card as accurately as possible.

Once the tax administration has received your financial information, you will, each year in November, receive a preliminary income assessment with the latest figures. This preliminary income assessment will state the most recent figures known to the tax authorities regarding your income and allowances. You will also receive a tax card for the coming year.

The tax card consists of two parts: A ?tax rate and allowances card? (?hovedkort?) and a ?secondary card? (?bikort?). The tax rate and allowances card shows the monthly allowance and a withholding percentage. The allowance is that part of the pay on which no tax is payable. The withholding percentage is the tax rate payable after the allowance has been deducted from the net pay.

Generally, the tax rate and allowances card is to be given to your employer. Your employer uses it to calculate the tax to be withheld from your pay. The secondary card is used only if you have more than one employer.

Pensioners and a number of other recipients of public benefits will not receive a tax rate and allowances card. It is sent to the authority responsible for disbursing the benefits.

With your pay, you will receive a payslip showing the amounts withheld as tax and labour market contributions etc. Please remember to keep your payslips ? they are considered evidence that the tax etc. has been paid.

Example showing how tax is calculated on a payslip (2005):

Holiday-entitled pay:

DKK 26,074.55

Labour market supplementary pension (ATP):

– DKK 74.55

Labour market contribution (8 per cent):

– DKK 2,080.00

Special pension savings (zero per cent in 2005)

DKK 0.00

Net pay (personal income):

DKK 23,920.00

Tax-free allowances as per tax card:

– DKK 4,492.00

Tax basis:

DKK 19,428.00

41 per cent tax (withholding rate) on DKK 19,428.00:

– DKK 7,965.00

Pay for disbursement:

DKK 15,955.00

„No tax” card

If your income during any one year does not exceed your personal allowance (for further information, refer to „Allowances„), you will receive a „no tax” card („frikort”) instead of a regular tax card. A „no tax” card has an upper income limit, and as long as your earnings do not exceed this upper limit, no tax is payable on your pay. However, holders of „no tax” cards are not exempt from paying labour market contributions and special pension savings.

„No tax” cards are issued primarily to children and young people with a spare-time job, as these normally earn less than what corresponds to their personal allowance.

Avoid tax underpayment

The tax paid by you during a calendar year should be close to the final tax. Otherwise, there is a chance you may have to pay outstanding tax at the end of the year.

It is therefore important to have a tax card that reflects the actual level of your income and allowances. If your income or allowances change significantly during the year, you should contact the local tax administration and ask for an amended tax card. You can also change your preliminary income assessment via Self-Key at http://www.toldskat.dk/ until the end of September 2005.

However, there is no need to do so with only minor changes in your income and allowances. You may calculate your tax via Self-Key at http://www.toldskat.dk/ to track the changes.

In the following situations, it may be important to have your tax card changed, e.g. if you:

  • get a new job with substantially higher or lower pay
  • start your own business
  • become unemployed, are pensioned or retire early
  • change your marital status
  • buy or sell a house or flat
  • convert or redeem loans, such as a housing loan
  • join a capital pension scheme or other private pension scheme
  • incur a change in distance between home and place of work (change of transport allowance)
  • have material changes in your capital income (i.e. interest income and interest expenditure).

Income tax return and annual tax statement

In March or April an income tax return form will be sent to you. Most people will receive a ready-printed tax return form, others will receive an extended one. For extended income tax returns, see below. The income tax return is a statement of the figures known to the tax authorities for the past tax year. It is up to you to check if the figures are consistent with your actual earnings and allowances. If they are, this is all you need to do.

But if they are incorrect, or if some figures are missing, you must enter the correct figures on the income tax return form and return it to the local tax administration by 1 May. You may also key in the figures via Self-Key by telephone or at www.toldskat.dk by 1 May.

If you still receive pay or fees or hold real property, bank accounts or pension savings in the country from which you moved, you should not complete a ready-printed income tax return. Instead you should complete an extended income tax return and an income tax return for foreign income. You may ask your local authority to send it to you – or you can find it at www.toldskat.dk.

Also, you should check if your previous country of residence still needs an income tax return from you. If your previous country of residence requires documentation for your being a Danish taxpayer, such documentation is available from your local tax administration.

More detailed information on how to complete your income tax return can be found in the leaflet from the Danish Customs and Tax Administration: „Selvangivelsen 2004” (Income tax return 2004), which you may find at www.toldskat.dk or obtain in a printed version from your local authority or at certain libraries.

