DenmarkTax Obligations Detailed

As of February 5, 2025, employers in Denmark have several tax obligations regarding their employees.

Registration and Withholding

Employers must register with the Danish tax authorities (SKAT) and obtain necessary registrations before paying salaries. This includes registering for A-tax (income tax), AM-contribution (labour market contribution), and ATP (Labour Market Supplementary Pension). A-tax is withheld based on the employee's tax card (hovedkort, bikort, or frikort) and is not a fixed rate. The employer withholds and pays these taxes on behalf of the employee.

Labour Market Contribution (AM-Bidrag)

The AM-contribution is currently 8% of the employee's gross income, excluding the value of free food and accommodation. This contribution is withheld by the employer and paid to the tax authorities.

ATP Contribution

The ATP contribution is a mandatory labour market supplementary pension. For 2025, the employee contributes DKK 1,188 annually, and the employer contributes DKK 2,376 annually. These amounts are withheld by the employer and paid to ATP.

Other Social Security Contributions

In addition to AM-bidrag and ATP, employers also make contributions to the maternity fund, industrial injuries insurance, and other public social security schemes. The maternity fund contribution is estimated at DKK 1,500 annually. Industrial injuries insurance varies based on the industry and other factors, with an estimated annual cost of DKK 5,000. Other public social security contributions are estimated at DKK 5,300 annually.

Payment Deadlines

Withholding taxes (A-tax, AM-contribution, ATP) are generally due on the 10th of the following month. However, for January, the deadline is extended by one week. Larger employers may have different payment deadlines, often the last banking day of the month. Salaries are typically paid on the last banking day of the month.

Employee Benefits Taxation

Employees are taxed on the market value of fringe benefits, although some exceptions exist. For 2025:

• Minor benefits: Tax-free up to DKK 1,400 annually.
• Work-related benefits: Tax-free up to DKK 7,300 annually.
• Christmas gifts: Tax-free up to DKK 1,000 annually.
• Company cars: Taxed at 22.5% of the car's value.
• Company phones: Taxed at DKK 3,300 annually.

Expat Tax Scheme

Expatriates working in Denmark may be eligible for a special tax scheme for up to seven years. This scheme offers a flat tax rate of 27% plus the 8% labour market contribution, totaling 32.84% on certain income components (cash remuneration, taxable value of company car, company-paid telephone, and health care insurance). Eligibility requirements include a minimum monthly salary of DKK 72,500 (after ATP and pension deductions) and employment with a Danish taxable entity. Other income is taxed according to ordinary tax rates.

Corporate Income Tax (CIT)

Corporate income tax returns are generally due within three months of the end of the tax period (or four months for electronic filing), and within six months for audited entities or those whose returns are filed by a registered advisor. Tax advances are paid semi-annually or quarterly.

In Denmark, employees are subject to various deductions from their gross salary, primarily for income tax, labor market contributions, and social security.

Income Tax

• Progressive Tax System: Denmark employs a progressive income tax system, meaning higher earners pay a higher percentage of their income in taxes. The tax rates and brackets vary by municipality.
• Preliminary Income Assessment: Employees are required to create a preliminary income assessment to estimate their income for the year and determine their tax rate. This generates a tax card used by employers for withholding. It's crucial to update this assessment if income changes significantly.
• Tax Assessment Notice: After the tax year ends, employees receive a tax assessment notice to reconcile their estimated income with their actual income and determine any additional taxes owed or refunds due. This notice incorporates any applicable deductions.

Labor Market Contribution (AM-bidrag)

• Flat Rate: A flat 8% of gross salary is deducted as a labor market contribution. This is withheld before other taxes are calculated.
• Employer Responsibility: Employers are responsible for withholding and remitting this contribution to the tax authorities.

Social Security (ATP)

• ATP Contribution: Employees contribute a small amount to the labor market supplementary pension (ATP).
• Employer Matching: Employers also contribute to the ATP, typically double the employee's contribution.

