Denmark payroll and tax overview.

Foregin Direct Investment in Denmark

The Danish Government welcomes inward investment, providing various incentives to foreign multinational countries. Denmark has an established infrastructure and provides political stability, making it an attractive country for business investment and expansion.

Registrations and Establishing an Entity

Registrations are required to conduct business in Denmark. All registrations are carried out by the Commercial Agency (Erhvervsstyrelsen).

Registration application forms can be completed and submitted online but must (normally) be signed on paper. The foreign company’s registration certificate is necessary for enclosure and the process takes approximately six to eight weeks. Upon approval, a Danish company certificate is issued with a Danish CVR number.

Historically, the registered entity would then be supplied with a Nem-ID, but this is being phased out. By Summer 2023, all Nem-ID will be made obsolete, and a Mit-ID must be used instead.

Mit-ID is a Digital Signature Employee Certificate and is used for identifying yourself as an employee/agent of a particular company or organization. An application is made by appointing a Mit-ID administrator for the company who can act on the company’s behalf regarding issuing and administrating other Mit-ID signatures. These signatures grant access to information from the Danish authorities including matters of outstanding tax and outstanding social security contributions.

A foreign entity providing services in Denmark is also required to register in the RUT registry, which is the Danish Government's official report of foreign service. Registration in the RUT register entails an obligation to pay AFU contributions.

Business Banking in Denmark

It is not mandatory to make employee salary payments and third-party authority payments from an in-country bank account. The largest banks in Denmark are Danske Bank, Nordea, Jyske Bank, Nykredit, and Sydbank.

Working Week in Denmark

The working week in Denmark is Monday to Friday and working hours for commercial and public offices are usually 37-40 hours per week. The working day is usually between seven and eight hours long, typically from 0800 or 0900 hours to 1600 or 1700 hours. Lunch breaks range from half an hour to one hour.

General Information

Full Name: Kingdom of Denmark

Population: 5.840 million (Eurostat, 2021)

Capital: Copenhagen

Primary Language: Danish

Major Religion: Christianity

Monetary Unit: Danish Krone

Main Exports: Machinery and equipment, foodstuffs and chemicals

GNI per Capita: US $62,180 (World Bank, 2020)

Internet Domain: .dk

International Dialling Code: +45

Denmark is normally recognized for its world record high tax level on salary income, although the actual average taxation never reaches that level. The system is based on a progressive scale, which reaches 52.07% on the last earned salary above DKK 568,900 (2023). There are a variety of deductions and tax levies that affect this calculation.

The income year (tax year) runs from 1 January to 31 December.

The Danish Tax Administration will issue an annual tax return, which the individual is obliged to review to verify that the reported information is correct. If an individual has any special circumstances (e.g., foreign income, foreign properties, etc.), the individual must submit an extended tax return.

Income Tax in Denmark

Employers withhold Danish taxes and labour market contributions (“AM-bidrag”) when paying salaries to employees. The deadlines for paying tax and labour market contributions are dependent on the size of the company paying the salary:

• For large companies (labour market contributions over DKK 250,000 and/or taxes over DKK 1,000,000), payment should be done by the last weekday of the month of account.
• For small and medium-sized companies (labour market contributions less than DKK 250,000 and/or taxes less than DKK 1,000,000), payment should be done by the middle of the month following the month of account.

Besides the standard progressive taxation, Denmark has several flat-rate taxation regimes designed and applied for special purposes.

Social Security in Denmark

Employees conducting work in Denmark are covered by social security in Denmark, provided that certain requirements are fulfilled.

Individuals conducting work in a foreign country must obtain an A1 certificate which confirms that an employee is covered by social security in one country when conducting work in another country. The employee must apply for this certificate online, but the employer can apply on the employee’s behalf.

Social security contributions are required for the following:

• Mandatory Pension Scheme (ATP)
• Employers' Education Contribution (AUB)
• Occupational Insurance for the Labour Market (AES)
• Barsel.dk (Maternity Fund)
• Financing contribution (FIB)
• Labour Market Fund for Expatriates (AFU)

These social security contributions are collected via Samlet Betaling. The Mandatory Pension Scheme (ATP) contribution depends on the actual hours worked. The Occupational Insurance (AES) contribution depends on the type of work and the related risks to the employee.

Reporting in Denmark

Payroll reports are submitted via the Tax Authorities’ online portal, “E-indkomst” (E-income), and can be submitted manually or via file upload. Each month a report must be made to “E-indkomst”, which in detail explains the current month’s tax information. Social security, holidays, and the amount of work are also reported through this system, which is then passed on to the respective authorities. There is no additional annual report since the annual information is submitted on the monthly reports.

New Employees in Denmark

When hiring a non-Danish employee, an employer shall inform the Danish Tax Administration by submitting a specific form or by online form.

There are no requirements for providing information regarding employees to the authorities when hiring a new employee provided the employee is already registered with the Danish tax authorities. If the employee is not registered with the Danish Tax Authorities, the authorities must be informed.

Leavers in Denmark

When an employee’s employment is terminated, there are generally not many requirements for the employer to comply with. The employer is required to pay any outstanding holiday accrual to the Holiday Fund (FerieKonto) when the employee ceases their employment (end of the notice period).