Taxes - a topic that many spends sleepless nights in some persons. How much, when, how, where, to whom? These are the questions the average citizen asks themselves. While we still somehow manage to pay our domestic taxes, foreign tax systems still remain a mystery. It is well known that the fear of the unknown can paralyse, but it does not have to be this way. The following article comes to your aid. After reading it, the Danish tax system will no longer be complicated. Danish taxes are among the highest in the world. However, one should not be overly concerned about their amount, as they are progressive in nature, i.e. their size depends on the income collected. Moreover, there is nothing to prevent you from deducting certain categories of expenses. For example, pension and health contributions, alimony, food or commuting expenses.

Since the inception of income tax in Denmark through a fundamental tax reform in 1903, it has served as a cornerstone in the Danish tax system. Currently, a significant portion of Danish tax revenues, approximately two-thirds, is derived from various personal and corporate income taxes, with indirect taxes contributing the remaining one-third. The state personal income tax follows a progressive structure, while the municipal income tax operates as a proportional tax above a specified income threshold.

In the OECD and many other regions globally, the value-added tax (VAT) stands out as the predominant form of consumption tax. The majority of consumption taxes follow a practice of not taxing intermediate business inputs or offer a credit for taxes previously paid on these inputs. This approach helps prevent the issue of tax pyramiding, where the same final good or service is taxed multiple times throughout the production process. The exclusion of taxes on business inputs contributes to making taxes one of the most economically efficient methods for generating tax revenue.

Denmark's tax structure, indicating the distribution of various taxes, deviates from the OECD average. In 2016, the Danish tax system stood out with significantly higher revenues from taxes on personal income, while, in contrast, no revenue was generated from social security contributions. Denmark had a lower percentage of revenue coming from taxes on corporate income, gains, and property compared to the OECD average. However, the proportion of revenue originating from payroll taxes, VAT, and other taxes on goods and services aligned with the OECD average.

Collectively, the typical Dane is subject to an approximate tax rate of 45%. Consequently, Denmark holds the distinction of having the highest proportion of taxes related to income and wealth, accounting for 28.9% of the GDP in 2019. The World Happiness Report indicates a correlation between happiness and social equality. The official website of Denmark notes that "most Danes express satisfaction with paying taxes as they can witness the tangible benefits, such as free education, healthcare, and social security."

1. Accommodation tax credit.
   • Determined annually by SKAT (in 2021, the accommodation tax credit is DKK 228 per day).
   • Used by temporary employees of Danish companies.
   • To claim the allowance, you must present a tenancy agreement, accommodation bills or bank statements reflecting utility charges and rent.
   • If the employer has deducted part of the costs from the employee's wages, payslips for the period in question must be submitted.
2. Catering tax credit.
   • Determined annually by SKAT (in 2021, the food tax credit is DKK 532 per day).
   • All temporary employees can benefit from the allowance.
   • The relief has some limitations - a maximum of DKK 28,600 per year can be received.
3. Tax relief for commuting to work.
   • Determined annually by SKAT (in 2021, the relief is DKK 1.90 per 1 km - distance between 25 and 120 km round trip or DKK 0.95 per 1 km - distance over 120 km round trip).
   • The discount is based on the number of journeys and the distance travelled.
   • All employees of Danish companies who commute more than 24 km from their home to the company (round trip) may take advantage of the reduction.
   • The type of transport is not important, it can be by car, train, bus, etc.
   • In order to benefit from the allowance, you will need to provide e.g. fuel receipts, tickets of any kind (bus, motorway gate, air or public transport).
4. Tax relief for crossing bridges.
   • Applies to all employees crossing toll bridges.
5. Tax relief for interest expenses on consumer loans and mortgages.
   • Relief applies to employees of Danish companies with at least 75% of their income coming from Denmark.
   • Married persons are required to take their spouse's income into account.
   • If you wish to benefit from the relief, you must submit a certificate from your bank in your annual return, which states the amount of interest paid in the tax year indicated.
   • The certificate should contain, among other things: the details of the borrower, the amount of interest paid, the type of loan and the name of the bank.
   • The certificate must necessarily be translated by a sworn translator into one of two languages: Danish or English.
6. 'Cross border' tax relief.
   • Applies to people who work in Denmark but whose place of residence is outside the country.
   • The relief applies to Danish employees whose income comes from 75% from Denmark.
   • Married persons are required to include their spouse's income in their annual tax return.
   • In order to qualify for the relief, you will need to provide documents translated by a sworn translator into Danish or English: your marriage certificate and a certificate of income from the Polish tax office.
   • It is important to know that according to Danish law, the income of your spouse must not exceed DKK 46 700.
7. Tax relief for running a dual household.
   • All employees of Danish companies who can prove that they also have a household at their place of residence are entitled to this relief.
   • To qualify, you must present documents translated by a sworn translator into one of two languages, English or Danish. The documents needed are a marriage certificate and a certificate from the municipality stating that you have the same place of residence with your spouse.
8. Cadastral tax relief (tax on the value of real estate).
   • Persons over 65 years of age can benefit from an allowance of 0.4 per cent,
   • The relief may not exceed DKK 2,000 for holiday homes and DKK 6,000 for year-round homes,
   • If the property is part of a joint estate, it is sufficient that one of the spouses has reached the age of 65,
   • In the event of the death of a spouse who has reached the age of 65, the relief is retained and the widower/widow can continue to benefit from it.

