Individual tax
Employee stocks
In Denmark, many companies include stock options as part of the remuneration package. There are certain rules to observe in order to obtain the most favourable taxation: • Grant of stocks free of charge – Stocks at a value of up to DKK 22,000 (EUR 2,900) per year are tax-free. The stocks must be held in trust so that the employee cannot dispose of them for 7 years after the grant and must be offered to all employees. • Sale of stocks purchased at a favourable price – A company may sell its stocks at a favourable price without direct employee taxation on the benefit. If the stocks are sold later, the price will be taxable, but as capital income which is normally taxed at lower rates than salary. The benefit must not exceed 10% of the employee’s annual base salary and must be offered to all employees. The stocks must be held in trust for 5 years. • If an employee is granted stocks etc. as remuneration, the stocks will normally be taxed in the same way as cash salary. Taxation will take place at the time of grant of the stocks. • The company and the employee may also agree that such stocks should be comprised by a special set of rules. The rule is only applicable for stocks at a maximum value of 10% of the employee’s annual salary. For options and warrants it is a condition that the exercise price is not more than 15% lower than the fair market value. For the employee, the consequence of such an agreement is that taxation will be deferred until sale of the shares. The benefit will be taxed at rates applicable to capital gain, which often will be lower than taxation of remuneration. For the company, the agreement implies that it loses the right to deduct expenses related to the grant of stocks. Deductible expenses
Deductions are calculated using standard rates, e.g. deductions for travel between home and work. Depending on the actual deduction, the tax value of the deductions, i.e. the saved tax, varies.
Deduction
Tax value
Payment to Danish premium pension Payment to a Danish capital pension Interest expenses Trade union / unemployment fund Travel between home and work (1,84 DDK/km. from 24 - 100 km. and 0,92 DKK/km. over 100 km)
59% 44% 33% 33% 33%
All amounts in this fact sheet are 2008 figures.
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Facts... August 2008
Tax ati o n o f I n di v id ua l s Foreigners working in Denmark benefit from the Danish welfare system. When you are working in Denmark, you benefit from the Danish welfare system. In addition, if you are a key employee or a researcher, you may also be subject to the particularly favourable 25%/33% tax regime. In this regime, key employees and researchers recruited abroad pay a much lower tax for the first three or five years in Denmark.
To residents in Denmark, four main taxation categories may apply; limited or full taxation, a special 25%/33% taxation for highly salaried expatriates (requires a salary on more than DKK 806,000), and a 30% tax for individuals employed as “hiring-out of labour”. In Denmark, employees pay tax and social security contributions from their salaries. Tax contributions for an
Examples of tax contributions
individual who is assigned
Annual salery (EUR)
33,300
66,700
120,000
Full tax liability 25% taxation 33% taxation Limited tax liability Hiring-out of labour
12,100 N/A N/A 12,200 11,900
30,600 N/A N/A 30,800 23,800
63,900 37,300 46,100 64,400 42,800
to Denmark and covered by Danish social security Source: Municipality of Copenhagen.
Full tax liability
If you are a resident in Denmark or stay in Denmark for more than 6 months, you are subject to full tax liability. This means that: • Your worldwide incomes are taxed. Regardless of the income's origins, it must be included in the Danish income statement. • The ordinary tax in Denmark is a progressive tax, which rises as income rises. The marginal tax is 59% and is paid only when the annual income exceeds 335,800 (EUR 45,000.) • You may deduct expenses such as interest expenses, contributions to non-profit organizations, etc. • A double taxation treaty may decide, however, that Denmark refrains from taxing the income in question.