Are you self-employed? If you have your own business, you must complete an extended income tax return. The extended income tax return is not ready-printed – you need to enter the correct figures yourself. Information available to the tax authorities will be stated in the service letter included with the income tax return.

The deadline for keying in the figures via Self-Key at www.toldskat.dk or submitting the income tax return to the local tax administration is 3 July 2005.

Annual tax statement Most people will receive an annual tax statement with their income tax return form. If not, you will receive it when you have submitted or entered your income tax return.

The annual tax statement shows the total accounts for the preceding tax year. It is based on the income and allowances stated on your income tax return. It will specify whether you have paid too much or too little provisional tax during the year. If you have paid too much, the excess amount will be refunded. If you have paid too little, you must pay outstanding tax – the annual tax statement will tell you how much.

You may choose to pay in any outstanding taxes and avoid a supplement. If the outstanding tax does not exceed DKK 40,000, you must pay in the amount due by 1 July in the year following the tax year to avoid the supplement. If your outstanding tax exceeds DKK 40,000, other rules apply.  You may find further information in the leaflet from the Danish Customs and Tax Administration: „Betaling af restskat” (Payment of outstanding tax).

If you choose not to use the scheme for voluntary repayment of outstanding tax, this tax will be collected in three instalments (a supplement added) in September, October and November. However, if your outstanding tax does not exceed DKK 16,100, it will be included in your tax for the next year.

If you fail to pay your outstanding tax If you fail to meet the deadlines for payment of outstanding tax, your tax debt(s) will be referred to collection. It is possible to obtain an individual instalment arrangement for outstanding tax and other debts to the public authorities if you contact the local authority?s collection office.

If you simply omit paying any outstanding tax and fail to answer the letters from the local authority, heavy interest will accrue. The local authority may ask your employer to withhold part of your pay as instalments on your debt(s).

Complaint If you cannot accept the annual tax statement, you should get in touch with the local tax administration. In many cases this will be the most convenient way to correct any misunderstandings without having to file a complaint.

Should you wish to complain, you may do so to the Tax Appeals Tribunal of the local authority that has issued the annual tax statement. If you disagree as to the local Tax Appeals Tribunal’s decision, you may complain against it to the National Tax Appeals Tribunal.

Conversion into full-year income

During your first year as a taxpayer in Denmark, your income will be adjusted to represent a ?full-year income? ? so as to allow for the graduation in the Danish tax system. Based on the adjusted full-year earnings, a full-year tax will be calculated which is then reduced according to the ratio between the part-year amount and full-year amount, so that you will be paying tax only on the amount you have actually earned.
Conversion into full-year income (exampel) If you move to Denmark on 1 August 2005 and manage to earn e.g. DKK 100,000 (net of labour market contributions etc.) in Denmark in the 2005 tax year (a total of 153 days), the result is:

Earned income/personal income 1.8. – 31.12: DKK 100,000
Taxable income net of employment allowance 1.8 – 31.12: DKK 97,282
Annual earned income/personal income
DKK 100,000 x 365 days / 153 days:
DKK 238,562
Annual taxable income net of employment allowance:
DKK 97,282 x 365 days / 153 days:
DKK 232,078
Annual state tax of DKK 238,562 is: DKK 11,052
Annual municipal tax etc. of DKK 232,078 is: DKK 62,602
Part-year tax (state tax): DKK 11,052 x 100,000 / DKK 238,562: DKK 4,633
Part-year tax (municipal tax etc.): DKK 62,602 x 97,282 / DKK 232,078: DKK 26,241
Total tax: DKK 4,633 + DKK 26,241 DKK 30,874
Conversion into actual full-year income (example) You may also choose to have your tax calculated on the basis of actual income earned in the tax year. This may be an advantage if your pay before moving to Denmark was lower than your pay is in Denmark. By this calculation, your tax is reduced by the amount of the Danish tax that has been levied on the foreign income.