When applying the relief, it is worth remembering to be transparent and honest, as the Danish Tax Authority (SKAT) can check the reliability of the declared expenses within seven years.

In Denmark, tax rates vary. Different rates will be paid by an employee, others by a business owner, and here too, differences are apparent, depending on the form of business.

Key information on Danish taxes:

• individuals running companies in Denmark are required to pay CIT, which is 22%. However, it is important to note that if the company's annual turnover exceeds DKK 50,000, the company becomes liable to VAT, which in Denmark is 25%;
• the mobile municipality tax is approximately 24.92% and it is determined based on taxable income at a standard rate determined by the specific municipality in question. It must be paid to the regional government;
• the tax return must be submitted via the website within six months of the end of the tax year. If the tax year ends between 1 February and 31 March, the tax return must be submitted by 1 August;
• tax is paid twice a year - on 20 March and 20 November;
• if you run a joint-stock company, the tax depends on the income derived from the shares. It is 27% for income from DKK 0 to 54,000 and 42% for income above DKK 54,000, respectively;
• there is a church tax in Denmark, which amounts to 0.92%. It is levied at a flat rate determined by the specific municipality in question. Upon registration in Denmark, individuals should explicitly state if they wish to opt out of this tax;
• no VAT is charged on the sale of exported goods and services, but the recipient can deduct it at the time of purchase;
• employees of Danish companies are subject to full or limited tax liability (begraenset skattepligt). Limited tax liability applies to employees with a fixed-term contract and employees who live outside Denmark;
• the owner of a Danish company employing workers is required to register as an employer in Denmark;
• foreign employees, both permanent and seasonal, are subject to different tax rules. The rules depend on the origin of the employees and how long they have lived in Denmark.

The Danish tax system is considered to be very complicated. Because of its complexity, those planning to set up a business in this country, as well as those considering working for a Danish company, should familiarize themselves with all the issues that affect them. To begin with, it is useful to know which taxes the Danish tax system consists of:

1. direct taxes:
   • pension contributions (ATM),
   • employee contributions,
   • health insurance contributions (sundhedsbidrag),
   • church tax (kirkeskat),
   • municipal tax (kommuneskat),
   • tax on hiring foreign labour to work in Denmark (according to Act No. 921 of 19 September 2012 (now Act No. 117 of 29 January 2016), a Danish company hiring foreign labour is obliged to pay a 38 per cent tax (net 35.6 per cent) to the Danish Tax Administration, which includes an 8 per cent contribution to the Danish Employment Fund and a 30 per cent tax on hiring labour),
   • a tax that is deducted from the source of income in individuals and corporations,
   • a tax that is not deducted from the source of income,
   • land tax (on real estate) - Ejendomsværdiskat is a Danish state tax on the value of real estate, covering real estate regardless of where it is located. All residents of Denmark are obliged to pay this tax. Poles who are Danish residents must also pay this tax on their real estate that is located in Poland (rate of 1% per year - real estate with a value below DKK 3.04 million; rate of 3% per year - real estate with a value above DKK 3.04 million),
   • tax on the value of real estate that has been assessed at a public valuation;
2. indirect taxes:
   • customs duty,
   • excise duty (punktafgift),
   • VAT (moms),
   • environmental taxes.

