Employment Taxes in Denmark | Boundless EOR (2024)

Employer Contributions in Denmark

Danish employers withhold Danish taxes and make labour market contributions (AM-bidrag) when paying salaries to employees.

Social security

The Danish social security system is financed mainly through revenue coming from taxes. Employees and employers make minimal contributions to social security. Employer contributions to a full-time employee in Denmark are betweenDKK 8,000 - 10,000a year.

Social Security encompasses the following contributions:

• ATP:Pension contributions made by the employer.DKK 2,272per year
• AUB:Contributions from employers that fund apprenticeships and vocational training, also known as Reimbursem*nt System.DKK 2,791per year
• AES:Contributions from employers towards occupational injury and disease.DKK 215-5.157per year, depending on the type of work and risk to the employee
• FIB: Financing of ATP contribution for those without a job due to sickness, maternity leave, or unemployment.DKK 592per year
• Maternity leave fund:employers are obligated to contribute to the maternity fund. DKK 1,350 per year
• Payment during holidays or holiday allowance (in Danish: "Feriepenge"):hourly paid employees are entitled to holiday allowance paid quarterly into FerieKonto (monthly for hourly-paid employees).12.5%of the employee's salary. Monthly paid employees, who are entitled to compensation during sickness get paid holiday instead of holiday allowance (in this case allowance becomes 1% of wages). The 1% holiday allowance is paid once a year in May (the payment of holiday allowance for monthly paid employees happens two times a year, one in May and one in August)
• AFU:The Danish Labor Market Fund for Posted Workers ensures employeesposted to Denmarkreceive wages owing to them.DKK 48per year

Occupational injury insurance

The insurance costs vary betweenDKK 1,176 and DKK 24,441depending on the field of work that the insured employee is employed within, the number of employees that the employer intends to insure and the specific insurance company. The insurance must be made with a private insurance company.

Employee Contributions in Denmark

A person is considered a Danish tax-resident if they:

• Are a resident in Denmark.
• Spend at least six consecutive months in Denmark (short stays abroad do not interrupt the six months).

Danish tax residents are subject to Danish income tax on their worldwide income.Individuals pay tax on incomeafterthe deductions have been subtracted.

Social security

The Danish social security system is financed mainly through revenue coming from taxes. Employees and employers make minimal contributions to social security. The social security contributions that employees pay are deducted by their employer from their gross earnings, before deducting income tax. Employees make the following contributions to social security:

• ATP: Pension contributions.DKK 1,135.80 per year.
• Labour Market Contributions:Also known as AM-bidrag, it covers employees in the event of unemployment, sickness, and expenses for training and activation. The contribution is8%of the employee's salary. This tax is deducted from their gross salary before any other taxes are calculated. The employer is responsible for withholding and paying the amount on behalf of the employee

Income tax

The income tax rate is progressive and includesstate, municipalityandchurchtaxes.

Danish income tax

The table above is based on an averagemunicipality taxrate and includesvoluntary church tax,which is on average 0.7%. The marginal tax rate varies by +/- 1-2 percentage points depending on the municipality. The marginal tax rate calculation includes the taxable value of a mandatory employment allowance, which is maximumDKK 40,600for employed individuals.

The marginal tax ratecannotbe more than52.06%. However,labour market tax, share tax, property value tax, andchurch taxdo not fall under this rule and combined can make the tax go above the 52.7% threshold.

Municipal tax

Municipal tax rates vary, but the average tax rate for 2023 is over 30%.

State Tax

The state tax increases according to the level of income as follows:

• Bottom-bracket tax: for amounts above the basic deduction of DKK 46,500, the rate is 12.11%.
• Top-bracket tax: for amounts above DKK 531,000 (after AM-bidrag), rate is 15%.

Voluntary Church Tax

The Church tax, which is not mandatory is a flat rate, which varies for each municipality. The country average is around0.9%.Municipalities impose it and only charge members of theDanish Lutheran Church. When registering in Denmark, all individuals should explicitly state if they will fall under this rule.

Share tax

The tax for shares income (up to DKK 58,900 for individuals and DKK 117,800 for married couples) is 27%. For any sums beyond that threshold, the tax is 42%.

Benefit-in-kind

Benefits in kind extended to employees are taxed at market value as income. That is, however, generally only if the combined value exceeds DKK 1,300 (trivial fringe benefits) and DKK 6,700 (work-related benefits).