If you have earned DKK 80,000 (net pay according to Danish rules) before moving to Denmark on 1 August 2005 and subsequently manage to earn DKK 100,000 (net of labour market contributions etc.) in Denmark in the 2005 tax year, the result would be as follows:

Earned income/personal income 1.8 – 31.12: DKK 100,000
Taxable income net of employment allowance 1.8 – 31.12: DKK 97,282
Annual earned income/personal income
DKK 80,000 + DKK 100,000:
DKK 180,000
Annual taxable income net of employment allowance:
DKK 78,000 + DKK 97,282:
DKK 175,282
Annual state tax of DKK 180,000 is: DKK 7,832
Annual municipal tax etc. of DKK 175,282 is: DKK 44,319
Part-year tax (state tax) DKK 7,832 x 100,000 / DKK 180,000: DKK 4,351
Part-year tax (municipal tax etc.): DKK 44,319 x 97,282 / DKK 175,282: DKK 24,597
Total tax: DKK 4,633 + DKK 24,597 DKK 29,948

Tax liability

A distinction is made between ?full tax liability? and ?limited tax liability?. When you move to Denmark to live and work here, you will normally become subject to full tax liability to Denmark. If your association with Denmark is only of a financial nature, you may be subject to limited tax liability. This would be the case if, for example, you are living in a foreign country and receive fees or earned income from a Danish employer for work performed in Denmark, or if you own real property in Denmark.

The local tax administration will consider the extent of your tax liability to Denmark.

Full tax liability

Full tax liability means that all your earned income, as a general rule, is subject to taxation in Denmark. For full tax liability to Denmark you must either stay in Denmark for six months consecutively or be resident in Denmark.

Even if you buy a house in Denmark, you will not become subject to full tax liability until you move to this country. However, you may stay here for a period not exceeding 3 consecutive months, or for 180 days within any 12-month period, without becoming fully tax-liable. This presupposes that your stay is in the nature of holidays and is not associated with any form of gainful employment.

Even if you have not moved your residence to Denmark, you will become subject to full tax liability if your uninterrupted stay here exceeds six months. Tax liability will also apply even if, within the six months, you have interrupted your stay for a brief sojourn abroad on account of holidays etc. Tax liability will apply from the beginning of your stay in Denmark.

Special rules apply to diplomats, EU employees and seamen.

Limited tax liability

If you have income from Denmark without living here, you may be subject to limited tax liability to Denmark. This implies that you are taxable on your Danish income but that you remain fully tax-liable in another country. The income may be in the form of, e.g. pay or fees for work performed in this country, fringe benefits or pensions.

You will then have to complete a special ?Income Tax Return for Persons with Limited Tax Liability? (?Selvangivelse for begrænset skattepligtige?), which you must submit to the local authority by 1 July. The special income tax return form (blanket 04.009) is available from the local authority or at www.toldskat.dk. If you are subject to limited tax liability, you will be paying an average county/municipal tax rate, which for the year 2005 is 32 per cent. In addition, you will be paying state tax, i.e. the lowest withholding percentage will be 38 per cent.

If you own real property in Denmark without having your permanent address in this country, you will also be subject to limited tax liability. You will then be paying property value tax.

For further information on limited tax liability, see the leaflet „Selvangivelsen 2004 – begrænset skattepligtige” (?Income Tax Return 2004 for Persons with Limited Tax Liability?).

Personal allowance Persons having limited tax liability and receiving pay etc. for work performed in this country are entitled to a personal allowance if the income period represents an entire income year. If such a person has a spouse, and if that spouse has not obtained a personal allowance in this country, a special ?spouse allowance? may be granted. This allowance is up to DKK 37,600.
Tourist and students If you are in Denmark only as a tourist or student, you will not be fully tax-liable as long as you are fully tax-liable in your own country and are not running your own business in Denmark during your stay.

If you have paid work while you are in Denmark, you will be subject to limited tax liability.  This implies that you will be taxed on your Danish pay.

As a tourist or student you will not become fully tax-liable until you have been in Denmark for more than 365 days within a combined period of two years.

Income and allowances

When you are subject to full tax liability in Denmark, generally, all your income is taxable – money as well as assets in kind – even if the income is from another country. In addition to pay and pensions, you will also be taxed on, e.g. interest income, share dividends, rental income and fringe benefits.

There are, however, a number of allowances which will be offset against your income before the tax is calculated, i.e. the taxable amount is reduced.

There are various allowances for, e.g. pension scheme contributions, interest expenditure, commuting between home and work (transport allowance), trade union membership fees, unemployment fund fees, early retirement contributions etc.

This guide explains only a few very common types of income and allowances. For further information, please see the guide „Forskud 2005” (Tax 2005 – Preliminary Income Assessment), which is available at www.toldskat.dk, at your local authority and at many libraries. The English version „Tax 2005” is available in a digital format at www.toldskat.dk.