Deductions

• Employment Deduction: All employed individuals and self-employed with profits receive an automatic employment deduction to incentivize work participation. The deduction amount is a specific percentage of income up to a maximum limit.
• Work-Related Expenses: Deductions are allowed for work-related expenses exceeding DKK 7,300 in 2025. This includes costs like workwear, tools, and professional training courses. Documentation is required.
• Commuting Expenses: Deductions are available for commuting expenses exceeding 24 kilometers between home and the regular workplace, provided the employer doesn't provide a company car or cover transportation costs. Specific rates per kilometer apply, varying based on distance.
• Union and Unemployment Insurance: Contributions to unemployment insurance funds (A-kasser) and trade union memberships are deductible.
• Other Deductions: Further deductions may be available for specific circumstances, such as certain work-related expenses like technical literature or home office costs. It's advisable to consult the Danish Tax Agency (Skat) for a complete list and eligibility criteria.

Expat Tax Scheme

• Reduced Tax Rate: A special tax scheme is available for certain highly paid expatriates and researchers for up to seven years (84 months). This scheme offers a flat 27% tax rate on employment income and certain cash allowances.
• Eligibility Requirements: Strict criteria apply, including minimum salary thresholds and employment by a Danish taxable entity.

Deadlines and Procedures

• Tax Return Deadline: The deadline for submitting the annual tax return is typically in May of the following year.
• Online Filing: Tax returns are typically filed online through the Skat website.
• Documentation: Maintain thorough records of income, expenses, and any supporting documentation for deductions.

Note: This information is current as of February 5, 2025, and is subject to change based on future tax legislation adjustments. Always consult with the Danish Tax Agency (Skat) or a tax advisor for the most up-to-date information and personalized guidance.

In Denmark, the Value Added Tax (VAT), known as Moms, is levied on most goods and services.

VAT Rates

• Standard Rate: 25% (applied to most goods and services)
• Zero Rate: 0% (applied to specific goods and services like newspapers, periodicals, international transport, and certain intra-community transactions.)
• Exempt: Certain goods and services are VAT-exempt, meaning no VAT is charged, but input VAT on related expenses cannot be reclaimed. Examples include healthcare, education, financial services, and cultural activities. Authors' and artists' services directly related to their creative work are exempt, but this does not extend to copyright transfers or licensing of intellectual property rights.

VAT Registration

• Threshold: Businesses must register for VAT if their annual turnover exceeds DKK 50,000. There's no threshold for non-resident businesses making taxable supplies, and a distance selling threshold of EUR 10,000 also triggers registration.
• Businesses exceeding the DKK 50,000 threshold or the distance selling threshold must register no later than 8 days before starting their business.
• Non-EU businesses selling goods or services in Denmark are generally required to appoint a fiscal representative.

VAT Filing and Payment

• Deadlines: Filing frequency depends on annual turnover.
  • Below DKK 5 million: Bi-annual filing, due on the 1st of the third month following the reporting period (e.g., for January 1st to June 30th, the deadline is September 1st).
  • Between DKK 5 million and DKK 50 million: Quarterly filing, due on the 1st of the third month following the reporting period. New businesses also file quarterly for at least 18 months.
  • Above DKK 50 million: Monthly filing, due by the 25th of the following month.
• Method: VAT returns must be filed and paid electronically.
• Penalties: Late filing incurs a fee of DKK 1,400 per missed period.

Invoicing

• Foreign currency invoices are allowed, but the VAT amount must be stated in DKK or EUR, using either the Danish tax authority's or the European Central Bank's exchange rates.
• Discounts should be applied before calculating VAT.
• Credit/debit notes must clearly reference the original invoice.

Record Keeping

• Records must be kept for five years. Electronic storage is permissible (even outside Denmark) but needs confirmation from tax authorities.
• From the financial year starting after January 1, 2025, digital bookkeeping systems must be able to handle e-invoices in OIOUBL and Peppol BIS formats and export SAF-T files upon request. The bookkeeping date, not invoice date, can be used for VAT reporting if it's not later than the payment date.

