In Denmark, employers have certain tax responsibilities related to social security contributions and special wage tax.

Social Security Contributions

Employers contribute to Denmark's social security system, albeit modestly compared to other European countries. The contributions include:

• ATP (Labor Market Supplementary Pension): This is a mandatory pension scheme where employers contribute a fixed amount per full-time employee per year. The current annual contribution is DKK 2,376 (2024).

• Other minor contributions: Employers may also need to make small contributions towards unemployment insurance and industrial injuries insurance. These contributions are often a minor percentage of an employee's salary.

Employer's Special Wage Tax (A-skat)

Depending on their industry and size, employers in Denmark may be liable for an additional payroll tax known as the A-skat. This tax can be a significant contribution depending on the company's circumstances.

• Applicable Sectors: The A-skat generally applies to sectors like construction, cleaning, transportation, manufacturing, and agriculture.
• Variable Rates: The A-skat rate varies depending on the specific sector.

Important Considerations

• Reporting and Payment: Employers must calculate, withhold, and remit social security contributions and payroll taxes to the Danish Tax Agency on a regular schedule, usually monthly.
• Specific Industry Contributions: Some sectors may have specialized employer contributions.

In Denmark, the income tax system is progressive and consists of several components. The Labor Market Tax (Arbejdsmarkedsbidrag – AM) is a flat rate of 8% deducted from all income. The Municipal Income Tax rate averages around 25%, but the specific rate can vary depending on the municipality. Higher income earners are subject to State Income Taxes (top-bracket taxes) that kick in at different income thresholds, with rates of approximately 15%. Members of the Church of Denmark pay an additional tax with an average rate around 0.7%.

Allowances and Deductions

Certain allowances and deductions might apply, potentially reducing the overall tax burden.

Social Security Contributions

The ATP (Labor Market Supplementary Pension) is a mandatory pension scheme that requires a fixed contribution per full-time employee per year. The current annual contribution is DKK 2,376 (2024).

Withholding and Tax Card

Employees provide details to their employer via their tax card (forskudsskatteopkrævning). This dictates the amount of deductions based on anticipated income and allowances.

Taxation of Foreign Residents

Foreign nationals working in Denmark may be eligible for a special expatriate tax regime for a limited time, which can result in a reduced tax burden.

In Denmark, Value Added Tax (VAT), a consumption tax, is a significant indirect tax. It generally applies to most goods and services supplied in the country. The standard VAT rate is 25%, with no reduced rates. However, there are zero-rated supplies for certain exports and international services.

Taxable Transactions

Taxable transactions in Denmark include supplies of goods and services by a taxable person, Intra-Community acquisitions of goods (from other EU member states), and imports of goods.

Services Provided to Non-Taxable Customers

When a customer is not a taxable person, such as a private individual or state institution with no economic activities, the VAT treatment depends on the supplier's location. If the supplier is established in Denmark or has a fixed establishment in Denmark, the service is generally subject to Danish VAT. Exceptions to this general rule apply, such as for services connected with immovable property or certain cultural, artistic, sporting, scientific, educational, or entertainment services.

Electronically Supplied Services (ESS)

The EU VAT Directive applies to sales of ESS by non-EU businesses to EU-based non-business customers. This means that non-EU businesses supplying ESS to Danish consumers may be required to register for VAT in Denmark and collect and remit VAT to Danish tax authorities.

Mini One Stop Shop (MOSS)

The MOSS scheme, optional for businesses, simplifies VAT compliance for cross-border supplies of ESS to non-taxable persons within the EU. It allows businesses to register for MOSS in one EU member state and file quarterly VAT returns covering all their ESS sales in the EU.

VAT Registration Threshold

The VAT registration threshold in Denmark is DKK 50,000 (approximately €6,700). Businesses with an annual turnover of taxable transactions exceeding this threshold must register for VAT.

Additional Considerations for Businesses

Businesses providing services in Denmark should carefully consider the VAT implications and seek professional guidance for specific advice tailored to their circumstances. It's essential to stay updated on VAT regulations, as they are subject to change.

Businesses engaging in eligible Research and Development (R&D) activities can benefit from tax deductions. For the years 2018-2019, they can deduct 101.5% of qualifying R&D expenses from their corporate income tax base. The rate increases to 130% for the years 2020-2022, then adjusts downward slightly until settling at 110% from 2026 onwards. However, there are caps on the total amount of R&D expense eligible for the deduction, set at DKK 845 million for 2018-2020 and DKK 910 million from 2021 onwards.

Investment Incentives

Certain assets may qualify for accelerated depreciation rates, allowing businesses to deduct expenses related to those assets more quickly. There is also a special expatriate tax regime that offers reduced income tax for highly qualified foreign employees during their initial years in Denmark. This can benefit businesses by attracting and retaining international talent with reduced tax burdens.

Green Growth Incentives

Tax deductions and government grants might be available for investments in energy-efficient technologies and practices. Additional incentives apply specifically for green transport solutions.

Other Potential Incentives

Some incentives might focus on promoting businesses establishing themselves or creating jobs in less-developed areas of Denmark.

Important Considerations

Each incentive has specific eligibility requirements related to the type of business activity or investment. Many incentives also require formal application and approval processes.