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Payroll & Tax in Denmark

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Denmark payroll & taxation

Denmark does not impose a complicated or onerous tax system on foreign companies operating in the country. The primary concerns for a foreign company that needs to comply with tax laws in Denmark are: Individual income tax (IIT) for employees in Denmark, social security costs, payroll tax, VAT, withholding tax, business tax and permanent establishment concerns.

 

Your Payroll Options in Denmark

Remote Payroll

A remote payroll in Denmark is where a foreign company, i.e. a non-resident company, payrolls a resident employee in Denmark. This applies to both local and foreign employees. One option for a non-resident company to payroll its employees (local and foreign) in Denmark is to use a fully outsourced service like a GEO or PEO which will employ and payroll the staff on their behalf.

Local Payroll Administration

In some cases, a company will register their business in Denmark under one of the forms available but prefer to have another company administer its payroll. This can be accomplished through a payroll provider. It is important to note that the company, as the Employer of Record, is still fully responsible for compliance with employment, immigration, tax and payroll regulations. But the payroll calculations, payments and filings can all be outsourced to the payroll provider.

Internal Payroll

Larger companies with a commitment to Denmark may wish to run their own local payroll for all employees, foreign and local. In order to accomplish this, they will have to complete the incorporation, register the business and then hire the necessary staff. There will be a need for in country human resources personnel who have the background needed to manage a Danish payroll and can fulfil all tax, withholding tax and payroll requirements.

This approach carries significant cost and requires some knowledge of local employment and payroll regulations. The company will need a local accounting firm and potentially legal counsel to ensure full compliance with Denmark employment laws.

Fully Outsourced Payroll & Employment

Companies can outsource the employment and payroll of their staff in Denmark to a GEO, like Shield GEO. This is possible for both foreign workers and Denmark nationals. This is the easiest, fastest and safest way to payroll staff in Denmark.

Shield GEO manages all aspects of payroll for workers in Denmark, including taxes, withholding, social security payments and other statutory requirements. Shield GEO becomes the Employer of Record and employs the staff on behalf of the client.

Staff are paid monthly with tax and social security deducted at source and paid to local authorities. Shield GEO will invoice the client monthly in advance of the payroll date. The invoice consists of the Total Cost of Employment (Base salary + Employers Statutory Contributions + Additional statutory contributions) and a Management Fee. Shield GEO provides the employees with payslips.

Read more about outsourced payroll and employment through Shield GEO.

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Setting up payroll in Denmark

Information Explanation
Currency ?

Danish Krone (DKK)

Employee Information Required ?
When a new employee is introduced to a company the business will need a range of the employee’s personal information in order to set up processes such up their salary with online banking. The details required by the employer include the following:
  • Personal Tax Number
  • Full Name
  • Address
  • Telephone number
  • Any pension details
  • Bank Details
Tax Registration Requirements ?
Any individuals who are registered as official residents of Denmark, and would like to carry out work will be required to apply for a Tax Card from SKAT. In order to apply for the card the individual must complete form 04.063.
 
When the application for the Tax Card has been processed, the individual will receive the card in the post with their preliminary income assessment and Danish Individual personal tax number.
Social Security Registration ?
In Denmark, social security is funded by both taxes and social security contributions. Social security contributions currently stand at 8% of an individuals income. In order to be able too receive social security benefits and and use the healthcare system, all individuals who are planning to stay in Denmark for more then three months must apply for a CPR Number from the Civil Registration office. Having a CPR number is a legal requirement in Denmark.
 
Many of the benefits offered by the Danish Welfare system (Social Security) include, health insurance, child allowance, maternity benefit, holiday pay, disability benefit and sickness benefit.
Documentation Required for New Employees ?
When a business hires a new employee, they have a duty to provide the employee with all the details about the job and what their duties will include. The majority of the information required will be outlined in the employees employment contract.. If the employee is beginning a job in a specialized area then they may be required to attend courses relating to their job role, in order to gain certificates proving that they have the correct skills for the job.
Corporate Income Tax Rate

The current corporate tax rate in Denmark is 23.5%, which will be reduced to 22% in 2016.

Payroll Tax

There is generally no payroll tax in Denmark apart from companies carrying out specific VAT exempted activities.

Sales Tax

Denmark imposes a Value Added Tax (VAT) on all taxable supplies of goods and services made by a taxable person. The current VAT registration threshold is DKK 50,000 annually.

The current VAT rate is 25%.

Withholding Tax

Denmark imposes withholding tax (WHT) on certain classes of income paid to non-residents:

  • Dividends: 27%
  • Royalties: 22% for payments made after on or after 1 March 2015, 25% if not
  • Interest: 22% for payments made after on or after 1 March 2015, 25% if not
 A reduced rate may be available under an applicable Double Tax Treaty.