Pay and pensions

Pay, unemployment benefits, cash benefits and pensions etc. are all types of taxable income and must be stated on your income tax return. You must also pay labour market contributions and special pension savings on your pay (the latter is at zero per cent in 2005), but not on unemployment benefits and pensions.

Fringe benefits are also treated as income. A fringe benefit is a benefit paid wholly or in part by your employer, which is available for the recipient’s private use. As a general rule, you will be liable to taxation on the market value of the benefit.  However, certain fringe benefits have a trifle limit of DKK 5,000 in 2005.

For a number of fringe benefits, special rules apply in respect of the determination of their value. If, for example, your employer makes a free car (company car) available to you on the understanding that it may be used privately as well, you will be taxed on the value of your private use of the car. The taxable amount represents a percentage of the value of the car.

If your employer makes totally or partially free lodgings available to you, you will be taxed on this fringe benefit if the rent paid by you is less than the market rent.

Capital income Capital income comprises interest income and expenditure, taxable capital gain, certain types of share dividend and gains on shares etc.

Your capital income is subject to taxation, and is thus included in your taxable income. If your interest expenditure is higher than your interest income, you have a negative net capital income. Negative net capital income will be deducted in the calculation of your taxable income.

Letting of real property If you let your house or summer cottage for a period of time, it is regarded as taxable income – after the setting-off of certain allowances. See the leaflet „Udlejning af bolig” (?Tax ? Letting of real property?).

Allowances

Personal allowance As a general rule, all taxpayers are entitled to a personal allowance. This also applies to persons subject to limited tax liability who receive pay etc. for work carried out in this country if the income period represents an entire calendar year. In 2005, the personal allowance for one year is DKK 37,600 for taxpayers who have reached the age of 18 by the end of the tax year and for married persons under the age of 18. For children and young persons under the age of 18 the personal allowance is DKK 27,900.

The personal allowance is used to calculate a tax value, which will be deducted from the bottom-bracket tax, the county/municipal tax and the church tax (if any). See „County and municipal tax and church tax„.

Other allowances Employees have allowances in connection with certain types of expenditure related to their job. These include trade union fees, unemployment fund fees and expenditure in connection with transport between home and work. Other types of expenditure for which an allowance is granted include interest expenditure, child maintenance payment, private pension contributions etc. The various types of allowances will be deducted when your tax is calculated.

When you receive your income tax return form most allowances will be ready-printed. Other allowances must be entered by you. You should always check if the correct figures have been printed on your income tax return form by the tax authorities.

If you receive an extended income tax return, the figures will not be ready-printed. However, any information available to the tax authorities will be stated in the included service letter, and you will then have to enter the figures on the income tax statement yourself.

Transport allowance If you have to commute a long distance between your home and place of work, you are eligible for a transport allowance. What can be deducted is not the actual mileage expenses but an allowance based on fixed rates.  It is your responsibility to calculate the allowance and enter it on your income tax return.

The allowance is calculated on the basis of the distance to your work and the number of working days in a year. The means of transport is thus irrelevant.

There is no allowance for the initial 24 kilometres (i.e. 2 x 12 km) per day between home and work. In other words, if your total daily commuting distance is 24 km or less, you are not entitled to a transport allowance.

The allowance is calculated as the number of working days multiplied by an allowance per kilometre for each working day you commute. Typically, an employee will have approximately 220 working days in a year. Days off, holidays and sick days do not count as working days.

The allowance per kilometre per working day you commute is as follows in 2005:

Initial 24 kilometres: no allowance
25-100 km: DKK 1.68 per kilometre
more than 100 km: DKK 0.84 per kilometre

Example:
A taxpayer has a commuting distance of 110 km between home and work (55 km either way) and works for 150 days during the year. His transport allowance is calculated as follows:

Initial 24 kilometres: = No allowance
25-100 km (76 km): 76 x DKK 1.68 = DKK 127.68 per day
101-110 km (10 km): 10 x DKK 0.84 = DKK 8.40 per day
Total allowance per working day: 121.6 + 8.4 = DKK 136.00
Total transport allowance: 150 days at DKK 136.00 each = DKK 20,412.00

Rural areas
If you commute from certain rural areas, your allowance per kilometre above 100 km is not reduced, i.e. the entire transport allowance is calculated at the rate for 25-100 km.

