Denmark Individual Tax Guide

Worldwide Personal Tax and Immigration Guide 2021–22

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Denmark ey.com/globaltaxguides

Copenhagen

GMT +1

EY Dirch Passers Allé 36 DK-2000 Frederiksberg Copenhagen Denmark Executive contacts Bettina Fristed Morten Swartz Dalsgaard Dennis Volder

+45 2529-4579 Email: bettina.fristed@dk.ey.com +45 5158-2771 Email: morten.s.dalsgaard@dk.ey.com +45 2529-4755 Email: dennis.volder@dk.ey.com

Immigration contact Rikke Wolfsen

+45 2529-3158 Email: rikke.wolfsen@dk.ey.com

A. Income tax Who is liable. Residents in Denmark are subject to Danish tax on their worldwide income. Nonresidents are taxed on Danishsource income, including the following: • Income from a permanent establishment in Denmark • Salary related to work performed in Denmark • Directors’ fees • Income from real property in Denmark • Dividends • Royalties

Individuals are generally considered to be resident if they permanently reside or are present in Denmark for more than six months.

Denmark applies a rather strict interpretation for determining Danish-source income in connection with the hire-out of labor if individuals legally employed abroad are being, in fact, regarded as working for and on behalf of a Danish employer. As a result, individuals normally not covered by the ordinary tax regimes may be subject to tax liability, and reporting, withholding and registration may be required. This matter, as well as taxation under the hydrocarbon tax legislation, is not covered by this guide.

Income subject to tax. Income is divided into personal income

and net capital income. Accordingly, taxable income consists of personal income plus or less net capital income or loss and less allowable deductions.

Employment income. Personal income from employment consists of wages, salaries, directors’ fees, pensions, allowances and fringe benefits. In principle, all benefits in kind are taxable at their fair market value. However, the values assigned to the

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personal use of a company car, company phone and certain other benefits is determined according to special tables.

School fees paid by employers on behalf of their employees, such as international school fees, are deemed to be salary income and taxed accordingly.

A special tax regime applies to expatriates employed by a Danish resident employer. Salary income is taxed at a flat rate of 32.84%, including the 8% labor market tax, for one or more periods up to a total of 84 months.

To qualify for the special tax regime, the individual cannot have been tax resident or otherwise tax liable to Denmark on salary or similar income or business income within the last 10 years. In addition, the individual cannot have had a controlling influence in the employing company five years before or during the employment. Additional criteria apply.

Two alternatives exist for individuals to qualify for the special expatriate tax regime. Under the first alternative, the individuals’ cash salary must be at least DKK69,600 per month (2021) and DKK70,400 per month (2022). Under the second alternative, the individual must be acknowledged as a scientist or researcher by the Danish Council for Independent Research. No minimum salary requirement applies for the second alternative.

After the 84-month period, the expatriate is taxed according to ordinary income tax rules. Income other than salary earned during the use of the special regime is subject to tax at the normal progressive tax rates.

Self-employment or business income. Business or self-­employment income is taxed as ordinary income (personal income) for the business owner. Expenses are deductible to the extent they are incurred to obtain, secure or maintain business income.

Persons with business income may choose to tax this income under the Business Tax Act. Under these rules, taxable income from a trade and industry, including income from partnerships, is assessed in accordance with the principles used for companies, including rules for depreciation and write-offs.

Investment income. Net capital income includes interest income (less interest expenses), taxable gains on securities, rental income and other investment income. It is generally subject to tax as ordinary income. Dividends and capital gains on the sale of shares are taxed separately at 27% or 42%, depending on the level of income. Royalties received by residents are taxed as personal income. Royalties received by nonresidents are subject to a 22% withholding tax.

Dividends are subject to a 27% withholding tax. If total dividend income in 2021 exceeds DKK56,500 (DKK113,000) for married couples), residents are subject to a supplementary 15% tax.

Taxation of employer-provided stock options. Gains realized by an

employee on the exercise of an option obtained under an employerprovided stock option plan are taxable. No tax is due at the time of vesting. In general, the gains are subject to the highest marginal rate of income tax, which is 52.06% in 2021. The gains are subject to labor market tax at a rate of 8%.

D e n m a r k 369 Capital gains and losses. Capital gains tax is levied on individuals

at rates of up to 42%.