Knowledge of Danish income tax is collected in several laws:

• Personskatteloven - Personal Income Tax Act,
• Skattekontrolloven - the Tax Control Act,
• Kildeskatteloven - Act on withholding tax,
• Ligningsloven - Tax Assessment Act.

Among other things, we find information on the applicable percentage rates:

• 8% for income below DKK 50 217,
• 39.2% for income between DKK 50,217 and DKK 558.03,
• 56.5% for income higher than DKK 558,043.

In Denmark, income from the last twelve months is taxed. Entrepreneurs may take either the calendar year or another year of equal 12 months as their tax year. The taxpayer must compulsorily file a return with the Danish Tax Authority (SKAT), while the taxpayer has up to three years to complete this task. In 2020, the tax-free amount was DKK 46,700. The tax-free amount means that individuals who have earned an income lower than that presented are exempt from paying income tax. In Denmark, the corporate income tax (CIT) is 22%. Capital gains included in the income of a Danish company and capital gains from listed portfolio shares are taxed at 22%. Non-Danish resident companies only settle CIT on income that has been earned in Denmark. The same is true in the case of a sale of shares by a foreign shareholder. In the case of a company with foreign branches, income from the Danish residence is accounted for together with income from the foreign branches. In contrast, only income from foreign branches may be exempt from paying taxes in Denmark. It is worth knowing that Danish companies are obliged to pay environmental taxes to the companies that supply them with energy. In Denmark, environmental taxes amount to 5%. VAT is otherwise known as value added tax. It is added to the price of services and goods sold by companies. It applies to agricultural products, industrial products and most services. The uniform VAT is 25% and must be paid by all companies selling in Denmark with an annual turnover of more than DKK 50,000. The owner of a Danish business has eight days to declare it as a VAT payer and must do so before starting the business. Business registration is done through the website of the Register of Foreign Suppliers (RUT); virk.dk. What else should you know about VAT?

• The 25 per cent flat tax plus a 9 per cent contribution to the Danish labour market applies to foreign employees who have been employed for a period of three months to three years and earn more than DKK 47,500.
• A Polish company that is registered in Denmark as a VAT payer provides the SE number given by SKAT. If it is not registered, it is sufficient to provide the NIP.
• Polish companies that are not registered for VAT are still entitled to a tax refund on taxable Danish costs.
• In Denmark, service users are obliged to register as VAT payers and must pay VAT, even if they provide services to companies not registered for VAT.

Foreign companies wishing to sell goods and services to Danish companies do not have to charge VAT in Denmark. So, they need to enter the net value of the goods or services on the invoice, enter the CVR or SE-number and use a ready-made formula such as "Reversed charge". This formula means that the purchaser should charge and pay VAT on the service. Denmark has both government-imposed excise duties and those imposed on goods in accordance with European Union directives.

Danish excise duty (punktafgift) covers, among other things:

• electricity,
• alcohol,
• wines (including fruit wines),
• beer,
• chocolate,
• liquefied gas,
• tea,
• coffee,
• chewing tobacco, cigarettes, snuff and pipe tobacco,
• car tyres,
• natural gas,
• confectionery,
• cigars, cigarillos and Hawaiian cigars, as well as cigarette papers.

The Europe Agreement concluded on 16 December 1991 regulates trade between the EU and Poland. It created a free trade area for industrial goods in 1999. This means that preferential tariff rates of 0% apply to all EU countries. The rates do not apply to agricultural, processed agricultural and food products). To apply the preferential rate, EUR1 - certificates of origin of the products - must be presented to the customs officers. Customs duty is calculated on the customs value of the goods, i.e. on the invoice price, plus insurance and transport costs.

Differentiated excise duty rates include:

• tobacco products,
• disposable packaging,
• spirits,
• beer,
• wine,
• ice cream,
• coffee,
• tea,
• video cassettes,
• chocolate products,
• light bulbs,
• cars,
• fuels.