Free transport
If your employer pays the transport expenses you incur to commute, this is called free transport. Free transport includes, e.g. travelling in your employer’s car or bus, or a free bus or train card. Travelling in a free car (company car) is also regarded as free transport, whereas travelling in a colleague’s car is not regarded as free transport.  For further information about the rules on and taxation of free transport, see the leaflet „Kørepenge – om skattefri befordringsgodtgørelse” (?Tax-free travel and transport allowance?).

If you have access to free transport, it is not beneficial to claim transport allowance.

Transfrontier workers etc.

Double housekeeping If you are temporarily resident and working in Denmark and, at the same time, maintaining a dwelling for your family back home, you can claim a double housekeeping allowance, provided that you are subject to full taxation in Denmark.

An allowance will be granted for the initial 24 months counting from the time of your moving to Denmark. This allowance is granted in relation to documented additional expenditure.

You are entitled to the allowance if you are married or have a regular cohabitee and have had so for at least one year. In the case of marriage or cohabitation for less than one year, the allowance may be granted on the basis of a specific evaluation. Your spouse/cohabitee need not necessarily be tax-liable in Denmark for you to be granted the allowance.

Technicians? allowance If your stay for work in Denmark does not exceed three years and you still receive your pay directly from your employer in another country, you may be eligible for tax relief on your added cost of living in connection with the job, the so-called ?technicians’ allowance?. This would typically apply to persons who have been posted in Denmark by their employer to perform a specific task. This allowance may be granted to persons with full as well as limited tax liability.

It is up to you to apply for the allowance with the Regional Customs and Tax Administration Office (in Copenhagen and at Frederiksberg, however, your application must be filed with the local tax administration). The allowance constitutes DKK 8,000 per year ? with a supplement of 5 per cent of your gross pay (the allowance cannot exceed 25% of your gross pay) ? and is granted for a maximum period of two years.

For further relevant information on travel allowance, see the leaflet „Kørepenge – om skattefri befordringsgodtgørelse” (?Tax-free travel and transport allowance?).

Transfrontier workers If you live in another country but work in Denmark and travel back and forth regularly, you are a ?transfrontier worker?. If, as a transfrontier worker, you earn most of your pay in Denmark, you are entitled to allowances for expenditure incurred in connection with personal and family circumstances (such as interest income, child maintenance payment and unemployment fund fees) to the same extent as persons subject to full tax liability with their permanent address in this country. You will then have to complete a special form (04.031) „Supplement til selvangivelse for begrænset skattepligtige” (?Supplement to Income Tax Return for Persons with Limited Tax Liability?). You may download the form at www.toldskat.dk or obtain it from your local authority.

How your tax is calculated

Various tax rates and various types of income and allowances are used to calculate your tax. Your annual tax statement and preliminary income assessment will show how the tax authorities have calculated your tax. The sections below will give you an idea of the relevant taxes and terms.
Personal income Comprises e.g. pay, unemployment benefits, pensions, fees, net of any labour market contributions or special pension savings. Allowances such as contributions to private pension schemes are deducted from your personal income.
Capital income Comprises interest income and expenditure and similar income/expenditure. Interest expenditure will be deducted from your capital income (negative capital income).
Taxable income Comprises your personal income plus/minus capital income and minus assessment allowances.
Assessment allowances Comprises, e.g. allowances for commuting in excess of a certain number of kilometres (transport allowance), unemployment fund and trade union fees, child maintenance payment etc. Assessment allowances are deducted from your taxable income before tax is calculated.
Share income Comprises income from shares, dividend etc. Special rules apply to the taxation of income from shares. For further information, see „Selvangivelsen 2004” (Income Tax Return 2004).

County and muncipal tax and church tax

County and municipal taxes and church tax are calculated on the basis of the taxpayer’s taxable income. Each county and each local authority will determine its own county and municipal tax rate. In 2005, the average county and municipal tax is 32 per cent. Members of the Danish National Evangelical Lutheran Church also pay church tax at an average rate of 0.7 per cent in 2005.

The tax will be reduced by the tax value of the personal allowance, i.e. if the county and municipal tax and church tax are 33 per cent, the personal allowance will give you a tax reduction of 33 per cent of DKK 37,600. If a married person cannot ?use? the entire personal allowance, the balance will be transferred to his or her spouse.

State tax

State tax Taxation in Denmark is progressive, i.e. state tax is calculated at different tax rates depending on the level of your personal income and capital income. The higher the income, the higher the tax rate.