Typical benefits provided in Denmark include:

• Free internet and telephone (Taxable value: DKK 3,100)
• Housing
• Free car
• Credit card
• Meal voucher
• Transport allowance

Work-related benefits are taxed when the combined value during one income year exceeds DKK 6,700. Examples are:

• Vaccines
• Newspaper

Expat tax regime

Denmark offers a special expatriate tax regime to high-level foreign earners (scientists, specialists and researches). The tax rate is27%plus labour market contributions, for a total of32.84%gross tax on their cash remuneration, as well as the taxable value of a company car, a company paid telephone and health care insurance. All other income, including additional benefits, is taxed atordinary tax ratesand there are no tax deductions in place.

Expats can avail of this expat tax regime for up to seven years in total. Some of the requirements to fall under this tax regime include:

• The employee earns at least DKK 72,500 monthly after ATP and pension deductions
• The employee is employed by a Danish taxable entity (company or permanent establishment)
• The employee cannot have been obliged to pay tax in Denmark in 10 years before entering this agreement

Tax-Free Allowance in Denmark

Family allowance

Individuals with one or more children residing in Denmark are entitled to a family allowance. Also known as Child and Youth benefit, Danish residents do not need to apply for it, and the government automatically pays it. However, individuals who are EU/EEA citizens and working in Denmark are not entered into the system automatically and have to apply for the benefit.

To receive the benefit, the individual must:

• Live in Denmark
• Be fully liable for tax in Denmark
• Have a child under the age of 18 years
• Have a child who is a resident of Denmark

In addition, the child should not be supported by the public or be married.

The amount received depends on the child's age:

• Age 0-2: DKK 4,746 per quarter
• Age 3-6: DKK 3,756 per quarte
• Age 7-14: DKK 2,955 per quarter
• Age 15-17: DKK 985 per quarter

The amount of the benefit also depends on the parent's income. If it exceeds DKK 852,600, 2% of the excess is deducted from the total allowance.

Personal allowance

Employed individuals are entitled to an annual personal allowance of DKK 48,000 that is tax-free after paying the 8% AM-ta. The unused personal allowance is transferable between spouses.

Employment allowance

Every person who earns a salary subject to labour market contributions or who has a business profit automatically receives an employment allowance. The current rate of the allowance is 10.65% of the person's salary and cannot exceed DKK 45,600.

Transport Deductions

Employees who travel more than 24 km round trip to their workplace and do not have a company car are eligible to claim tax deductions. The exact amount is calculated by taking the number of workdays, and the distance travelled. The individual has to make the calculation and include it on their income tax return.

The deduction is DKK 1.96 (changing to DKK 1.90 in 2021) for 25 to 120 km and DKK 0.98 (changing to DKK 0.95 in 2021) per km exceeding 120. For individuals that live in certain outskirts, the allowance is still DKK 1.96 (changing to DKK 1.90 in 2021) even for distances beyond 120 km.

Employees are entitled to extra mileage allowance for using the Øresund connection (the bridge and tunnel between Denmark and Sweden) and the Storebælts link (the bridge and tunnel between Funen and Sealand). The allowance amount, in this case, depends on the means of transport.

Travel Allowance

Employees can deduct travel expenses related to work trips in two different ways:

1. Claim costs as a business expense and get it reimbursed by the employer
2. Make deductions when determining taxable income

The maximum allowance is DKK 28,600 per year. It applies to both the deduction of standard rate and actual expenses. However, it does not affect an employer's ability to pay tax-free allowances, reimburse the employee's costs, or provide them with food and lodging.

Allowances or deductions can either be based on actual documented expenses or the standard rate per day for meals and other miscellaneous costs (DKK 521) and lodging (DKK 223).

Other employment-related allowances

• Trade union membership fees (maximum DKK 6,000 per year).
• Child maintenance.
• Private pension contributions.
• Contributions to unemployment insurance.

Under certain circ*mstances, expenses related to the performance of work, such as work clothes, may be deductible from taxable income if they exceed the basic amount of DKK 6,300.

Charitable contributions

Donations to certain approved charities, foundations, and institutions are tax deductible, up to DKK 16,600 a year, regardless if the contributions are to one charity or spread among several ones.

Interest expenses

Interest expenses are deductible from capital gains income, generally deducted in the year in which they fall due. However, penalty interest paid in connection with late taxes is non-deductible.