 

 

Other Tax
  • Inheritance tax – Inheritance tax is levied at a rate of 15% is levied on the total value of estates exceeding DKK268,900. Non-residents are subject to inheritance tax only if the estate includes property situated in Denmark or if a Danish probate court administers the estate.
  • Gift tax – Non-residents are only subject to gift tax if the donor or donee is a Danish resident or if the gift is Danish real estate. Between close family members there is no tax on gifts up to 60,700 DKK. Gifts exceeding this amount are taxed by 15% or 36.25%. Gift tax on gifts between spouses does not apply. For individuals falling outside the category, e.g. siblings and non-family, gifts may be considered ordinary taxable income and taxed by rates up to 51.95%.
  • Property tax – Levied on 1% of the publicly assessed value for Danish properties up to 3,040,000 DKK (408,000 EUR) and 3% of the exceeding amount. Gains from the sale of property are also taxable (unless it is primarily used for residence).

Individuals and corporations are required to file tax returns annually before 1 May of the following year. The tax year in Denmark follows the calendar year. Individuals must inform the tax authorities annually of their expected income and deductions for the year in November (preliminary tax assessment). The preliminary tax assessment includes a tax card, which the employer uses for withholding taxes. Individuals receive a tax card for the coming tax year along with their preliminary income assessment. If no tax card is available, the employer has an obligation to withhold tax at a rate of 55%, in addition to the 8% labour market tax.

Preliminary taxes will be included in the annual tax assessment and this will result in either a tax refund, tax payable or equal balance 

Tax Figures

Information Explanation
Corporate Income Tax ?

The current corporate tax rate in Denmark is 23.5%, which will be reduced to 22% in 2016.

Income Tax Rate ?
Grossed income Tax Rate (%)
First 49,900 0
Next 438,200 40
Over 488,100 56

The rates above are based on average municipality rates and do not reflect the voluntary church tax.

 

 
Payroll Tax ?

There is generally no payroll tax in Denmark apart from companies carrying out specific VAT exempted activities.

Sales Tax ?

Denmark imposes a Value Added Tax (VAT) on all taxable supplies of goods and services made by a taxable person. The current VAT registration threshold is DKK 50,000 annually.

The current VAT rate is 25%.

Withholding Tax ?

Denmark imposes withholding tax (WHT) on certain classes of income paid to non-residents:

  • Dividends: 27%
  • Royalties: 22% for payments made after on or after 1 March 2015, 25% if not
  • Interest: 22% for payments made after on or after 1 March 2015, 25% if not
 A reduced rate may be available under an applicable Double Tax Treaty.

 

 

Income Tax (Personal Allowance) ?
In Denmark residents are required to pay a number of taxes, these taxes include state taxes, municipal tax, health tax, social security tax and church tax. Social security tax is paid at a rate of 8%, this is deducted as a Gross Tax from all persons salaries, before any other of their taxes are calculated.
Employee Social Security (EE SS)

The employee pays 90 DKK. Please refer to the section on Employment ‘Pensions and Benefits’ for a detailed explanation.

Employer Social Security (ER SS)

The employer pays 180 DKK and must also pay small amounts for compulsory work-related insurances and other specific items. Please refer to the section on Employment ‘Pensions and Benefits’ for a detailed explanation.

Payments

Information Explanation
Payment Mode ?
A large majority of employers, across the world choose to pay their employees using a system of electronic payments; this is a fast and efficient form of making payments to a large amount on people at one time. Electronic payments also ensure that the employees receive their owed money on the date they expect, instead of having to wait for it to be processed, such as cheque would. Other ways of making payments of employee wages are with either cash or a cheque. However these processing can be slow and difficult to correct of there is and issue.
Frequency of Salary Payment ?
As in many countries such as Denmark, most businesses choose to pay their employees at the same time, each month of the year. Employees will usually be paid a month in arrears, and this will normally either be at the end of the month or the first few days of the following month. There are many more different frequencies in which an employer may choose to pay their employees, these include:
  • Daily
  • Weekly
  • Bi-Weekly
Invoice / Payslips required ?

In Denmark pay slips are required.

Minimum Wage ?
There are no rules in Denmark for minimum wage.

