Taxation of individuals

An individual may be taxed in Denmark as having full tax liability to Denmark, as having limited tax liability to Denmark, or according to special expatriate rules or rules regarding work force hire.

Individuals who are residents in Denmark are subject to full tax liability (i.e. liable to tax on their worldwide income unless the individual is considered to be tax resident in another country according to a double taxation treaty [DTT]).

An individual who is fully tax resident in Denmark will, as a main rule, be taxed according to the ordinary tax scheme by up to 52.07% (55.90% including AM tax, which is also income tax for DTT purposes) in 2023. A number of deductions are applicable; consequently, the effective tax rate is lower in most cases.

An individual not fully tax liable may have limited tax liability to Denmark. Limited tax liability is restricted to income from Danish sources, listed in the Danish Tax at Source Act, Section 2, including:

• salary for work performed in Denmark paid by or on behalf of an employer with a legal venue in Denmark

• salary for work performed in Denmark where the stay exceeds 183 days within 12 months

• certain other types of personal income, including directors fees, pension distributions, and social security benefits

• remuneration covered by the special rules on hiring out personnel (see Work force hire scheme below)

• income arising from a business enterprise with a permanent establishment (PE)

• income from property located in Denmark

• dividends from Danish companies

• royalty income from Denmark, and

• remuneration for advisory assistance, under certain circumstances.

An individual with limited tax liability to Denmark will, as a main rule, be taxed by up to 52.07% (55.90%, including AM tax) on income from sources in Denmark in 2023.

Personal income tax rates

Generally, individuals are subject to national income tax, municipal tax, labour market tax, and church tax (all described below).

When assessing the tax under the ordinary scheme, the following types of income apply:

• Personal income (salary, benefits in kind, self-employment income, pension income, etc.).

• Capital income (interest income, interest expenses, net taxable capital gain, etc.).

• Taxable income (personal income added to capital income and adjusted for certain itemised deductions).

• Share income (dividends, capital gains on shares).

• Property value (value of property situated in Denmark or abroad).

The different types of income are subject to different taxes and are consequently taxed with different rates. This also means that the value of a deduction differs depending on in which income the deduction can be made.

The tax rates are as follows:

Taxes (2024)                           Income basis                               Tax rate (%)

State taxes:  

      Bottom tax                         Personal income                            12.01

      Top tax                               Personal income                            15.00

Local taxes:  

       Municipal tax (average)    Taxable income                             25.067

       Labour market tax             Personal income                           8.00

Share tax:  

       DKK 0 to 61,000                Share income                                27.00

       More than DKK 61,000      Share income                                42.00

Note that tax bands and local taxes may be adjusted annually.

Altogether, the marginal tax rate cannot exceed 52.07% (2024). However, labour market tax, share tax, property value tax, and church tax are not comprised by this rule.

Net capital income is taxed at a rate up to 42% (in 2024). Negative net capital income and other allowances may be deducted but not with full effect.

National taxes

National taxes are categorised as bottom and top tax, due to which personal income becomes subject to progressive taxation.

Bottom tax

The bottom tax base is represented by the personal income plus positive net capital income. Bottom tax implies a taxation of 12.01% (2024).

Top tax

The base for top tax for a single person is the personal income plus positive net capital income. Top tax is 15% of the part of the top tax base exceeding DKK 588,900 (2024) after a deduction of 8% labour market tax. 

Local taxes

Municipal tax

Local income tax (municipal tax) is calculated on taxable income at a flat rate dependent on the municipality in question. The country average is 25.067% (2024).

Labour market tax

Labour market tax amounts to 8% of the personal income.

Share tax

Share income up to DKK 61,000 (2024) (DKK 122,000 for a married couple) is taxed at 27%. Share income in excess of this amount is taxed at 42%.

Church tax

Church tax is imposed at a flat rate dependent on the municipality in question. The country average for church taxpayers is approximately 0.65% (2024). Church tax is imposed by municipalities and is only charged for members of the Danish State Church (Lutheran). When registering in Denmark, all individuals should explicitly state if they should not be comprised.

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Other income taxes

Special expatriate scheme

According to the special expatriate tax regime, expatriates who are employed in Denmark and scientists assigned to Denmark may be able to apply for a flat tax rate of 27% on their gross salary for up to 84 months. A number of conditions must be met, including that the guaranteed monthly salary, before deduction of deductible employee pension contributions, must be at least DKK 75,100 (2024) in average in the calendar year. Special rules apply for researchers. The 27% tax rate is calculated on cash salary, employer-provided telephone/Internet, the taxable value of employer-provided company cars, and employer paid taxable health insurance. All other income is taxed in accordance with normal rules. No deductions are allowed against the flat rate taxed income. The employee’s stay in Denmark may be longer; however, after the 84-month period, the employee’s income is taxed at ordinary rates.

As the labour market tax also applies, the combined tax rate is 32.84% each year during the 84-month period.