Denmark has established a double tax treaty, or tax agreement, with other countries, whereby a taxpayer can deduct taxes paid in the country of employment from those he or she must pay in the country of residence. Tax treaties aim to harmonize tax laws between two countries, with the goal of minimizing double taxation. One key strategy is to diminish or eliminate withholding taxes on income flowing between the countries. In some cases, income is taxed only once, so that the taxpayer will be exempt from tax in the country of residence. It is worth noting that one pays tax in the country where the rate is higher. Denmark has an income tax consisting of three thresholds (basic, middle and highest). In addition, individuals are required to pay taxes such as:

• a flat tax, paid to the municipality, of 32.6%
• a progressive tax paid to the state treasury. It applies to income from work and capital income:
  • 5.64% for income greater than DKK 42,000 plus income from capital
  • 15% for income greater than DKK 42,000 100 plus income from capital

Under the special expatriate tax regime, individuals working in Denmark as expatriates and scientists assigned to Denmark may have the option to request a fixed tax rate of 27% applied to their gross salary for a duration of up to 84 months.

The members of the Danish Ministry of Taxation has released a revised tax rate table covering the years 2018-2023. In 2023, the lowest and highest state personal income tax rates remain unchanged at 12.09% and 15.0%, respectively. The maximum tax rate ceiling, encompassing state, municipal, and certain additional taxes, is also sustained at 52.07%. Furthermore, the corporate tax rate is held steady at 22%. A significant alteration involves the elevation of the threshold for the top tax bracket, rising from DKK 552,500 in 2022 to DKK 568,900 in 2023. Regarding corporate tax, the principal adjustment pertains to an increase in the limit for offsetting carried-forward losses, ascending from DKK 8,872,500 in taxable income for 2022 to DKK 9,135,000 for 2023. Taxable income in excess of this amount is subject to a 60% offset limit.

A person who qualifies as a complete tax resident in Denmark will generally be subject to taxation based on the ordinary tax system, with rates reaching up to 52.07% (or 55.90%, including the AM tax, which is considered income tax for Double Taxation Treaty purposes) in the year 2023. They are obligated to pay tax on their worldwide income, unless they are recognized as tax residents in another country under a double taxation treaty (DTT). Several deductions apply, resulting in a lower effective tax rate in the majority of instances. Donations to certain approved charities, foundations, and institutions are tax deductible, up to DKK 16,600 a year, regardless if the contributions are to one charity or spread among several ones. In total, the marginal tax rate cannot exceed 52.07% in 2023. It's important to note that this rule does not encompass labor market tax, share tax, property value tax, and church tax.

The basis for the top tax for an individual is the individual income combined with positive net capital income. The top tax is calculated as 15% of the portion of the top tax base that exceeds DKK 568,900 (as of 2023), following an 8% deduction for labor market tax. A flat 8% tax, known as the "labour market contribution" (Danish: arbejdsmarkedsbidrag) or informally as "gross tax" (Danish: bruttoskat), is applied to all earnings from employment or self-employment before the income tax calculation. Income below DKK 50,543 (~US $8,300) (2021-level, adjusted annually) is exempt from income tax but remains subject to the gross tax.

All individuals employed in Denmark, that are fully tax liable in Denmark, and included in the Danish social security system are also required to contribute to the labor market supplementary pension (ATP). The employer is responsible for withholding and paying these contributions on behalf of employees lies with the employer. Social security contributions from Denmark and, in certain instances, contributions from foreign sources can be subtracted from individual income for tax purposes. The Danish social security system is financed mostly through ordinary tax revenue, with only minimal social security contributions from both employees and employers.

Denmark provides a unique expatriate tax scheme tailored for high-earning foreign professionals such as scientists, specialists, and researchers. Under this arrangement, the applicable tax rate is 27%, and when combined with labor market contributions, the total gross tax on their cash remuneration reaches 32.84%. This rate encompasses the taxable value of additional benefits such as a company car, company-paid telephone, and health care insurance.

Individuals earning income at the end of each year must submit a tax return. The deadline for filing a tax return is 1st July. In justified cases, it can be sought to be postponed. If individuals have no income or only income from earnings in Denmark, they are required to submit a tax return in a simplified form. Such a return must be submitted by 1st May at the latest. Married persons must settle their income tax separately. Arbejdmarkedsbidrag (AM-bidrag) - is the 8 per cent contribution to the Danish labour fund.

NemID - an electronic signature that allows you to confirm your identity online.

Tastselv - a code that allows you to log in to the Danish Tax Authority (SKAT). With it, you can submit your tax return electronically. Ordering the code is free of charge and can be done via the website: https://www.tastselv.skat.dk.