State tax is calculated by dividing it into ?bottom-bracket tax?, ?middle-bracket tax? and ?top-bracket tax?. Almost all taxpayers pay bottom-bracket tax, while some pay middle-bracket and others top-bracket tax, depending on their income. The following tax percentages and lower limits are used in the calculation for 2005:

Bottom-bracket tax In 2005, the bottom-bracket tax is 5.50 per cent.

Bottom-bracket tax is levied on personal income including any positive net capital income.

The tax is reduced by the tax value of the personal allowance, i.e. 5.50 per cent of DKK 37,600. If a married person cannot use the entire tax value of the personal allowance, the balance is transferred to his or her spouse.

Middle-bracket tax In 2005, the middle-bracket tax is 6 per cent.

Middle-bracket tax is levied on such part of the personal income (including any positive net capital income) as exceeds a lower limit of DKK 259,500. If a married person cannot ?use? the entire lower limit, the balance will be transferred to his or her spouse.

Top-bracket tax In 2005, the top-bracket tax is 15 per cent.

Top-bracket tax is levied only on such part of a person?s income as exceeds a lower limit of DKK 311,500. Any unused part of the lower limit cannot be transferred to a spouse.

The calculation of top-bracket tax depends on whether or not a person is married. For unmarried persons, the top-bracket tax is calculated on the basis of personal income including contributions towards capital pension schemes etc., and any positive net capital income. For married persons, net capital income is not included in the same way.

Setting off negative capital income Negative net capital income cannot be deducted when calculating bottom-bracket tax, middle-bracket tax or top-bracket tax, however, if a married person has a negative net capital income, this will be set off against the spouse?s basis of assessment before calculating his or her bottom-bracket tax, middle-bracket tax and top-bracket tax.

For further information, see the guide”Forskud 2005” (English version „Tax 2005 – Preliminary Income Assessment„).

Tax ceiling

The tax ceiling is designed to ensure that your total income tax for state, county and local authority, (i.e. municipal tax + county tax + bottom-bracket tax + middle-bracket tax + top-bracket tax) cannot be levied at a rate exceeding 59 per cent of your income. Church tax and labour market contributions and special pension savings are not included in the tax ceiling.

Labour market contributions and SP (Special pension savings)

Labour market contributions (LM) In addition to income tax, all employees and self-employed people must pay labour market contributions. Labour market contributions levied on earned income etc. are collected by the employer on an ongoing basis and appear from the payslip. No labour market contributions are payable on student grants, pensions, cash benefits, unemployment benefits etc. In 2005, the contributions are at 8 per cent.

The contributions are payable by all employees who are liable to pay income tax to Denmark. In other words, all employees must pay labour market contributions even if a double taxation agreement provides that they are exempt from tax liability in Denmark. Further details of the double taxation agreements are provided under „Double taxation„.

Labour market contributions may be likened to the social contributions levied in some countries. Labour market contributions are used for the Government’s labour market expenses, e.g. to cover unemployment benefits, early retirement pensions, further training and leave of absence. However, you have no given right to these benefits simply because you are paying labour market contributions.

Any outstanding contributions will be collected in connection with the annual tax statement, and any excess contributions will be refunded at that time.

Social security in home country
You may be exempt from paying Danish labour market contributions if you are still covered by a social security scheme in your home country, and Denmark has concluded a social security agreement with that country. For this purpose, you must as soon as possible provide your employer with documentation showing that you are covered by a social security scheme in your home country. The Regional Customs and Tax Administration Office must grant you such exemption. The documentation will be issued by the social welfare authorities of your home country or by the Social Security Board (for further details, see „Further information„).

Special pension savings (SP) Employees and self-employed persons must pay special pension savings (SP). Savings are fixed at zero per cent in 2005.

Exempt from the payment of SP are young persons until the calendar year in which they reach the age of 17, and elderly people from the calendar year where they reach the age of 67 (from 1 July 2004, when they reach the age of 65).

Any outstanding pension savings will be collected in connection with the annual tax statement, and any excess savings will be refunded at that time.

The disbursement of special pension savings will begin when the account holder reaches the age of 67 (from 1 July 2004, when they reach the age of 65). Disbursements are made monthly over a 10-year period and are exempt from labour market contributions. The amounts disbursed must be included in the personal income. Disbursement may also be done as a lump sum.

Property value tax

Property value tax is a tax on the property value of an owner-occupied dwelling. It is calculated on the basis of the value of the property, which is determined by an annual tax assessment of real property. From 2002 onwards, real property is valued every other year – next time on 1 October 2006.

