Taxation in Denmark

Taxation in Denmark

Denmark has a favourable tax climate thanks to a corporate tax rate of 30%, an extensive network of tax treaties and attractive tax rules for expatriates. Below, you will find information about corporate and individual tax rules.

Corporate Taxation

• Corporate tax rate of 30%, which is below the average in Europe
  The effective rate is less, as business expenses and depreciation are deductible
  
• No additional social security contributions for employers
  
• No capital duty, share transfer taxes, or wealth taxes
  
• Dividends may generally be received/distributed without tax
  
• Unique group taxation including foreign subsidiaries
  
• Unlimited loss carry forward
  
• Transfer pricing legislation in accordance with OECD guidelines
  
• Denmark is one of the countries in the world which has entered into most tax treaties to avoid double taxation
  

Tax System

• Corporate tax rate is a flat 30%
  
• Worldwide corporate income less deductions and depreciations are subject to corporate tax
  

Taxable entities

• Companies registered in Denmark as an A/S (public limited liability company) or an ApS (private limited liability company)
  
• Corporate entities with limited liability and associations, which carry on business activities
  
• Partnerships are transparent for tax purposes
  

Full tax liability

• Companies that are resident in Denmark are subject to full tax liability on their worldwide income
  
• A company is resident in Denmark for tax purposes if it is either a Danish A/S or ApS or a foreign company with its place of management located in Denmark
  
  

Limited tax liability

• Foreign non-resident companies with a permanent establishment in Denmark
  
• Permanent establishment in Denmark is constituted in accordance with OECD guidelines
  
• Certain types of income from sources in Denmark, such as income from real estate etc.
  

Dividends inbound

• Dividends may generally be received tax-exempted provided that 20% of the shares in the distributing company have been held for a minimum of 12 months during which period the dividends may be distributed
  
• In other cases, 66% of dividends received are taxed at the corporate tax rate
  

Dividends outbound

• No withholding tax is imposed on dividends distributed to a foreign corporate shareholder provided that the shareholder is domiciled in an EU country, or in a country with which Denmark has concluded a double tax treaty which does not prohibit or reduce the distribution of dividends. Furthermore, the foreign shareholder must hold min. 20 % of the shares for a minimum of 12 months during which period the dividends may be distributed.
  
• In other cases, withholding tax is imposed at 28%. Such withholding tax may be reduced according to a tax treaty
  

Other withholding taxes

• There is no withholding tax on interest
  
• There is no withholding tax on artistic royalties
  
• There is no withholding tax on management fees
  
• A withholding tax of 30% applies to industrial royalties paid to non-resident companies. The rate may be reduced under a tax treaty
  

Capital Gains

• Capital gains on shares are tax exempted provided that the shares have been held for more than 3 years. Capital gains on shares held for less than 3 years are taxed at the corporate tax rate
  
• Capital gains on bonds and debts are generally taxed at corporate tax rate
  
• Foreign shareholders are not subject to Danish capital gain tax on shares in Danish companies
  

Joint taxation

• A Danish company may be taxed jointly with its 100% owned Danish and foreign subsidiaries. Deficits in Danish or foreign subsidiaries can be set off against taxable income in the Danish parent company
  

Deduction and depreciation

• Business expenses are generally deductible
  
• Expenses for researching new markets incurred by an existing business with the view to expand the business are deductible in the year they are incurred or may be depreciated over a 5 year period
  
• Machinery and equipment are depreciated at the rate of 25%
  
• Buildings and installations are depreciated at the rate of 5%
  
• Goodwill and other intangibles may be depreciated on a straight line over 7 years
  

Losses

• Losses may be carried forward indefinitely
  
• Capital losses on shares held for less than 3 years and capital losses on immovable property may only be set off against gains on assets of a similar type
  

Capital tax

• There is no net wealth tax
  
• There is no share transfer tax
  
• There are no capital duties
  

Payroll tax

•   There is no general payroll tax
•   Only companies carrying out the following activities are liable for payroll tax: 

        –   Financial activities                               9.13%
        –   Import and publishing of newspapers   2.50%

