Denmark

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Tax Policy

TAX POLICY

Income Tax Rate 51.5%

Corporate Tax Rate 25%

Sales Tax / VAT Rate 25%

Income Tax Rates

Taxable income in Denmark is taxed at progressive rates up to 51.5% in Denmark, down from 59% in 2009.

Individuals in Denmark are subject to a number of taxes, including:

-          National Income Tax (State Tax)

-          Healthcare Contributions

-          Local Income Tax (City Tax)

-          Church Tax

-          Real Estate Tax

-          Inheritance Tax

The Danish individual tax system is progressive, and the tax payment is divided into the payment of county municipal, church and national income taxes.

National Income Tax (State Tax)

The three income tax brackets model for the state tax was forfeited beginning 2010. The tax bracket for ordinary low income is now 3.76% instead of 5.04%. Middle bracket of 6% is forfeited, and the top bracket is now DKK 389,900 instead of DKK 347,200. The ordinary personal allowance of DKK 42,900 stayed the same in 2010. The marginal tax rate, exclusive of church tax is 51.5%. Church tax is automatically levied unless the taxpayer informs the Danishauthorities notified that they are not a member of the Danish Church.

Taxable Income (DKK)

Tax Rate %

DKK 0 - 42,900

Tax Exempt

DKK 42,900 - 389,900

3.76%

Above DKK 389,900

15%

Individuals are deemed to be residents of Denmark for tax purposes if they occupy accommodation in Denmark as their permanent place of abode or remain in the country for a period of six months or more.

Tax residency is normally terminated on emigration. Some assets will be deemed to be taxed as sold at market value on the date of departure. Any profit will be taxed in Denmark.

Personal income includes all remuneration received from the taxpayer's employer, whether in cash or kind, such as free lodging, free use of a car, free use of the telephone etc.

Taxable income – Taxable income comprises employment income, including employment benefits, income from self-employment, directors' fees, interest income, dividends, etc. Income derived from self-employment can be taxed in the same way as income derived by a company.

Capital income – Income up to DKK 40,000 for singles and DKK 80,000 for married couples are taxed as capital income at a maximum tax rate of approximately 37.3%. Income exceeding DKK 40,000/80,000 is taxed at progressive rates up to 51.5%.

Deductions and allowances – A personal allowance of DKK 42,900, as well as an employment allowance, are available to most taxpayers. Deductions include interest expense, child maintenance payments, pension contributions up to a maximum of DKK 100,000 per year, trade union fees, unemployment fund fees and expenditure in connection with transport between home and work. The self-employed can deduct most business-related expenses.

Tax Rates – Taxable income is taxed at progressive rates up to 51.5%. The municipal taxes are determined by each county and range from 22.8% to 27.8%; the health tax is 8% and the church tax, which is optional, ranges from 0.44% to 1.5%. The state tax consists of a bottom bracket tax of 3.76%, and a top bracket tax of 15% for income exceeding DKK 389,900. A special 25% (or 33%) taxation scheme may be available for approved scientists or employees/individuals that meet the high salary qualification. Capital gains on shares and dividends are taxed progressively as share income at 28% for income up to DKK 48,300, and 42% thereafter.

Other taxes on individuals:

Capital duty – No

Stamp duty – Stamp duty is levied at rates of 0.6% -1.5%, plus a fee of DKK 1,400.

Real property tax – A property value tax is levied on real estate. The basis is 1% of the value up to DKK 3,040,000 and 3% of the value exceeding that amount.

Inheritance/estate tax – A 15% tax is imposed on inheritance by the closest family members.

Capital acquisitions tax – No

Net wealth/net worth tax – No

Social security – Individuals pay a Danish social security contribution at a rate of 8% of personal income. A monthly fixed contribution of DKK 90 also is due.

Tax year – The tax year is generally the calendar year.

Tax Penalties – The main penalty is a 7% interest charge due on tax underpayments.

Tax rate for expatriates

Certain foreign employees may elect the special expatriate taxation rules where a flat tax rate applies, which is either 25% for 36 months or 33% for 60 months. The employer must withhold the tax on the gross cash remuneration.

To be eligible for the 25% or the 33% tax, the employee's remuneration, including the taxable value of a company car and multimedia must be at least DKK 63,800 per month after the deduction of employee pension contributions to an approved pension plan withheld by the employer and either 8% Danish AM (labour market) contributions and ATP (compulsory labour market pension) or foreign social security employee contributions (see page 8 for deductible foreign contributions).

Exit tax

Exit tax may be triggered if an individual terminates his/her residency in Denmark or becomes treaty resident abroad.

Exit tax generally means that certain assets such as shares, options, warrants, bonds, Danish employer pension schemes and foreign business assets are taxable as if they were disposed of on the date of departure.

In most cases portfolio shares are not subject to exit tax if the total market value of the shares at the date of departure does not exceed DKK 100,000.

For pension schemes generally, only increased contributions over a certain level made during the four years preceding departure and the year of departure will trigger exit taxation.

Stock options granted due to work services will generally be subject to exit tax regardless of the residence period.

Company Tax Rate

The corporate company tax rate in Denmark is a flat 25%.

Resident corporations are subject to Danish corporate income tax on their profits in Denmark and, to some extent, on income sourced abroad. Non-resident companies are required to pay tax on income sourced in Denmark.

Corporate income tax is charged at 25% for the income year 2009. Tax is paid on account on a current year basis in two instalments on 20 March and 20 November during the tax year, with a final instalment due on 20 November following the end of the tax year.

Local taxes

Property Tax: Owners of real estate are subject to a local property tax based on the value of the land. The tax is levied at various local rates ranging from 1.6% to 3.4%.

Other taxes

Transfer tax is levied on registration only. A change in ownership of real estate is charged at the rate of 0.6% + DKK 1,400 and on mortgages at 1.5% + DKK 1,400. Different rates apply to registrations of ships and aircraft. Stamp duty only applies to certain insurance policies.

Social security taxes

Social security is funded almost entirely through income taxes. The only exceptions are the ATP and Health Contribution.

ATP is a supplementary State pension scheme. The employer pays DKK 2,160 (2010) annually and employees pay DKK 1,080 (2010) annually.

Health Contribution is collected from employees and self-employed persons. The contribution is levied on gross salary and business income respectively at the rate of 8%. The employer withholds the contribution for the employee and the amount of contribution is deductible when computing the employee's personal income.

Pension contributions of 1% (2009) are levied, together with general social security contributions, on the same taxable base. However, this may be suspended for 2010.

Withholding tax

Danish outward dividends are generally subject to a 28% withholding tax. Outward interest payments are generally subject to a 30% Danish withholding tax. However, several modifications apply and under most tax treaties this withholding tax is reduced or refunded.

Denmark tax year is the calendar year.

Value Added Tax Rates

Danish value added tax (VAT) is levied at a standard rate of 25% of the sale price of most goods and services and the legislation generally follows EC Directives. No graduated rates exist.

Certain services are exempt, including most banking, real estate and medical services. Instead, a pay-roll tax of between 3.08% and 10.5% is charged on the actual pay-roll or, in certain cases, on the result before interest and capital gains.

Exports are zero VAT rated.

The standard VAT period is the quarter year. For large companies (turnover exceeding EUR 2 million), the VAT period is a month.