Gains derived from the disposal of bonds are generally taxable, and losses are deductible.

Gains derived from the disposal of shares are taxable as share income at a maximum rate of 42%. On departure from Denmark, certain shareholders are deemed for tax purposes to have disposed of their shares at the fair market value and are taxed on the deemed gain. If a shareholder applies for an extension and does not pay the exit tax, the shareholder may obtain a refund of the difference between the tax on the deemed gain and the tax on any subsequent lesser gain actually realized. The tax on the deemed gain applies only to individuals who have been subject to unlimited tax liability for one or more periods, totaling 7 years within the 10 years before departure.

Gains derived from the disposal of residential property are not taxable if the owner occupied the property and if certain other conditions are met. Gains derived from the disposal of other real property are taxable as capital income.

Deductions

Deductible expenses. Contributions to pension schemes with limited annuities are deductible up to an annual maximum of DKK53,800 (2021), while contributions to certain employeradministered life annuity schemes are fully deductible.

Interest paid on all types of debt is deductible from capital income. If this results in a negative amount, approximately 25% to 33% (2021) of the negative amount may be offset against tax payable on other income.

Items that may be deducted from taxable income include, among others, the following: • Commuting costs to and from work (special rates) • Fees paid to labor unions and unemployment insurance • Child support and spouse support or alimony payments Personal deductions and allowances. Each taxpayer is permitted the following: • A personal allowance of DKK46,700 (2021) • A supplementary allowance for salaried employees of 10.6% of salary income, up to a maximum amount of DKK40,600 (2021) • A job deduction for salaried employees of 4.5% of the salary income above DKK200,300, up to a maximum deduction of DKK2,600 (2021) All of the above are applied automatically during the tax calculation process. A further allowance may apply for single parents. A personal allowance not used by one person may be transferred to the spouse. This does not apply to individuals taxed under the special expatriate tax regime.

Rates. For 2021, income tax is levied on residents at the mar-

ginal rates shown in the table below. Dividends are taxed separately (see Investment income).

An 8% mandatory labor market tax is imposed on all salary income. Income taxes are calculated on the income after labor

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market tax and the following shows the approximate total marginal income and labor market tax rates applicable for 2021.

Taxable income DKK

Tax rate %

Tax due DKK

Cumulative tax due DKK

8 42 56

4,061 227,393 —

4,061 231,454 —

First 50,761 Next 541,413 Over 592,174

The above rates are estimates based on the average municipality tax rates and do not reflect the voluntary church tax.

Nonresidents. The tax rates applicable to residents also generally

apply to nonresidents.

Relief for losses. Trading losses and interest expenses may be

offset against other income and taxable gains. Tax losses may be carried forward for an unlimited number of years, but carrybacks are not allowed. Losses from certain types of passive partnership interests, such as a business with more than 10 nonworking owners, may be offset only against income from the same business.

B. Other taxes Home-ownership tax. Home-ownership tax applies to homes or vacation houses in Denmark. The tax also applies to properties located abroad that are owned by Danish tax residents. However, home-ownership tax is not imposed if the property is rented out.

The tax rate is 0.92% of the public value of the property up to DKK3,040,000, and 3% of the value exceeding DKK3,040,000.

Similar tax paid abroad on foreign property may be credited.

Inheritance tax. Assets inherited by a spouse or registered partner (see Section G) are not subject to inheritance tax.

Inheritance tax at a rate of 15% is levied on the total value of estates exceeding DKK308,800 (2021). No additional tax is levied for beneficiaries closely related to the deceased (for example, cohabiters, descendants, stepchildren and their descendants, parents, sons- and daughters-in-law, and divorced spouses). For other beneficiaries, an additional tax at a rate of 25% is levied.

Further conditions apply to the calculation.

Inheritance tax applies to estates of nonresidents only if the estate includes property located in Denmark or if a Danish probate court administers the estate.

Denmark has entered into estate tax treaties with Finland, Germany, Iceland, Italy, Norway, Sweden, Switzerland and the United States.

Gift tax. Gifts to a spouse or registered partner are not subject to

tax.

