Thinking beyond borders
Extended business travelers are likely to be taxed on employment income relating to Danish workdays.
A person’s liability for Danish income tax is determined by residence status. A person can be a resident or a non-resident for Danish tax purposes.
An individual who has a home in Denmark where they live is considered a resident for tax purposes.
An individual who stays in Denmark for at least 6 consecutive months is also considered a resident in Denmark for tax purposes. Short stays abroad for leisure or holiday will not interrupt the 6-month period. The tax liability comes into effect from the date of first arrival.
The general rule is that a person who is a resident of Denmark is taxable on the individual’s worldwide income.
A non-resident of Denmark is a person who does not fulfill the resident requirements, and they are generally assessable only on income derived directly or indirectly from sources in Denmark. Employment income is generally treated as Danish-sourced if it is paid from a Danish source and derived from work performed in Denmark.
Employment income is considered paid from a Danish source if the employer, formal or economic, has taxable activity in Denmark in accordance with the domestic tax law.
Employment income from a non-Danish source can also be considered taxable in Denmark for the employee. This is the case even if the employer, formal or economic has no taxable activity in Denmark but income still relates to work performed in Denmark and the employee stays in Denmark for more than 183 days within a 12-month period.
Technically, there is no threshold/minimum number of days that exempts the employee from the requirements to file a Danish tax return, nor from paying tax in Denmark. To the extent that the individual qualifies in accordance with the dependent personal services article of the applicable double tax treaty, there will be no tax liability. The treaty exemption will not apply if a Danish entity is the individual’s economic employer.
For extended business travelers, the types of income that are generally taxed are employment income and benefits-in-kind from the employer.
Taxation is based on categories of income. For example, interest is classified as investment income, and employment income is classified as personal income. Different tax rates apply to the different categories. The 2020 tax rates are as follows:
tax rate including labor market tax*
|From Danish krone (DKK)||
* Including voluntary church tax of an average of 0.67 percent and based on an average municipality tax rate (approximately 24.95 percent). The marginal tax rate may vary approximately + 1-2 percentage point depending on which municipality the taxpayer lives in. The calculation of the marginal tax rate includes the taxable value of a mandatory employment allowance. The allowance is maximized to DKK39,400 (2020) for employed individuals.
Local tax rates vary, but the average local tax rate for 2020 is approximately 24.95 percent, excluding voluntary church tax.
The state tax consist of a basic tax rate of 12.14 percent (2020) and a high tax rate of up to 15 percent.
Local and state tax rates apply to both residents and non-residents.
A 30 percent withholding tax may be levied on salaries of non-resident employees on a hired out scheme (i.e. employees who perform services in Denmark for a Danish company other than the employer). The Danish entity receiving the services of the employee must withhold taxes. In addition, Danish labor market contributions apply resulting in an effective rate of 35.6 percent.
Expatriates assigned to Denmark can opt for a 32.84 percent (27 percent flat rate plus labor market contribution) gross tax on their cash remuneration, taxable value of company car, company paid telephone and company paid health care insurance. All other income, including other benefits are taxed at ordinary tax rates.
The expat tax regime can be used for 7 years in total.
Employees performing work in Denmark will be mandatory members of the Danish social security scheme, and thereby obliged to pay social security contributions (ATP) of DKK1,135.80 per employee per year. The employer’s contributions to Danish social security amount to approximately DKK8,000-10,000 per employee per year. An exemption from the Danish social security scheme may be obtained if there is a totalization agreement between Denmark and the home country/jurisdiction. This applies to both residents as well as non-residents.
The tax year is the same as the calendar year. Individual tax returns should be filed no later than on 1 July of the year following the tax year.
Individuals receiving a pre-printed tax assessment from the tax authorities should file any changes no later than 1 May. The tax authorities sends out a pre-printed tax assessment if the tax authorities deem the income statement to be very simple. It is generally possible to extend the due date from 1 May to 1 July.
Tax returns must be filed by non-residents who receive any Danish-sourced employment income.
If the remuneration is paid out from a Danish entity or from a Permanent Establishment in Denmark, the company has a monthly reporting obligation as well as withholding obligations.
Employees from certain countries/jurisdictions must apply for a visa before they enter Denmark. The type of visa required will depend on the purpose of the individual’s entry into Denmark.
In most cases, foreign nationals need to have a residence and work permit before they can begin working in Denmark.
EU/EEA citizens and Swiss citizens can live and work in Denmark under the EU regulations on freedom of movement. Consequently, they do not need a work permit; however, they do need to apply for an EU-registration certificate if staying in Denmark for more than 3 months.
In addition to the Danish domestic regulations, Denmark has entered into double taxation treaties with more than 90 countries/jurisdictions in order to prevent double taxation and allow cooperation between Denmark and overseas tax authorities when it comes to enforcing their respective tax laws.
There is a risk that a permanent establishment (PE) could be created as a result of business travel to Denmark, depending on the type of services performed, the level of authority the employee has when performing services in Denmark and the duration of the stay in Denmark.
Value-added tax (VAT) is applicable at 25 percent on goods and services. Zero-rate may apply (e.g., newspapers). Further, some services are VAT exempted (e.g. insurance, financial services, postal, medical, education and passenger transport).
Denmark has a transfer pricing regime. A transfer pricing implication could arise to the extent that the employee is being paid by an entity in one jurisdiction but performing services for the benefit of the entity in another jurisdiction, in other words, a cross-border benefit is being provided. This would also be dependent on the nature and complexity of the services performed.
Furthermore, Danish taxpayers engaged in intercompany transactions must prepare written documentation to substantiate that prices and conditions for the intercompany transactions are at arm’s length. The documentation must be prepared on a contemporaneous basis, and should be finalized no later than the time of the tax return.
Denmark has data privacy laws.
Denmark does not restrict the flow of Danish or foreign currency into or out of the country. Certain reporting obligations, however, are imposed. The obligation to perform the reporting is levied on financial institutions. In addition, there are local rules to control tax evasion and money laundering.
All information contained in this publication is summarized by KPMG ACOR TAX, the Danish member firm affiliated with KPMG International Cooperative (“KPMG International”), a Swiss entity, based on the official webpage authority "skat.dk" and The Tax at Source Act.
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KPMG International Cooperative (“KPMG International”) is a Swiss entity. Member firms of the KPMG network of independent firms are affiliated with KPMG International. KPMG International provides no client services. No member firm has any authority to obligate or bind KPMG International or any other member firm vis-à-vis third parties, nor does KPMG International have any such authority to obligate or bind any member firm.