Employee Entitlements

Information Explanation
Working on Sundays ?
In Denmark there are no rules on working. Individuals can work when they choose, just as long as they have at least 1 day of rest in a 7 day period. If an individual carries out any work on a public holiday then they are entitled to receive a pay bonus of 100% of their average salary.
Time Off Work ?
Vacation is accrued in the calendar year and is to be taken between May 1 and April 30 of the following year. Employees are obligated to take at least 4 weeks of vacation each year, even if the employee has not accrued enough. In that case the employee will be deducted in gross salary with 4,8% per holiday.
This also means that the employee only in agreement with the employer can transfer 1 week to the following holiday year.
Medical Leave ?
The employer is obligated to pay sick-pay to the employee if the following is met:
1 .  the employee has been employed for at least 8 weeks prior
2 . and has worked for at least 74 hours.
The employer should report it to the authorities within 4 weeks after first sick day. (From week 5 the employer will get a refund from the authorities).
However, it may be stipulated by written agreement in the individual employment relation-ship that the salaried employee may be dismissed with one month’s notice for expiry of the employment relationship at the end of a month, if the employee has received his salary during periods of illness for a total period of 120 days during any period of twelve consecutive months.
After 14 days of illness, the employer can request further information as to the duration of the employee’s illness. Right to request flexible working- In Denmark flexible working was first brought into the workplace in 1998. Flexible working allows employees that, for some reason such as illness, feel that they are no longer able to work as many hours and yet wish to continue in there role, with the same pay. They may also choose to get a new job role what comes with a shorter amount of hours. The government of Denmark only grants flexible working to those individuals that are not already receiving any form of state benefits.
Maternity, Paternity and Parental Leave ?
A woman has the right to four weeks of pregnancy leave before the expected date of birth and 14 weeks of maternity leave after the birth of her child, of which the first two weeks are obligatory.
 
A father has the right to take off up to two weeks of paternity leave, which must be taken within the first 14 weeks after the birth or the date on which the child moves into the parents’ home.
 
After the first 14 weeks both the mother and the father have the right to up to a total of 32 weeks of parental leave. It is a condition, however, that both parents are working in Denmark.
 
The parental leave scheme is very flexible. It may be prolonged to 46 weeks, and it may be divided up so that part of the leave can be postponed.
Working on Sundays ?

In Denmark there are no rules on working. Individuals can work when they choose, just as long as they have at least 1 day of rest in a 7 day period. If an individual carries out any work on a public holiday then they are entitled to receive a pay bonus of 100% of their average salary.

Time Off Work ?
Vacation is accrued in the calendar year and is to be taken between May 1 and April 30 of the following year. Employees are obligated to take at least 4 weeks of vacation each year, even if the employee has not accrued enough. In that case the employee will be deducted in gross salary with 4,8% per holiday.
 
This also means that the employee only in agreement with the employer can transfer 1 week to the following holiday year. TEST
Medical Leave ?
The employer is obligated to pay sick-pay to the employee if the following is met:
1 .  the employee has been employed for at least 8 weeks prior
2 . and has worked for at least 74 hours.
The employer should report it to the authorities within 4 weeks after first sick day. (From week 5 the employer will get a refund from the authorities).
 
However, it may be stipulated by written agreement in the individual employment relation-ship that the salaried employee may be dismissed with one month’s notice for expiry of the employment relationship at the end of a month, if the employee has received his salary during periods of illness for a total period of 120 days during any period of twelve consecutive months.
 
After 14 days of illness, the employer can request further information as to the duration of the employee’s illness. Right to request flexible working- In Denmark flexible working was first brought into the workplace in 1998. Flexible working allows employees that, for some reason such as illness, feel that they are no longer able to work as many hours and yet wish to continue in there role, with the same pay. They may also choose to get a new job role what comes with a shorter amount of hours. The government of Denmark only grants flexible working to those individuals that are not already receiving any form of state benefits.
Maternity, Paternity and Parental Leave ?
A woman has the right to four weeks of pregnancy leave before the expected date of birth and 14 weeks of maternity leave after the birth of her child, of which the first two weeks are obligatory.
 
A father has the right to take off up to two weeks of paternity leave, which must be taken within the first 14 weeks after the birth or the date on which the child moves into the parents’ home.
 
After the first 14 weeks both the mother and the father have the right to up to a total of 32 weeks of parental leave. It is a condition, however, that both parents are working in Denmark.
 
The parental leave scheme is very flexible. It may be prolonged to 46 weeks, and it may be divided up so that part of the leave can be postponed.

Employment Termination

Information Explanation
Termination of Employment ?
Termination of the employment contract on the part of the employer may take place with at least:
• One month’s notice, for expiry at the end of the month, during the first six months’ employment,
• Three months’ notice, for expiry at the end of a month, after six months’ employment.
Termination on the part of the salaried employee shall be subject to one month’s notice to the end of a month
Pensions ?
Pension is an individual written agreement between the employer and the employee. Normally in Denmark the
employer pay 10% and the employee pay 5%.
Termination of employment ?
Termination of the employment contract on the part of the employer may take place with at least:
• One month’s notice, for expiry at the end of the month, during the first six months’ employment,
• Three months’ notice, for expiry at the end of a month, after six months’ employment.
 
Termination on the part of the salaried employee shall be subject to one month’s notice to the end of a month
Pensions ?
Pension is an individual written agreement between the employer and the employee. Normally in Denmark the
employer pay 10% and the employee pay 5%.

Denmark

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