Paying 2017-2018 income tax in Denmark? Read this.
It’s important to understand your duties when it comes to taxes. Even though navigating an unfamiliar system can be tricky as an expat, it’s still your responsibility to do so.
This overview of the Danish income tax system is a great starting point. The Danish tax system is complex, so you might find you need to seek some professional advice, if you think you could owe tax on some or all of your income in Denmark.
What income is taxable in Denmark?
Tax in Danish is called skat. Skat in Danish also means treasure, or darling. This could explain why the name of the Danish tax agency - SKAT - is usually capitalised, to avoid confusion.
The tax system in Denmark is quite complicated, and could feel unfamiliar. Income earned from employment is taxed, as well as income from other sources such as interest paid on capital, and investments. If you own a property you might also be taxed based on the value of that. When you first arrive in Denmark, you have to register with the authorities, and will get a Skattekort - tax card - and a preliminary income assessment which is an estimate of the tax you’ll be required to pay. This can help you understand how the tax rules will apply in your specific situation.
If it’s your first time reporting your tax income in Denmark, or if your situation is unusual, getting professional advice is essential.
Who has to pay income tax in Denmark?
What income tax you’ll be required to pay in Denmark depends on your personal circumstances. To figure it out, you need to know your tax status. In basic terms, you’ll be classified as either:
- A resident taxpayer
- A non-resident taxpayer
Resident income tax
In Denmark, the tax year is the same as the calendar year - 1 January through to 31 December. If you live in Denmark at the point you’re dealing with your taxes, or if you lived there for more than half of the tax/calendar year - so 183 days or more - you’re a resident taxpayer and have to pay tax on any income you make anywhere in the world, to Danish authorities.
( Source 1, Source 2, 11 December 2017)
Non-resident income tax
If you lived in Denmark for under 6 months of the relevant tax/calendar year, you might be deemed to have limited tax liability because you’re non-resident. If you think this might be the case for you, you have to call SKAT directly to discuss your personal circumstances.
( Source 1, Source 2, 11 December 2017)
In what instances do Danish residents working abroad need to pay income tax?
The short answer is - it depends.
If you’re out of Denmark for more than 6 months of the calendar year, then you might qualify for limited liability tax status based on your residency. In this case, you’ll only pay tax in Denmark on income that you earn there. To qualify for this tax status you need to contact SKAT directly, as each case is treated individually.
What are the income tax rates in Denmark in 2017-2018?
Denmark has a fairly complex tax system, which doesn’t work quite in the same way as most other European countries. There are a large number of variables, such as your age and precisely where in Denmark you live, as well as the actual amount of income you declare.
The table below gives a rough indication of what you can expect, but as there are some other variants, such as the way income from other sources is treated, it’s important to get professional advice.
| Income range | Denmark income tax rate (%) 2017 |
|---|---|
| up to DKK 45,000 for people aged over 18up to DKK 33,800 for people aged under 18 | 8% labour market contribution |
| DKK 45,000 - DKK 479 600 for people aged over 18DKK 33,800 - DKK 479 600 for people aged under 18 | 8% labour market contributionMunicipal tax - around 25%Health contributions - 2%10.08% bottom bracket income taxChurch tax if relevant |
| Over DKK 479 600 | 8% labour market contributionMunicipal tax - around 25%Health contributions - 2%15% top bracket income taxChurch tax if relevant |
Firstly, you are charged a labour market contribution - arbejdsmarkedsbidrag - of 8% of your entire income before any deductions are removed. You are then able to deduct a personal allowance from whatever is left before calculating the rest of your tax burden.
You’re charged municipal tax, which is set by your local municipal council, on a flat rate system. This means that you’re charged the same percentage across all of your remaining income after the labour market contribution and personal allowance has been removed. This is an average of about 25%, but will vary by location.
You’re also charged 2% health contributions, social security contributions and a church tax if you’re a member of a relevant registered church. The church tax is set at 0.69%. By 2019, the health tax is expected to be phased out, as it is being absorbed into the bottom bracket income tax.
Your income is subject to further tax on a progressive system, with a charge of 10.08% on ‘bottom bracket income’ - that’s your first DKK 479 600 of earnings, and 15% on anything above DKK 479 600.
There’s a cap of 51.95% total tax, which means that no individual should be paying above this level, when all taxes are combined.
( Source 1, Source 2, 11 December 2017)
What are the tax exemptions in Denmark?
Tax is applied on taxable income only in Denmark. This sounds simple enough. However, if you have just read the introduction to the Danish system above, you’ll realise this is fairly complex stuff. Luckily SKAT gets most of the information they need from other sources, such as your employer, and are then able to calculate your tax based on the rules set out in their system.
Here are some of the exemptions, deductions and credits that you might need to know about.
Personal allowance
If you are over 18 years old, then you have a personal allowance of DKK 45,000. If you’re under 18, you get DKK 33,800 as a personal allowance. This is removed from your income before the tax is calculated. In some circumstances, you can pass your allowance to a spouse, for example, if only one person in a couple works.