For details on rates, please refer to „Tax rates„.  From 2002 onwards, a ceiling has been introduced on the amount on which you calculate property value tax. For further information, see the leaflet „Ejendomsværdiskatten” (Property value tax).

Property value tax is payable on Danish as well as foreign properties. This means that a person resident in Denmark must pay property value tax on any real property he owns in other countries. However, a reduction may be granted pursuant to any double taxation agreements – or for taxes paid abroad similar to the property value tax.

Property value tax is collected automatically as a provisional tax over the year like the other provisional income taxes ? either via the tax card or via giro transfer forms. The final property value tax will be calculated in connection with the annual tax statement. You may find the property value of your property at www.toldskat.dk under „Borger”.

In addition to the property value tax, a property or land tax (also called ?grundskyld?) is charged on the value of the land. Land tax is assessed and collected directly by each local authority.

If you let your owner-occupied dwelling, in some cases you will not be liable to pay full property value tax and land tax. For further information, please refer to the leaflet Skatten – Udlejning af bolig” (?Tax ? Letting of real property?).

Double taxation

Double taxation agreemnents

If you are liable to pay full tax in Denmark, you will in principle be taxed on all income, regardless of whether it was earned in this country or elsewhere. The global income concept entails that foreign income will not be given special treatment but will be treated in accordance with Danish tax rules even if the income has already been taxed in another country.

In order to avoid such double taxation, Denmark has concluded agreements with a considerable number of countries that specify who has the right of taxation in which areas. In addition to this, Danish tax law lays down rules about tax reductions. These rules may be applied in cases where no double taxation agreement exists – or where it is more favourable to apply these rules rather than the rules of the double taxation agreement.

Double taxation agreements have been concluded with the following countries (as at 1 January 2005):
Argentina, Armenia, Australia, Austria, Bangladesh, Belarus, Belgium, Brazil, Bulgaria, Canada, China, Croatia, Cyprus, the Czech Republic, Egypt, Estonia, the Faroe Islands, Finland, France, Georgia, Germany, Great Britain, Greece, Greenland, Hungary, Iceland, India, Indonesia, Ireland, Israel, Italy, Jamaica, Japan, Kenya, Korea, Kyrgyzstan, Latvia, Lithuania, Luxembourg, the Republic of Macedonia, Malaysia, Malta, Mexico, Moldova, Morocco, the Netherlands, New Zealand, Norway, Pakistan, the Philippines, Poland, Rumania, Russia, Serbia and Montenegro, Singapore, Slovakia, Slovenia, South Africa, South Korea, Spain, Sri Lanka, Sweden, Switzerland, Tadzhikistan, Tanzania, Thailand, Trinidad and Tobago, Tunisia, Turkey, Uganda, the Ukraine, the USA, Venezuela, Vietnam and Zambia

Double taxation agreements with the former Soviet Union apply to states that are associated with the SNG (with the exception of Kazakhstan and Turkmenistan).

Tax relief Double taxation agreements ensure that the same income is not taxed in more than one country. The system operates in the following manner: The country of residence will levy taxes on the global income (regardless of whether it comes from domestic or foreign sources) and will grant tax relief for such part of the income as comes under another country’s right of taxation.

When the tax is calculated, the relevant country’s double taxation agreement with Denmark will be taken into account. It will lead to a total or partial lapse of any Danish tax liability, if you can show that the income has been taxed in another country. It is up to you to apply to the local tax administration for a reduction of your tax, and it is up to you to provide documentation for the amount of tax you have paid abroad.

For further information about the double taxation agreements and the different types of tax relief, please contact your local tax administration.

Tax relief under a double taxation agreement

Tax will be calculated on the basis of your total income, including any foreign pay earned and any allowances. Subsequently, the calculated tax will be reduced in accordance with the provisions of the double taxation agreement.

A number of different methods may be used for the calculation of tax when you have income from more than one country. The method to be used in your case depends on the double taxation agreement in question and your type of income. The ?credit method? and the ?exemption method? are the two most widely used methods. Under these methods, Denmark is entitled to fully include the foreign income in the statement of taxable income.

The credit method With this method, double taxation is eliminated by reducing the Danish tax by the tax amount that has been paid to the other country in question on the foreign income.