Personfradrag - is a personal tax allowance. Danish residents who have worked in Denmark for 12 months are entitled to this relief.

NemKonto - a bank account into which receivables from public institutions are paid, e.g. a payout, tax refund.

Skat til udbetaling - a phrase that can be found on a tax decision. It means the amount of tax refund.

Restkat til betaling - the second of the wordings that can be found on a tax decision from a public authority. In this case, it refers to the amount you have to pay extra to SKAT.

Skattestyrelsen - the Danish Tax Authority (SKAT).

Personnummer – or CPR number, assigned by the Tax Office. The CPR is needed for income tax and VAT.

Årsopgørelse - a document issued and sent out after 2 July by SKAT, which contains the tax decision (the amount of the refund or surcharge)

Oplysningsseddel - equivalent to a PIT-11, a document that summarizes the employee's earnings. Upon termination of employment, every Danish employer is obliged to issue such a document to its employee.

Selvangivelse - a tax return form that is issued by the Danish Tax Authority (SKAT) and then sent to the address provided by the taxpayer during registration.

Lonseddel - weekly or monthly payslips How do I establish my tax residence in Denmark?
According to Danish law, persons living in Denmark for more than six months as well as those who have decided to stay permanently are liable to tax. Income earned in the country and income earned outside the country is taxable.

Who is subject to limited tax liability?
Persons working in Denmark without a permanent residence in Denmark are subject to limited tax liability. In this case, only income earned in Denmark is taxed.

Is it compulsory to settle with the Danish tax authorities?
It is compulsory for all persons working in Denmark to settle accounts with the Danish tax authorities. If you do not settle your accounts, you may incur a fine of approximately DKK 5 000.

When is the deadline for filing my tax return in Denmark?
The deadline for filing the tax return is either 1 May or 1 July. Depending on what is written on the return from the office.

Who is entitled to a full refund of tax paid in Denmark?
You are entitled to a full tax refund if your annual income does not exceed DKK 42,900.

Feriepenge - what is it, and who is entitled to it?
Feriepenge is a holiday benefit to which persons legally employed in Denmark are entitled. A Danish employee is entitled to 2.08 days of holiday for each month worked, making a total of 5 weeks. The holiday period in Denmark runs from 1 May to 30 September. And it is during this period that a minimum of 3 weeks of accrued holiday must be taken. Importantly, you can apply for the benefit up to six months after you have finished working in Denmark. In that case, you must remember to register with the municipality before leaving the country. Feriepenge is paid into your NemKonto for up to three months for the previous tax year. It can only be used in the following holiday year.

What is ejendomsvoerdiskat?
Ejendomsvoerdiskat is a state property tax, otherwise known as the cadastral tax. In Denmark, this tax covers all properties - no matter where they are located. This means that all Danish residents must pay it. A Pole who is also a resident of Denmark and who owns property that is located in Poland is also obliged to pay this tax. The rate depends on the value of the property:

• 0.92% per year for real estate with a value of less than DKK 3.04 million,
• 3% per year for real estate with a value above DKK 3.04 million.

Who can be exempted from paying the cadastral tax?
Persons who may be exempt from paying cadastral tax are:

• persons in the process of moving out;
• persons who have moved out of the property before the sale;
• persons whose property has been damaged as a result of fortuitous events in such a way that it is unfit for further habitation;
• persons who own property outside Denmark and pay tax on it in that place may be exempted from paying this tax again in Denmark;
• if you rent out the property, you may be exempt from paying cadastral tax, but pay a higher tax - the rental tax - in its place.

What is ejendomsskat (Municipal Property Tax)?
It is a Danish tax on the value of land. It is calculated based on the value of undeveloped land. The tax must be paid to the local municipality twice a year. Each municipality sets the rate individually. All rates can be found at www.skm.dk.

What is the percentage of the holiday allowance when employees receive compensation during sickness?
For monthly-paid employees entitled to sickness compensation, holiday compensation is provided in lieu of a holiday allowance. In this scenario, the allowance is adjusted to 1% of the wages. The payment of this 1% holiday allowance occurs annually in May. It's noteworthy that, for monthly-paid employees, holiday allowance is disbursed twice a year, specifically in May and August.