Anti-avoidance rules

There is no statutory general anti-avoidance rule, but the Danish courts have applied a kind of “substance over form” principle. There are specific anti-avoidance rules applicable in specific situations

Transfer pricing

Thin capitalisation

• Thin capitalisation rules apply to resident companies, which have a debt to a nonresident company
  
• If the debt to equity ratio exceeds 4:1 at the end of the tax year, interest expenses and capital losses related to the debt in excess are not deductible
  

Controlled Foreign Company taxation (CFC Taxation)

• CFC taxation rules apply to foreign financial companies controlled by a Danish company if the effective overseas tax rate is essentially lower than the Danish corporate tax rate
  
• If CFC taxation applies, the financial income of the subsidiary is subject to Danish tax
  

Double taxation relief

• If the taxpayer is subject to tax on the same income both in Denmark and abroad, such double tax may be relieved according to one of the many tax treaties Denmark has concluded
  
• If double taxation occurs with a non-tax treaty country, a tax credit may be granted according to specific Danish rules
  

Social Security Contributions

Employers

• Employers are not obliged to pay social security contributions
  
• Danish labour market supplementary pension scheme (ATP) is payable at less than DKK 200 per month of the salary, partly paid by the employee and partly by the employer
  

Employees

• Employees are liable to a social security payment of 9%. The payment is deductible for tax purposes, thus the effective rate is approximately 3-4%
  
• The taxable base is the gross salary including certain fringe benefits such as company car, pension contribution made by the employees etc.
  
• Foreigners resident and working in Denmark are generally covered by the Danish social security system
  

Individual Tax

• Income taxes are levied at progressive rates with a tax ceiling of 59%. The effective tax rate is less as deductions and depreciations are allowed
  
• Social security contribution for employees is 9% deductible for tax purposes
  
• Denmark provides a high level of services and a welfare system including free health care, unemployment and maternity benefits, free schools, excellent infrastructure, etc.
  
• Foreigners resident and working in Denmark are generally fully covered by the Danish welfare system
  
• Denmark offers a 25% taxation regime for expatriates
  

Expatriate taxation

Expatriates in Denmark may elect to be taxed at a flat rate of 25% under the following conditions:

• The expatriate must become subject to full tax liability in Denmark in relation to the commencement of the employment
  
• The expatriate must not have been subject to full tax liability in Denmark for a period of 3 years prior to the commencement of the employment
  
• The gross monthly salary must exceed DKK 54,300.00 (2003) after deduction of the 9% social security contribution. If the expatriate is engaged in approved research, there is no minimum salary requirement
  
• The expatriate must not have been seconded prior to the commencement of the employment by the company with which the expatriate is employed or any group related company
  
• The expatriate must be employed by an employer subject to full or limited tax liability in Denmark
  
• The expatriate is not or has not been part of the management or control of the company or the capital of the company during the employment or 5 years prior to the employment
  
• The salary will be subject to 25% tax + 9% social security contribution deductible, totalling approx. 31%
  
• The 25% tax may be chosen for a period of up to 36 months
  
• If the expatriate has been subject to limited or full tax liability in Denmark for a period of 5 years prior to the employment, the expatriate must leave Denmark after a period of maximum 7 years. In other cases the expatriate is allowed to stay indefinitely
  

Full tax liability

• Persons resident in Denmark, or staying in Denmark for more than 6 months are subject to Danish tax on their worldwide income
  

Limited tax liability

• Persons who are not resident in Denmark are subject to limited tax liability on certain income from Danish sources such as employment income, pension income and income of board membership etc.
  
• Non-resident persons may generally only deduct expenses connected to the taxable Danish income. Commuters are allowed to deduct certain worldwide expenses
  
• Relief for double taxation is granted according to Danish law or according to tax treaties
  

Withholdings

• Employment income and pension income is subject to withholding tax, which is a prepayment of tax
  
• Dividends paid to persons are subject to a withholding tax of 28%
  

Tax rates

• Income from shares is taxed at 28% (of amounts up to DKK 41,100) and at 43% (of amounts exceeding DKK 41,100).
  

The information stated in this fact sheet may contain errors or omissions. Invest in Denmark and our co-operation partners disclaim any and all liability for any loss or damage caused by such errors or omissions.

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