Denmark: Personal Taxation
Special Expatriate Fiscal Regime
In Denmark personal tax rates are notoriously high, with a further levy for social insurance contributions. A person is subject to Danish tax if he is resident there and is presumed to be resident there if he spends more than 6 months in the country in the tax year. These tax rates are a great disincentive and provide a very real problem to employers who require foreign skilled labor.
Accordingly the government introduced a special expatriate tax regime the main characteristics of which are described below.
Prior to January 1, 2012, some types of foreign employee (mainly scientists and key employees) could elect to pay flat rates of tax of 25% or 33% on their whole income for the first three or five years of their employment in Denmark. This scheme was abolished in favour of a flat rate of tax of 26%, which also applies for five years.
The special expatriate tax scheme applies to all kinds of cash remuneration and reimbursement of private expenses, including relocation allowance and school fees, the taxable value of a company car and use of a telephone. All other income, including benefits-in-kind, are taxed at ordinary rates.
Social contributions of 8% of salary must also be paid on gross income in addition to the 26% income tax, regardless of whether the employee is covered by a foreign social security scheme, meaning that the effective tax rate paid by an expat employee is 32% (although still considerably better than the 51.5% rate of tax that would be paid otherwise).