Gift tax at a rate of 15% is levied on gifts to the following: • Lineal descendants • Stepchildren and their descendants • Sons-in-law and daughters-in-law • The spouse of a deceased child or stepchild • Individuals residing with the donor two years before the event • Foster children (if certain conditions are met) • Parents

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Additional gift tax at a rate of 25% is levied on gifts to stepparents and grandparents. Gifts to less closely related persons and to unrelated persons are subject to ordinary income tax, not gift tax.

Gifts of up to DKK68,700 (2021) a year may be donated free of gift tax to the following: • Descendants • The spouse of a deceased child or stepchild • Individuals residing with the donor two years before the event • Foster children (if certain conditions are met) • Parents • Stepparents • Grandparents An annual tax-exempt gift of up to DKK24,000 (2021) may be made to sons- and daughters-in-law.

Nonresidents are subject to gift tax if the donor or donee is a Danish resident or if the gift is Danish real estate.

C. Social security Contributions. The monthly contribution to the Danish Supple-

mentary Pension Scheme (ATP) for 2021 is DKK284, of which 1/3 is borne by the employee through payroll withholding. The annual cost of insurance depends on the nature of the business and other factors. For a white-collar employee, this may be approximately DKK15,000.

Other mandatory contributions for coverage in Denmark do not apply.

Totalization agreements. To provide relief from paying double social security contributions and to assure benefit coverage, Denmark has entered into totalization agreements, which usually apply for periods up to 36 months, with the following jurisdictions.

Australia Bosnia and Herzegovina Canada* Chile China Mainland European Union (EU) member states Faroe Islands

Greenland Iceland India Israel Korea (South) Liechtenstein Montenegro Morocco New Zealand

North Macedonia Norway Pakistan Philippines Serbia Switzerland Turkey United States

* Including Quebec

D. Tax filing and payment procedures The Danish tax year is the calendar year. Before each tax year, an advance income assessment must be made for each taxpayer.

Advance tax is paid through deductions (withholding) from employment income. In addition, if self-employment income or net capital income rises to a certain level, advance tax is paid through prepayments claimed from the individual by the authorities in 10 installments over the tax year, based on the advance assessment.

After each tax year, taxpayers must file tax returns no later than 1 May/1 July of the following year. Any overpaid tax is refunded

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by the tax authorities when the final tax assessment notice is issued. Underpaid tax, including interest, up to DKK21.798 (regarding the 2020 income year) is carried forward to the 2022 income year, while the remainder is due in three installments in August, September and October 2021. Married persons must file separate tax returns. In the tax calculations, certain deductions may be transferred between the spouses.

Voluntary payment of tax may be made during the fiscal year and until 1 July of the following fiscal year in order to save interest on underpaid tax.

E. Double tax relief and tax treaties If a Danish resident taxpayer receives income from abroad, tax relief may be provided either through a foreign tax credit or by exemption with progression. Relief is provided in accordance with either a tax treaty or Danish domestic law.

Danish law grants a foreign tax credit for income taxes paid abroad. The credit may not exceed the lesser of the income tax paid abroad or the Danish tax payable on the same income.

Domestic Danish law also contains an exemption with progression that applies to salary income for work performed outside Denmark during working periods exceeding six months. Further conditions must be met. The rule applies only to individuals who are tax residents in Denmark according to domestic law (that is, fully taxable) while working abroad.

Denmark has entered into double tax treaties with the following jurisdictions.

Argentina Australia Austria Azerbaijan (e) Bangladesh Belgium Bermuda Brazil British Virgin Islands (d) Bulgaria Canada Cayman Islands Chile China Mainland (b) Croatia Cyprus Czech Republic Egypt Estonia Faroe Islands Finland Georgia Germany Ghana Greece Greenland

Hungary Iceland India Indonesia Ireland Isle of Man Israel (c) Italy Jamaica Japan Jersey Jordan (d) Kenya Korea (South) Kuwait Latvia Lebanon Lithuania Luxembourg Malaysia Malta Mexico Montenegro Morocco Netherlands New Zealand North Macedonia

Philippines Poland Portugal Romania Russian Federation Serbia Singapore Slovak Republic Slovenia South Africa Sri Lanka Sweden Switzerland Taiwan Tanzania Thailand Trinidad and Tobago Tunisia Turkey Uganda Ukraine USSR (a) United Kingdom United States Venezuela

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Guernsey Hong Kong (shipping) (d)