Example (simplified):
Danish income: DKK 100,000
Foreign income: DKK 50,000
Total income: DKK 150,000
Danish tax calculated on the basis of the total income of DKK 150,000: (e.g.) DKK 45,000
Tax paid to the other country: – DKK 10,000
Danish tax after credit: DKK 35,000

Reductions under the credit method can never exceed the amount of Danish tax that has been levied on the foreign income.

The exemption method Under this method, the tax is reduced by the amount of Danish tax that has been levied on the foreign income. In other words, in this case it is irrelevant how much tax was actually paid in the foreign country.

Example (simplified):
Danish income: DKK 100,000
Foreign income: DKK 50,000
Total income: DKK 150,000
Danish tax calculated on the basis of the total income of DKK 150,000: (e.g.) DKK 45,000
Reduction based on exemption (45,000 x 50,000 / 150,000): – DKK 15,000
Danish tax after exemption: DKK 30,000

Tax relief without a double taxation agreement

If the other country has not entered into a double taxation agreement with Denmark, the tax is generally reduced in accordance with the credit method, cf. above.

However, if you have earned income during a stay abroad while you are subject to full tax liability in Denmark, the tax reduction may be calculated in accordance with the exemption method. For the exemption method to be applied, the duration of the stay abroad must be at least six months.

Special rules

Special taxation rules apply if you are working in Denmark as a highly paid employee or researcher, or if you have been ?let? to a Danish employer (Hiring-out of Labour, e.g. oil rig employees or bridge builders).

Higly paid key employees and researchers

If you become subject to full tax liability in Denmark at the same time as taking up paid work with a Danish employer, you may choose to pay gross tax at a rate of 25 per cent of your pay – instead of paying normal income tax. However, in this case you will not benefit from any deductions from your earned income, nor will you be entitled to a personal allowance when calculating your tax.

In addition to the 25 per cent, you must also pay labour market supplementary pension fund contributions, labour market contributions and special pension savings.

To benefit from the 25 per cent tax rate, a number of conditions must be met. As an example, the monthly pay must be at least DKK 57,300 after deduction of labour market supplementary pension fund contributions, labour market contributions and special pension contributions. For further information about the conditions, see the leaflet „25-procentsskatteordning” („25% tax scheme)” which is also available in English at www.toldskat.dk.

For further details, please contact your Regional Customs and Tax Administration Office.

Hiring-out of Labour

If, as an employee, you have been let to a Danish company to carry out work in this country, you will be liable to taxation in Denmark from your first day of work here.

?Hiring-out of Labour? is the term used when you are not employed with or paid by a Danish company, but when the powers of instruction and the responsibility/risk associated with your performance rests with the Danish company for which you work.

You must pay labour market contributions and special pension savings unless you are covered by your home country’s social security regulations.

If you are resident in another country for tax purposes and are staying in Denmark for up to six months without interruption (brief weekend and holiday stays outside Denmark are allowed), the tax rate is 30 per cent of your gross pay, including the value of tax-free benefits such as free or paid board and lodging, but exclusive of labour market contributions and special pension savings.

The Danish employer will withhold the tax before he pays your formal employer abroad. The Danish company must obtain details indicating how large a proportion of the payment is regarded as pay etc. This form of taxation is final, which means that you are not required to file an income tax return.

Instead of paying 30 per cent tax, you may choose to be taxed according to the general rules for persons with limited tax liability, and thus be entitled to relief for expenses associated with your income.

If you are fully tax-liable in Denmark, you will be subject to taxation under the general Danish rules for persons with full tax liability.

Further Information

Any queries you might have about tax may be answered by your local tax administration. You may find addresses for your local authority at www.danmark.dk and further information at www.toldskat.dk. Under „International” you will find the details that have been translated into foreign languages.

For further information about labour market contributions and the withholding of tax, please contact your Regional Customs and Tax Administration Office.

When you move from one country to another, it is important to determine what this implies in terms of your social security (sickness benefits, pensions, industrial injuries insurance etc.).

A number of international agreements are in force on the subject of social security. The social welfare authorities in your home country can guide you on the rules that are relevant to your social security while you are working in Denmark. Help is also available from:

Den Sociale Sikringsstyrelse (Social Benefits Administration)
International Department
Landemærket 11
DK-1119 Copenhagen K
Tel.: +45 33 95 50 00
www.dss.dk

Information about the rules governing work permits is available from:

Udlændingestyrelsen (Danish Immigration Service)
Ryesgade 53
DK-2100 Copenhagen Ø
Tel.: +45 35 36 66 00
WWW.nyidanmark.dk

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