Other deductible items
You can remove the costs of some things from your taxable income, depending on your circumstances. You might be able to deduct the following:
- Trade union and unemployment fund membership fees
- Certain pension scheme contributions
- Child support payments
- Interest payments on loans
- Expenses for transport if you travel more than 24 km to work
(Source, 11 December 2017)
What sort of double taxation agreements are there with Denmark?
It’s possible for someone to be liable to pay tax in 2 countries. That might be the case if you’re a cross-border commuter for example, or if you have to move for work, and live and work in different places across the course of a year.
If this is your situation, you don’t have to panic. Many countries have what is known as double taxation agreements, to make sure that people don’t actually need to pay double the amount of tax due. These help to ensure that you only pay tax once on your earnings.
Denmark has double taxation agreements with the following countries. Some agreements apply to certain sources of income only, so ensure you check the small print if it applies to you:
| Denmark double taxation agreements | |
|---|---|
| Argentina | Latvia |
| Australia | Lithuania |
| British Virgin Islands | Luxembourg |
| Bangladesh | Macedonia |
| Bermuda | Morocco |
| Brazil | Malaysia |
| Belgium | Mexico |
| Belarus | Malta |
| Bulgaria | Montenegro |
| Cayman Islands | Netherlands |
| Cyprus | New Zealand |
| Canada | Nordic countries |
| China | Norway |
| Croatia | Philippines |
| Chile | Pakistan |
| Egypt | Poland |
| Estonia | Portugal |
| Faroe Islands | România |
| Finland | Russia |
| France | South Africa |
| Guernsey | South Korea |
| Germany | Singapore |
| Greenland | Slovenia |
| Ghana | Slovakia |
| Georgia | Serbia |
| Greece | Spain |
| Hungary | Sri Lanka |
| Hong Kong | Sweden |
| Isle of Man | Switzerland |
| Israel | Taiwan |
| Indonesia | Tanzania |
| Ireland | Turkey |
| Iceland | Trinidad and Tobago |
| India | Tunisia |
| Italy | Thailand |
| Jamaica | Ukraine |
| Jersey | Uganda |
| Japan | UK |
| Jordan | USA |
| Kuwait | Venezuela |
| Kyrgyzstan | Vietnam |
| Lebanon | Zambia |
(Source, 11 December 2017)
How do I pay income tax in Denmark?
If you’re employed, your employer will withhold a certain amount from your salary, based on what they expect your taxes to be. In November of any year, you’ll receive a preliminary tax assessment for the coming year. The tax year in Denmark is the same as the calendar year, so 1 January to 31 December. If there are any issues - maybe your situation has changed, or you expect your income to be significantly different to the current year - then you have to change the details held, online at the SKAT portal.
You’ll need what’s known as a NemID, which you will get when you register with SKAT when you first arrive in Denmark. This is the login solution for all of your online dealings in Denmark - for paying your taxes and even doing some of your day to day banking.
In March, after the tax year finished, you’ll get a chance to double check that the amount that your employer withheld was correct. The final calculations are done, and if you have to pay more tax, then this becomes due. If you’re owed any money from SKAT because of an over payment, you’ll get it back, often with an interest payment.
(Source, 11 December 2017)
Paying income taxes online
If you find that you owe tax at the end of the year, you can pay this directly online. You might need to do so using a bank account held in a different country or currency, if you’re a foreigner living and working in Denmark. If this is the case, then you have to make sure you take into consideration any charges that will be added to the transfer you make to pay your taxes.
If you’re paying from a different currency to DKK, then you have to consider both the upfront charges, and the exchange rate. It’s worth being wary, because banks and money exchange services often don’t give customers the real, mid-market rate, which you’d find on Google. In fact, you might find that they mark up the rate by as much as 4-5%. They keep the difference, as their profit, which means that you pay more than you need to.
Instead of using a bank, you could get a better deal with Wise. Wise works differently than banks, which means you can get your money transferred quickly and safely, using the real exchange rate, and just a small, upfront fee.
Wise doesn't use the pricey SWIFT system for making bank transfers, but instead they use local transfer methods. This brings down the costs, so the service is cheaper to operate than traditional options. The savings are passed on to the customer - and everyone is happy, apart from the banks.
Depending on the situation, it might be possible to pay your taxes directly using a Wise transfer. Otherwise, if you haven’t opened a bank account in Denmark yet, you could transfer the payment to a friend or family member who already has one, to bring down the costs.
If you travel often, or live and work abroad as an expatriate, you could also benefit from the new Wise borderless multi-currency account. You can hold your money in any one of dozens of different currencies including Danish krone, all in the same account. It’s free to open, and once you’re up and running you can check your balance easily, and then switch between currencies whenever you need to. You get the real exchange rate every time, and there’s only a small transparent fee for changing your money from one currency to another.
Taxes are hard but they’re still your responsibility, no matter what your personal situation is. If you’re new to the Danish tax system, then it’s a good idea to get some professional advice, or invest some time to research your options and duties. Getting it wrong can be an expensive mistake.
Danish taxes are pretty high to start with, so you certainly don’t want to be hit by unfair fees added when you change your currency, too. Wise might be able to help you save money on cross-border transactions. If you find yourself needing to pay your taxes abroad, see if you can get a better deal from Wise.
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