Work force hire scheme

The work force hire scheme is a separate Danish limited tax liability. The concept of ‘work force hire’ implies that the employee continues to be formally employed by the employer in the home country but is hired out to a company in Denmark as the host country under terms similar to a normal employment relationship. The company in Denmark is therefore deemed to be the employer for tax purposes to be covered by the work force hire rules. First and foremost, it must be possible to substantiate that the company in Denmark (the deemed employer) is also responsible for the work performed by the employee. Also, work performed as part of the activity of the Danish company may be seen as work force hire due to a recent change of the rules concerning work force hire. Employees who are hired by a Danish company under a work force hire arrangement are taxed in Denmark at a flat rate of 30% of the gross remuneration, etc. No deductions are allowed. Labour market tax should be paid as well. This gives a combined tax rate of 35.6%. The work force hire rules only apply to employees who are not liable to either ordinary limited tax liability or full tax liability in Denmark. Consequently, if their stay in Denmark is expected to exceed six consecutive months or 183 days within any 12-month period, it is not possible to use the work force hire rules. The six-month period is not interrupted by stays abroad due to holiday, etc. However, the period will be interrupted if the stay abroad involves a work assignment.

Note that there is particular focus from the tax authorities on the work force hires rules and compliance in general.

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Social security contributions

The Danish social security system is financed primarily through ordinary tax revenue and only very limited social security contributions for employees and employers.

All individuals working in Denmark and fully tax liable to Denmark and who are covered by Danish social security must also pay labour market supplementary pension (ATP).

Danish social security contributions and in some cases foreign social security contributions are deductible from personal income for tax purposes. The employer is responsible for withholding and paying the contributions on behalf of their employees.

Social security annual rates (2024)                                        DKK

Employee: 

ATP                                                                                            1,188

Employer: 

ATP                                                                                            2,376

Contribution to maternity fund, estimated                                1,350

Industrial injuries insurance, estimated *                                 5,000

Other public social security schemes, partly estimated          5,300

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* Please be informed that the estimated industrial injuries insurance may vary, depending on the field of work that the insured employee is employed within, the number of employees that the employer intends to insure, the specific insurance company, etc.

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Corporate - Taxes on corporate income

Last reviewed - 15 March 2024

Companies are subject to tax on all income and are only allowed deductions on expenses that are related to the operations of the company.

According to Danish tax law, a territoriality principle prevails with respect to PEs and real estate located abroad. Hence, a Danish company is not taxed on its worldwide income. Instead, income from a PE outside Denmark or from real estate located abroad is excluded from taxable income. Non-resident companies are taxed only on profits from income sourced in Denmark. The CIT rate is 22%.

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Value-added tax (VAT)

The general VAT rate is 25% of the price charged (exclusive of VAT).

While certain supplies are subject to VAT exemptions, such as hospital treatment, insurance and reinsurance services, and most financial activities, including deposits of money and granting of loans, it's crucial to emphasise a substantial distinction between VAT exempt transactions as per Section 13 and 'zero-rated' transactions under Section 34 in the Danish VAT Act. The aforementioned examples specifically illustrate Section 13 transactions, where the right to reclaim VAT is not applicable. Conversely, transactions falling under Section 34, e.g. intra-community supply of goods and services, allow for a full VAT deduction, highlighting a notable difference in the treatment of these two categories.

Denmark was one of the first countries to introduce a VAT system. Since then, the VAT legislation in Denmark has undergone several changes. The most important changes have been modifications to bring the legislation in line with the Sixth EC VAT Directive (which, since 1 January 2007, is officially named the Council Directive 2006/112/EC on the common system of Value Added Tax) and the so-called EU VAT Package that entered into force on 1 January 2010.

The present Danish VAT Act (Momsloven) entered into force with effect from 1 July 1994. Compared to the Directive, the Danish VAT legislation includes minor deviations and the use of various discretionary provisions.

All supplies of goods and services by so-called ‘taxable persons’ (entrepreneurs who independently carry out economic activities) are subject to VAT, unless specifically exempted. Although the VAT exemptions are restricted to a limited range of services and goods, they are subject to a considerable number of binding rulings and administrative guidance with respect to their interpretation and application.

Transactions are subject to Danish VAT only when they are deemed to take place in Denmark. For the sake of tax neutrality, VAT is also levied on (i) imports (i.e. receipt of goods from non-EU territories), (ii) intra-Community acquisitions (i.e. receipt of goods from EU member states), and (iii) purchases of most services from foreign suppliers.

In order to avoid VAT being borne by anyone other than the final consumer, those who qualify as taxable persons can, with some exceptions, recover VAT charged by their suppliers according to the invoice/credit method, provided that the purchases relate to VATable transactions. VAT is recovered either via the periodical VAT return (as a deduction in VAT payable) or by filing a special application.

In principle, it is the supplier’s responsibility to collect and report VAT on the supplies of goods and services in Denmark. However, a taxable customer/recipient is responsible for reporting VAT on the import or acquisition of goods from abroad as well as the purchase of most types of services from foreign suppliers.

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Special payroll tax (Lønsumsafgift)

Companies that provide VAT-exempt services may be liable to pay special payroll tax (in Danish ‘lønsumsafgift’) in Denmark, which is calculated on the total payroll, including any type of wages and bonuses that the employee has received. There are four different calculation methods; which method should be applied depends of the activity and organisational structure. The method and percentage applied to calculate the special payroll tax depend on the ratio between VATable and VAT-exempt services supplied.

In case the VAT-exempt financial revenue is more than 50% of the total revenue, the company will be qualified as a financial services provider and the special payroll tax is then 15.3% of the payroll used for the VAT-exempt activities.

This tax is deductible for income tax purposes.

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