Made in cooperation with
Individual tax
Special taxation regime for expats
In Denmark, highly salaried employees and scientists are subject to a special taxation. The system specifies that cash salary plus company provided car is subject to up to of a maximum of 25% tax for a period of 3 years or 33% for a period of five years. There are some conditions to be met, including: • Full tax liability or limited tax liability is accepted. • No Danish tax liability within a period of 3 years prior to the start of work. • For individuals living in Denmark, work outside Denmark must not exceed 183 days in any calendar year or rolling 12 months. If a double taxation treaty means that Denmark must retain from taxing the income, you will not be covered by the special taxation regime. Your stay outside Denmark must also be less than 6 consecutive months. • For non-scientists, the monthly taxable salary after deduction of social security contributions and some pension schemes must be at least DKK 61,700 (EUR 8,281). • The employee’s salary costs must be borne by an employer with a permanent establishment in Denmark, i.e. the employer must have a registered office in Denmark. • You can transfer from 25% or 33% taxation once. However, the choice must be made before the end of the first 3 year period. If you have not been liable to Danish taxation for 5 years prior to moving to Denmark you may stay in Denmark unrestricted. If this is not the case you must leave Denmark and terminate your full Danish tax liability within a 7 year period. Otherwise you will be taxed retroactively on salary income and benefits taxed according to the 25% / 33% regime, i.e. with up to 59%. Limited tax liability
If you do not reside in Denmark or do not stay in Denmark for more than 6 months, you may be liable to limited taxation in Denmark. This is often the case if you live in a hotel in Denmark or in a neighbouring country and travel to and from your workplace in Denmark every day. The following conditions apply: • You are taxed on salary from a Danish employer or salary connected to a permanent establishment in Denmark. • You are taxed on the salary for work performed in Denmark. If you work in the Øresund Region, you may be liable to Danish taxation on your total salary. • In general, you may only deduct expenses connected to the salary, but if more than 75% of your income is taxed in Denmark, you may deduct e.g. foreign interest expenses. • The tax is similar to the tax on a fully tax liable individual, i.e. up to 59%. • A double taxation treaty may decide, however, that Denmark must refrain from taxing the income in question.
More information... www.toldskat.dk/ international
(Non-married individual
Examples of tax and social contribution calculations
in an average Danish
Annual Salary
Social contr. employee
Tax
Tax & social contr. employee
EUR
EUR
EUR
EUR
50,025 75,000 100,000 125,000
4,000 6,000 8,000 10,000
13,600 25,800 47,500 62,800
17,600 31,800 47,500 62,800
Tax & social contr. employee in % of salary
Social contr. employer in % of salary
35.1% 42.4% 47.5% 50.3%
1 – 2% 1 – 2% 1 – 2% 1 – 2%
municipality)
Individual tax
Hiring-out of labour
Some companies choose to organise their activities by hiring-out of labour. This concept implies that an employer makes his employees available to perform work in Denmark. The conditions are: • The employee is salaried by a foreign employer • The overall management and responsibility of the work performed in Denmark lies with the “Danish employer” • The work is performed in a workplace of which the Danish employer has the disposal and for which he bears the risk • The payment for hiring of labour is settled between the companies • A flat rate tax of 30% Social security contributions
• Generally, the basis for social contributions is salary income and taxable benefits. • Employer contributions are EUR 260 to ATP (Labour Market Supplementary Pension Scheme) plus maintenance of work injury insurance and other minor contributions, an expense of approx. EUR 390 per year. • Employees pay 8% and a yearly contribution of EUR 130 to ATP. The payments are deductible for tax purposes, and thus the effective rate is 3 – 4%. • There are no Danish contributions if you are covered by another EU social security system. Taxable benefits
Benefits granted as part of the employee’s salary package are typically taxable income for the employee. Depending on the kind of benefit, the taxable amount will either be the actual value of the benefit or the calculated value using standard rates. Free car
The annual taxable amount represents a percentage of the value of the car. The taxable amount is 25% of the first EUR 40,000 and 20% of the rest. This value is used during the first 3 income years after which the car’s taxable value is reduced by 25%. If the car is more than 3 years old at the time of purchase, the taxable value is calculated using the actual purchase price. Petrol paid for directly by the employer is not taxable for the employee. Free telephone and data communication
The annual taxable value of free telephone is EUR 400 regardless of use. If the employee pays for a private telephone, e.g. mobile phone for his spouse or children, the expense may be deducted in the value of free telephone. Free telephone and paid data communication in connection with a home office may be tax-free if used for data communication with the employer. Free housing
The taxable value of free housing corresponds to the actual market rent. If the employer also pays for electricity, water and heating, these expenses are added to the taxable value. A special rule setting up a lower taxable value may be applicable.
More information... www.skat.dk/foreign/ english/taxrulesfor employeeshares.html