Norway Pakistan

Vietnam Zambia

(a) The Denmark-USSR double tax treaty of 1986 probably covers Belarus and probably also Armenia and Kyrgyzstan, but this needs to be definitively confirmed. Denmark has entered into double tax treaties with Estonia, Latvia, Lithuania, the Russian Federation and Ukraine. Azerbaijan, Moldova, Tajikistan and Uzbekistan do not regard themselves as being covered by the Denmark-USSR double tax treaty of 1986. (b) The treaty does not apply to Hong Kong or Macau. (c) This treaty does not apply to the Palestinian Authority. (d) These treaties primarily concern air and/or maritime traffic. (e) As of 30 May 2018, this treaty was not yet in force. It will enter into force when national procedures are concluded.

The treaties with France and Spain were terminated, effective from 1 January 2009.

F. Work and residence permits Denmark is a member of the EU and of the Nordic Council.

Consequently, varying rules apply for EU nationals, for citizens of Scandinavian countries (Finland, Iceland, Norway and Sweden) and for non-EU nationals who wish to enter Denmark to live and work there.

The ordinary rules for EU citizens apply to citizens of Switzerland, as well as to citizens of Iceland, Liechtenstein and Norway, the non-EU members of the European Economic Area (EEA).

Scandinavians. Nationals from Scandinavian countries may live and work in Denmark without restrictions. However, if they take up residence in Denmark for more than six months, they must register with the National Registration Office (the CPR registration system) in their local municipality.

Permission to be self-employed in Denmark is normally granted.

However, for certain types of businesses, permission is granted only if the Danish Commerce and Companies Agency finds that a special Danish interest is served by establishing the business in Denmark.

EU nationals. EU citizens and EEA nationals may stay in Denmark under the EU rules on free movement of persons and services. They may stay and work freely in Denmark for up to three months. If EU citizens and EEA nationals wish to stay longer than three months, they must apply for an EU residence certificate within three months after their arrival in Denmark. If the stay in Denmark will exceed six months, registration in the CPR system is also mandatory. The EU certificate is formal proof of the rights already conferred on an EU citizen/EEA national under the EU rules on free movement. Each member of an applicant’s family must apply separately for an EU-residence certificate. Third-country nationals can also apply for and obtain a residence document under EU rules as an accompanying family member of an EU national.

The application must be submitted in person, and the authorities generally process EU residence applications on the spot. For third-country family members, the processing time is up to three months (the application is not processed on the spot). During

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processing, the non-EU family member is allowed to stay in Denmark under the rules of procedural stay. EU applicants are generally not prevented from working during the processing time (applies only to EU nationals, not third-country family members). EU nationals who are commuting are not entitled to obtain a registration certificate, which requires that the individual take up actual residence in Denmark with the intent to stay.

EU-residence certificates issued to citizens from other EU member countries do not expire and will remain in force as long as deregistration from the CPR system does not take place and the holder does not stay outside of Denmark for more than six consecutive months. A dispensation may be granted in special circumstances to allow deregistration and longer stays outside of Denmark. After five years’ uninterrupted residence in Denmark, the applicant may apply for permanent residence under EU rules.

Non-EU nationals. Citizens from jurisdictions other than EU/EEA countries and the Nordic Council countries may stay in Denmark for either the time period stated in their tourist or business visas or, if a visa is not required (visa-exempt nationals), up to 90 days within a 180-day period. Certain citizens with biometric passports are exempt from the visa requirement. A work permit is generally required from the first day if the stay involves work in Denmark.

Non-EU/EEA nationals who wish to work in Denmark must apply for a residence and work permit. Applications for residence and work permits must be filed with the Danish Agency for International Recruitment and Integration or with the Danish embassy or consulate in the country in which the individual resides.

Normally, profession or labor market considerations must warrant a residence and work permit but for particular schemes, the minimum salary is the decisive factor.

When processing the application, the Danish Agency for International Recruitment and Integration pays particular attention to the following: • Whether professionals residing in Denmark or the EU/EEA who are qualified to carry out the relevant job are available (only applicable for certain types of permits).

• Whether the nature of the relevant job is specialized enough to warrant a residence and work permit. Normally, work permits are not granted for ordinary skilled-labor vacancies or unskilled positions.

• Whether the minimum salary required is met (only applicable to certain types of permits).

