VAT / “Moms”
In addition, a 25% VAT (known as “Moms” in Danish) is charged on virtually all goods. VAT is typically includedin the prices you see as a normal consumer. This includes groceries, books, drinks, café/restaurant menus, etc. Also note that tips are included, although it is customary to give 10-15% extra for exceptional service.
In addition, cars, petrol, alcohol, electricity and a number of products are taxed in order to regulate consumption. In all, VAT, green taxes and other taxes on goods and services make up 34% of total tax revenue. On top of income taxes, homeowners pay property taxes.
Expats living and working in Denmark experience the effect of the income tax they pay very differently. Some value the welfare benefits they help to fund. Others feel they pay into the social welfare system without getting anything out of it. In any case, it is a good idea to try to understand the Danish Tax System, and why most Danes are quite happy with it!
Check your payslip and make sure you are paying the right amount of taxes and avoid having to pay back taxes at the end of the year. The Danish tax authorities have made a example you can use -> click here
There are several ways in which you can be taxed. When you gain employment in Denmark, it is important that you investigate which tax scheme you will be covered by. Remember that you must consider whether you will be subject to full tax obligations or limited tax obligations in Denmark, e.g. if you commute over national borders and maintain residence in a foreign country.
Researcher Tax Shemes As of January 2011, a new researcher tax scheme (aimed at researchers and other key employees) will be implemented. The new scheme entail that Expats who come to Denmark to work under the Researcher Tax Scheme have to pay a tax rate of 26% the first five years they are here. The gross tax rate will be 31.92% which includes 8% labour market contribution. Read more about the details of the new scheme and the changes which have been implemented here.
The tax system is to a great extent automatic, meaning that income tax is withheld based on the current tax rules before you get paid. Your payslip states how much you pay in income tax.
If you plan to earn money, you need to register with SKAT (the Central Tax Administration) at your municipal tax authority. It is best to do so before you get paid for the first time in order to make sure you don’t pay too much in taxes. Your municipal tax administration will issue a personal tax card, which is automatically sent to your employer.
The tax card states your personal allowance and the percentage (tax rate) that you must pay in tax. Both those with full and limited tax obligations will receive a tax card so that the employer can deduct income tax from their wages.
In addition, all workers in Denmark must have a NemKonto Easy Account, which is the common public payment system. This means that public authorities who, for example, owe a citizen money can simply transfer the sum to the citizen’s NemKonto Easy Account.
Full Tax Liability
If you stay in Denmark for six months consecutively or are a resident you will be required to pay full tax liability. In order to obtain a tax card, you must inform the local tax administration of your financial information. Wage earners who are subject to full tax liability pay four or five types of personal income tax depending on their income level. You pay tax in Denmark on your entire income from Denmark and other countries.
Limited Tax Liability
If you are a cross-border commuter or you only have temporary residence in Denmark you will be required to pay limited tax liability. You will only have to pay tax in Denmark on the income you earn in Denmark. In this case you still need to inform the tax administration of your financial information, so they can create your tax card.
Income Tax (Selvangivelse)
In Denmark, this consists of a national tax, a municipal tax and a health care contribution. If you are a member of the Evangelical Lutheran Church in Denmark (Folkekirken), you must also pay church tax. The 8% labour market contribution (AM-bidrag) and ATP is calculated based on pre-tax income. ATP, however, is not a tax, but a lifelong supplementary pension you are entitled to receive when you become a pensioner. Of the remaining income (the taxable income) you pay:
- A healthcare contribution (sunhedsbidrag) of 8 percent.
- Municipal taxes (kommuneskat), which vary from council to council, the average is 24.9 percent.
- Church tax, if you are a registered member of the Danish National Church you pay 0.89 percent.
- A progressive income-dependent tax consisting of a bottom-bracket tax (approx. 37.7 pct paid on taxable income over DKK 42,900 a year), and a top-bracket tax (approx. 15 pct paid on taxable income over DKK 389,900 a year).
Note: Figures may vary depending on income and tax scheme.
Anyone who works in Denmark and is 18 years or older at the beginning of the tax year is automatically granted a personal allowance of DKK 41,900. Additional allowances are granted for pension scheme payments, interest expenses, transport between home and work, trade union membership fees, and unemployment insurance funds. If you are liable for transport allowances you can calculate it here.
Between 10 March and 15 April, SKAT will send you and annual tax statement and an information card. You must check the figures on your annual tax statement and report any changes or additions. If no changes are necessary, you do not have to do anything.
If you are sent a tax return form, you must complete it and send it in. An annual tax statement will be produced on the basis of the information you provided.
Your annual tax return will state whether you are entitled to a tax refund. The money will be transferred to your NemKonto Easy Account.
Cross-border commuters who reside in Sweden and travel to Denmark to work have limited tax obligations in Denmark. In general, the employer must deduct A-tax (tax at source) from wages paid for work performed in Denmark. These commuters remain obliged to pay full income tax in Sweden, which means that Sweden taxes all income and assets unless stipulated otherwise by the double taxation agreement. Contact the tax centres of both countries to make sure you are paying the correct amount of tax.
The main difference between the Danish and German tax systems is that in Denmark the social security schemes (pensions, health insurance, etc.) are paid for via taxes, whereas in Germany they are paid for by special social security contributions in addition to taxes. The difference is therefore not significant when you compare Danish taxes with the sum of German taxes and social security contributions.
If you work in Germany and live in Denmark you have to pay limited German tax based on your income. If you work in Denmark and live in Germany you are liable to limited tax in Denmark. Contact the tax centres of both countries to make sure you are paying the correct amount of tax.
Workindenmark has made a list with additional information: click here.
Tax When You Return Home
It is possible to have SKAT calculate whether you are entitled to a tax refund or whether you must pay more tax. If you are entitled to a tax refund, it will be paid to you after about one month if the amount totals at least 20 percent of your total tax and exceeds DKK 1,000.
Forskudsopgørelsen (Preliminary Income Assessment)
In November each year, SKAT generates your preliminary income assessment based on your predicted income for the next year. If the data is correct nothing needs to be done. If it is incorrect, you must supply SKAT with the correct information. As of 2009, you receive your preliminary income assessment electronically, and can access it by using your digital signature. If you prefer it in paper form, you can contact SKAT and you will receive it by post. Click here to get more information and help with filling out your preliminary assessment at SKAT’s website!
Selvangivelsen (Income Tax Return)
In February, you receive your income tax return for the past year allowing you to make any necessary corrections. You will be able to see the calculated tax and any allowances and deductions. You must check if all the information is correct and if it is, you do not need to do anything. If some details are incorrect or missing you must inform SKAT and supply the correct information.
Årsopgørelse (Annual Tax Statement)
Any updates made to your income tax return by the end of April are taken into consideration in the annual tax statement. If you find any faults you must contact SKAT immediately.
For expats working in Denmark there are tax reliefs available to help reduce personal tax liabilities and various solutions to reduce both income tax and national insurance in Denmark whilst working there. If you need any further help don’t hesitate to contact us.
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