Intrastat Reporting

Businesses exceeding specific thresholds for arrivals (DKK 22,000,000 for imports) and dispatches (DKK 11,000,000 for exports) must submit Intrastat declarations by the 10th day of the following month.

Other Key Aspects

• The reverse charge mechanism applies to specific situations, shifting VAT liability to the recipient.
• Import VAT and customs duties can be deferred for goods stored in authorized bonded warehouses, requiring a Danish VAT number.

Denmark offers several tax incentives for both individuals and businesses in 2025. These incentives aim to stimulate economic growth, encourage investment, and attract skilled workers.

Individual Tax Incentives

• Personal Allowance: All individuals over 18 receive a personal allowance of DKK 51,600, reducing their taxable income. This allowance also applies to those under 18. Unused allowances can often be transferred to a spouse. Individuals with limited tax liability (not residing in Denmark full-time) may also qualify for this allowance, either in full if working in Denmark all year or partially if not.

• Employment Deduction and Job Allowance: An automatic employment deduction of 10.65% up to DKK 45,100 (2024 figures) is applied to taxable salaries or business profits. An additional job allowance of 4.5% on income exceeding DKK 216,100 up to a maximum of DKK 2,800 also applies (2024 figures).

• Other Deductions: Further deductions are available for travel between home and work, A-kasse (unemployment insurance fund) membership, trade union membership, and pension contributions (2024 figures).

Corporate Tax Incentives

• Corporate Tax Rate: Denmark boasts a competitive corporate tax rate of 22%.

• R&D Incentives: Companies can immediately deduct R&D capital expenditures or depreciate them over five years. An additional 8% increased tax deduction on R&D costs applies (2025 figure), increasing cash flow. An R&D Tax Credit Scheme allows for advance payment on the tax value of R&D expenditures, enhancing company liquidity. Tax losses from R&D activities qualify for a 22% cash refund, capped at DKK 25 million (This specific figure is confirmed within other source material, though there may be discrepancies across sources.)

• Deductions for Patents and Know-how: Full deduction is allowed for patents and know-how acquired during the year (however, be aware that proposed changes may remove immediate depreciation for software, know-how, and patent rights acquired from January 1, 2025, while permanently increasing the R&D deduction to 120%).

• Expat Tax Scheme: A reduced 27% income tax rate is available for highly paid expats (key employees and researchers) for up to seven years (however, note that from 2026, the monthly salary requirement will be reduced from DKK 75,100 to DKK 60,100). This scheme covers all cash remuneration, reimbursements, and benefits such as company cars and phones.

• Tax Loss Carryforward: Tax losses from previous years can be offset without limitations up to DKK 20 million (2025 figure), with higher caps planned for future years (DKK 35 million from 2027).

• Dividends: Dividends from unlisted portfolio shares (less than 10% ownership) are tax-free as of 2025. However, anti-abuse rules apply to this exemption.

• Tax on Share Income: The threshold for the 27% tax rate on share income will progressively increase from DKK 61,000 to DKK 80,000 from 2025, benefitting couples with a potential tax reduction of up to DKK 5,700 annually (2024 figures).

Vehicle Tax Incentives (Applicable in 2025 Unless Otherwise Noted)

• Registration Tax: No registration tax applies to Battery Electric Vehicles (BEVs). Reduced rates apply to Plug-in Hybrid Electric Vehicles (PHEVs) at approximately €11,000, compared to Internal Combustion Engine vehicles like the VW Golf at €14,000. Taxable value calculations involve battery deductions, CO2 allowances, and phase-in deductions.

• Ownership Tax: Vehicles registered after July 1, 2021 are subject to CO2-based ownership tax (CO2-ejerafgift), with lower CO2 emissions resulting in lower taxes. For vehicles registered before this date, the green ownership tax (grøn ejerafgift) depends on fuel or electricity consumption, converted to petrol equivalents for electric and hybrid vehicles.

Please note that tax laws and regulations can be complex and subject to change. It is always recommended to seek professional tax advice for specific situations and up-to-date information. This overview is current as of February 5, 2025, and may be subject to revisions.