Regardless of the specific circumstances, a written job contract or offer specifying the salary and employment conditions is required. These must correspond to Danish employment law and standards.

Certain special schemes are designed to allow highly qualified professionals from abroad to obtain a residence and work permit in Denmark. Under a Fast-track Scheme, effective from 1 April 2015, certified companies with a Danish entity can obtain work

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and residence permits for recruited foreign employees faster and on more flexible terms.

In some cases, the Danish Agency for International Recruitment and Integration obtains a statement from the relevant branch organization or regional labor market council to process an application if input is required in terms of salary or employment terms in general.

If the applicant still meets the condition of the original work and residence permit, the permit can be extended. If the individual applies for the extension before the expiration of the current work permit, he or she remains compliant and is allowed to continue working until the extension application has been processed. If the terms on which the permit is based continue to be met, the permit can continue to be extended.

If an individual already holds a Danish residence permit based on family reunification, asylum, or humanitarian grounds or holds a dependent residence permit, a separate work permit is not required.

To live and work in Denmark for more than three months, nonEU nationals must generally register in the CPR register.

Non-EU nationals rendering a service in Denmark may be eligible to apply for a permit to work as posted employees under EU rules.

For EU rules to apply, the services to be rendered (In Danish: tjenesteydelser) must be services usually rendered for payment.

Furthermore, the work in Denmark must be of a temporary nature and the job to be undertaken in Denmark must be defined clearly.

If the company in Denmark to which a non-EU national is posted is a subsidiary or a branch of the EU company (the company from which the individual is posted to Denmark), the posting can generally not take place under EU rules (new interpretation of Section 4 of the EU Directive implemented in Denmark in mid2019).

Family members. After specific consideration, residence permits may be granted to family members of individuals who have residence and work permits in Denmark. Separate applications for each family member must be filed.

Biometric residence cards. Citizens of non-EU jurisdictions are issued biometric residence cards, which include the holder’s facial image and fingerprints stored on a microchip embedded in the card. The residence card allows the non-EU national to travel within the Schengen area. If the individual does not have a valid residence card in his or her possession, he or she is required to apply for a re-entry permit to be able to enter Denmark after exiting the country.

G. Family and personal considerations Marital property regime. Under Danish law, a regime of “ordinary

community property” (fœlleseje) applies between spouses and between persons of the same sex who have formed a registered

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partnership. (The legal consequences of a registered partnership are the same as those of a marriage.) Community property in­cludes all property brought into the marriage and all property acquired during the marriage.

Driver’s licenses. If an individual is in Denmark for a temporary period of time, the person can drive if he or she holds a valid foreign driver’s license and an international license (a translation). However, for individuals in Denmark on a more permanent basis, different rules apply to citizens from Nordic countries, EU member countries and non-EU member jurisdictions who wish to use their home jurisdiction driver’s licenses in Denmark.

Nordic and EU nationals. Expatriates from Nordic countries and

EU nationals may drive legally in Denmark with their home country driver’s licenses until expiration, but they might choose to switch to a Danish license without further required tests.

Certain time limitations apply depending on the expiration date of the EU driver’s license.

Non-EU nationals. As a general rule, non-EU and non-Nordic individuals may drive in Denmark for only up to 90 days after registration of residence. After the 90 days, the driver must pass a Danish driving test and accordingly obtain a Danish driver’s license to continue to drive in Denmark.

Individuals from specified jurisdictions may legally drive using a foreign driver’s license for up to one year from the date of registration. The foreign license may be changed into a Danish license without passing a driving test. Special further conditions may apply, depending on the jurisdiction.

In general, non-EU nationals are required to take a driving test.

However, individuals from the following jurisdictions may exchange their driver’s licenses for Danish driver’s licenses without having to pass a Danish driving test.

Australia Bosnia and Herzegovina Brazil Canada

Chile Japan Korea (South) Russian Federation Singapore

Switzerland Taiwan Ukraine United States

To exchange the foreign driver’s license for a Danish license, the following items must be presented to the driver’s license bureau: • The home jurisdiction driver’s license • A residence permit • A photograph • A fee of DKK280 (2019) Passing a driving test results in further fees. English-speaking driving instructors and/or interpreters are available in certain Danish driving schools. Individuals may also be required to pass a physical examination.