Corporate Income Tax
The current corporate tax rate in Denmark is 23.5%, which will be reduced to 22% in 2016.
Income Tax Rate
- First 49,900: 0%
- Next 438,200: 40%
- Over 488,100: 56%
The rates above are based on average municipality rates and do not reflect the voluntary church tax.
There is generally no payroll tax in Denmark apart from companies carrying out specific VAT exempted activities.
Denmark imposes a Value Added Tax (VAT) on all taxable supplies of goods and services made by a taxable person. The current VAT registration threshold is DKK 50,000 annually.
The current VAT rate is 25%.
Denmark imposes withholding tax (WHT) on certain classes of income paid to non-residents:
- Dividends: 27%
- Royalties: 22% for payments made after on or after 1 March 2015, 25% if not
- Interest: 22% for payments made after on or after 1 March 2015, 25% if not
A reduced rate may be available under an applicable Double Tax Treaty.
- Inheritance tax – Inheritance tax is levied at a rate of 15% is levied on the total value of estates exceeding DKK268,900. Non-residents are subject to inheritance tax only if the estate includes property situated in Denmark or if a Danish probate court administers the estate.
- Gift tax – Non-residents are only subject to gift tax if the donor or donee is a Danish resident or if the gift is Danish real estate. Between close family members there is no tax on gifts up to 60,700 DKK. Gifts exceeding this amount are taxed by 15% or 36.25%. Gift tax on gifts between spouses does not apply. For individuals falling outside the category, e.g. siblings and non-family, gifts may be considered ordinary taxable income and taxed by rates up to 51.95%.
- Property tax – Levied on 1% of the publicly assessed value for Danish properties up to 3,040,000 DKK (408,000 EUR) and 3% of the exceeding amount. Gains from the sale of property are also taxable (unless it is primarily used for residence).
Individuals and corporations are required to file tax returns annually before 1 May of the following year. The tax year in Denmark follows the calendar year. Individuals must inform the tax authorities annually of their expected income and deductions for the year in November (preliminary tax assessment). The preliminary tax assessment includes a tax card, which the employer uses for withholding taxes. Individuals receive a tax card for the coming tax year along with their preliminary income assessment. If no tax card is available, the employer has an obligation to withhold tax at a rate of 55%, in addition to the 8% labour market tax.
Preliminary taxes will be included in the annual tax assessment and this will result in either a tax refund, tax payable or equal balance
Income Tax (Personal Allowance)
In Denmark residents are required to pay a number of taxes, these taxes include state taxes, municipal tax, health tax, social security tax and church tax. Social security tax is paid at a rate of 8%, this is deducted as a Gross Tax from all persons salaries, before any other of their taxes are calculated.
Time to prepare and Pay Taxes
Employers Social Security and statutory contributions
The employer pays 180 DKK and must also pay small amounts for compulsory work-related insurances and other specific items. Please refer to the section on Employment ‘Pensions and Benefits’ for a detailed explanation.
Employees Social Security and statutory contributions
The employee pays 90 DKK. Please refer to the section on Employment ‘Pensions and Benefits’ for a detailed explanation.
Denmark does not impose a complicated or onerous tax system on foreign companies operating in the country. The primary concerns for a foreign company that needs to comply with tax laws in Denmark are: Individual income tax (IIT) for employees in Denmark, social security costs, payroll tax, VAT, withholding tax, business tax and permanent establishment concerns.
A remote payroll in Denmark is where a foreign company, i.e. a non-resident company, payrolls a resident employee in Denmark. This applies to both local and foreign employees. One option for a non-resident company to payroll its employees (local and foreign) in Denmark is to use a fully outsourced service like a GEO or PEO which will employ and payroll the staff on their behalf.
Local Payroll Administration
In some cases, a company will register their business in Denmark under one of the forms available but prefer to have another company administer its payroll. This can be accomplished through a payroll provider. It is important to note that the company, as the Employer of Record, is still fully responsible for compliance with employment, immigration, tax and payroll regulations. But the payroll calculations, payments and filings can all be outsourced to the payroll provider.
Larger companies with a commitment to Denmark may wish to run their own local payroll for all employees, foreign and local. In order to accomplish this, they will have to complete the incorporation, register the business and then hire the necessary staff. There will be a need for in country human resources personnel who have the background needed to manage a Danish payroll and can fulfil all tax, withholding tax and payroll requirements.
This approach carries significant cost and requires some knowledge of local employment and payroll regulations. The company will need a local accounting firm and potentially legal counsel to ensure full compliance with Denmark employment laws.
Setting up payroll in Denmark
Danish Krone (DKK)
Employee Information Required
When a new employee is introduced to a company the business will need a range of the employee’s personal information in order to set up processes such up their salary with online banking. The details required by the employer include the following:
- Personal Tax Number
- Full Name
- Telephone number
- Any pension details
- Bank Details
Tax Registration Requirements
Any individuals who are registered as official residents of Denmark, and would like to carry out work will be required to apply for a Tax Card from SKAT. In order to apply for the card the individual must complete form 04.063.
When the application for the Tax Card has been processed, the individual will receive the card in the post with their preliminary income assessment and Danish Individual personal tax number.
Social Security Registration
In Denmark, social security is funded by both taxes and social security contributions. Social security contributions currently stand at 8% of an individuals income. In order to be able too receive social security benefits and and use the healthcare system, all individuals who are planning to stay in Denmark for more then three months must apply for a CPR Number from the Civil Registration office. Having a CPR number is a legal requirement in Denmark.
Many of the benefits offered by the Danish Welfare system (Social Security) include, health insurance, child allowance, maternity benefit, holiday pay, disability benefit and sickness benefit.
Documentation Required for New Employees
When a business hires a new employee, they have a duty to provide the employee with all the details about the job and what their duties will include. The majority of the information required will be outlined in the employees employment contract.. If the employee is beginning a job in a specialized area then they may be required to attend courses relating to their job role, in order to gain certificates proving that they have the correct skills for the job.
A large majority of employers, across the world choose to pay their employees using a system of electronic payments; this is a fast and efficient form of making payments to a large amount on people at one time. Electronic payments also ensure that the employees receive their owed money on the date they expect, instead of having to wait for it to be processed, such as cheque would. Other ways of making payments of employee wages are with either cash or a cheque. However these processing can be slow and difficult to correct of there is and issue.
Frequency of Salary Payment
As in many countries such as Denmark, most businesses choose to pay their employees at the same time, each month of the year. Employees will usually be paid a month in arrears, and this will normally either be at the end of the month or the first few days of the following month. There are many more different frequencies in which an employer may choose to pay their employees, these include:
Invoice / Payslips required
In Denmark pay slips are required.
There are no rules in Denmark for minimum wage.