Tax laws Denmark
Denmark has a well-structured tax system that is designed to fund its welfare state, providing extensive public services such as healthcare, education, and social security. Below is an overview of the key tax laws in Denmark:
1. Corporate Income Tax
- Corporate Tax Rate: The standard corporate income tax rate in Denmark is 22% on the net profits of companies.
- Tax Base: The corporate tax base is calculated by subtracting deductible business expenses (including operating costs, wages, and depreciation) from the total revenue of the company.
Denmark does not tax capital gains on the sale of shares held by a Danish parent company in a subsidiary, provided certain conditions are met. The country also offers favorable tax rules for specific sectors, such as research and development (R&D), and has incentives to encourage innovation.
2. Personal Income Tax
Denmark operates a progressive income tax system for individuals, with a variety of allowances, deductions, and contributions to social security. Both residents and non-residents are taxed on their income, but the taxation rules differ for each group.
Tax Rates for Individuals:
- Bottom Tax Rate: 8% for income up to DKK 57,900 (approx. EUR 7,750).
- Middle Tax Rate: 37.3% for income over DKK 57,900 but below DKK 552,500 (approx. EUR 74,000).
- Top Tax Rate: 52.07% on income over DKK 552,500.
In addition to the national income tax, there are municipal taxes (varies by region) and church taxes. Municipal taxes generally range between 22% and 27%.
Taxable Income:
- Employment Income: Wages, salaries, and bonuses are taxed as employment income.
- Dividend Income: Dividends are taxed at 27% (up to DKK 56,500) and 42% above that amount.
- Interest Income: Interest is taxed as personal income, with rates depending on the amount.
Deductions and Allowances:
- Personal Allowance: A basic personal allowance applies, which reduces the taxable income.
- Pension Contributions: Contributions to Danish pension funds can be deducted from taxable income.
- Tax Deductible Expenses: Certain expenses, such as work-related expenses, can also be deducted from income.
3. Value Added Tax (VAT)
Denmark applies VAT to the sale of goods and services, which is aligned with EU regulations.
- Standard VAT Rate: 25% is applied to most goods and services.
- Reduced VAT Rates: There are no general reduced rates, although some services (e.g., certain food items and books) may be exempt or fall under specific exemptions.
4. Social Security Contributions
Both employers and employees in Denmark contribute to the social security system. These contributions fund the welfare programs, including pensions, unemployment benefits, and healthcare.
- Employee Contribution: Employees pay contributions to the Danish state pension system (ATP) and health insurance. The total contribution is approximately 8% of the employee's salary.
- Employer Contribution: Employers must contribute to the social security system as well. The combined total of employer and employee contributions to the system is typically about 40-50% of the salary.
5. Capital Gains Tax
Capital gains taxes in Denmark are generally classified under the personal income tax system, meaning that capital gains from the sale of assets like real estate or shares are taxed according to the individual’s income tax bracket.
- Corporate Level: Capital gains on the sale of shares in a company are generally tax-exempt for corporate taxpayers if the shares are held for more than a year.
- Individual Level: Capital gains tax on shares is charged at a rate of 27% for the first DKK 56,500 (approx. EUR 7,500) and 42% above that threshold.
6. Inheritance and Gift Tax
Denmark has an inheritance and gift tax system that applies to transfers of wealth either during a person’s lifetime or after death.
- Inheritance Tax Rates: Spouses, children, and grandchildren are exempt from inheritance tax. For other beneficiaries, the tax rates are 15% on inheritance above certain thresholds.
- Gift Tax: Similar to inheritance tax, gifts to close family members are exempt from tax, but gifts to others may be subject to tax at rates ranging from 15% to 36.25%.
7. Property Tax
Denmark imposes both property tax and a municipal tax on real estate.
- Municipal Property Tax: Real estate owners must pay a municipal tax based on the property’s value. The rate is generally 1% of the assessed value up to DKK 3,040,000 (approx. EUR 400,000) and 3% for the portion above that amount.
- Land Value Tax: Denmark also levies a tax on the value of land, which can range from 1.6% to 3% depending on the land’s location and value.
8. Environmental Taxes
Denmark imposes various environmental taxes to encourage the reduction of pollution and the use of sustainable energy.
- Energy Taxes: Taxes are levied on electricity, gas, and oil consumption. Denmark has high taxes on fossil fuels, which incentivize the use of renewable energy sources.
- Carbon Taxes: Denmark is a part of the EU Emission Trading System, which caps the total emissions and charges companies for exceeding these limits.
9. Excise Duties
Excise taxes are applied to specific goods such as:
- Alcohol: Taxes are levied on alcoholic beverages, and the rate depends on the alcohol content.
- Tobacco: Denmark imposes excise duties on tobacco products, with a high rate of tax to discourage consumption.
- Fuel: Fuel products such as gasoline and diesel are subject to excise taxes, making them relatively expensive in Denmark.
10. Double Taxation Treaties
Denmark has signed double taxation treaties with over 70 countries to avoid the issue of double taxation. These treaties allow for reduced withholding tax rates on dividends, interest, and royalties, and prevent individuals and companies from being taxed on the same income in two countries.
11. Tax Filing and Payment Deadlines
- Corporate Tax Filing: Corporate income tax returns must be filed within six months after the end of the financial year.
- Individual Tax Filing: Individuals must file their tax returns by May 1st of the year following the tax year. The tax authorities send pre-filled tax returns, which individuals can confirm or amend.
12. Tax Administration
Denmark’s tax system is administered by SKAT, the Danish tax authority, which oversees tax collection, compliance, and enforcement. The system is well-integrated with Denmark's social security, health, and pension systems.
Conclusion
Denmark has one of the highest tax burdens in the world, but it also provides a strong social safety net and high-quality public services. The corporate and personal income tax rates are progressive, with incentives for certain sectors like R&D. The VAT and environmental taxes reflect Denmark's commitment to sustainability, and the country’s tax administration is efficient and user-friendly. The tax system is well-aligned with EU regulations, making it attractive for international business operations.
RELATED Blog
0 comments