Denmark payroll and tax overview.

Denmark is situated at the southern edge of Scandinavia, with Norway and Sweden across the Skagerrak strait to the north, and Germany sharing its land border to the south. One of the wealthiest countries in the world, Denmark has benefited from a historic abundance of natural resources which helped to develop strong agriculture, fishing, and mining industries. While those remain economically important to Denmark, emergent sectors include iron, steel, construction, manufacturing, and food processing. Denmark’s technology sector is also increasingly significant with commercial science and research efforts contributing to the shipbuilding, pharmaceutical, telecom, and energy industries. With a GDP of around $350 billion, a growth rate of around 2.8%, and one of the most liberal business environments in the world, Denmark is a popular international business destination. As an EU member state, Danish exports span the globe and its major trading partners include Germany, Sweden, the UK and the US. Denmark is a member of NATO, the Nordic Council, the OECD, OSCE, and the UN, and in 2019 it was ranked 4 on the World Bank’s Ease of Doing Business Survey.

Why Invest in Denmark?

International businesses may find plenty of reasons to invest in Denmark, including:

• Economic advantage: Denmark was ranked 4th in the World Bank’s Ease of Doing Business Survey 2019 - and 1st for Trading Across Borders. Its business set-up process is one of the easiest in Europe, and can be completed in a matter of hours, at a relatively low cost. Denmark’s government is committed to reducing barriers to trade and increasing market access for foreign investment.
• Talented workforce: The Danish labour market is one of the most qualified in the world - and businesses in Denmark can choose employees from a talented pool. Around 96% of Danish people complete secondary education, while 47% complete university or similar programmes. In addition to their native tongue, 86% of Danes also speak English.
• Strategic location: At the heart of Europe, and sharing a border with Germany, Denmark represents an international hub from which its businesses can reach markets across Europe and the world - by sea, land or air. Copenhagen airport is ranked as the most efficient in Europe, handling over 380,000 tons of cargo per year, and connecting to over 160 destinations.
• Investment opportunities: Major investment targets in Denmark include agriculture (including cattle, pigs and poultry) and natural resources such as oil and gas. Beyond those traditional areas, exciting emergent sectors that are attracting attention include renewable energy, life sciences, communication technology and electronics.
• Business incentives: Denmark offers a favourable operating environment, including the lowest corporate tax rates in Scandinavia, and low employee social security contribution rates. Its rules and regulations are transparent and robust, offering businesses a stable environment in which to build.

Registering a Company and Establishing an Entity in Denmark

Registrations are required in order to conduct business in Denmark. All registrations are carried out by the Commercial Agency (Erhvervsstyrelsen). The nature of registrations depends on the type of business and establishment intended.

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

The majority of authority communication and interaction is performed via various interactive websites. As such, the registered entity will be supplied with a Nem-ID and NemKonto, which is a universal key to access the websites and a bank account for which all authority payouts are directed to (VAT, tax, reimbursements, social security etc.).

A foreign entity providing services in Denmark is also required to register in the RUT registry, which is a separate process.

Business Banking in Denmark

It is not mandatory to make employee salary payments and third-party authority payments from an in-country bank account.

Generally, banks are open to the public from 10:00 to 1500/1600 hours. Banks are open until 1700 on Thursdays, but are closed on Saturdays, Sundays and public holidays. The largest banks in Denmark are: Danske Bank, Nordea, Jyske Bank, Nykredit and Sydbank.

Working Days and Working Hours in Denmark

The working week in Denmark is Monday to Friday. The 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.

Basic Facts about Denmark

Denmark lies south of Sweden and Norway and shares its southern land border with Germany. The country consists of the larger Jutland peninsula and an archipelago of over 400 islands - along with two constituent countries: the Faroe Islands and Greenland, lying to the west, in the North Atlantic Ocean. Historically a seafaring nation, Denmark first unified in the 10th century and went through centuries of territorial growth and secession - before becoming a constitutional monarchy in 1849. Today Denmark has grown to become a successful and wealthy nation, with one of the highest per capita income levels in the world. Denmark’s northern European location give it a temperate climate, but its proximity to the sea means its weather is changeable. The country is home to varied geographic regions, with flat grassland, forest and mountain regions and a healthy variety of flora and fauna.

General Information

Full Name: Kingdom of Denmark

Population: 5.831 million (World Bank, 2020)

Capital: Copenhagen

Primary Language: Danish

Major Religion: Christianity

Monetary Unit: 1 krone = 100 ore

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 ultimately reaches 56.5% on the last earned salary above DKK 544,800 (2021). There are a variety of deductions and tax levies which affect this calculation.

Tax Return

As of income year 2018, the Danish tax return regime was altered significantly. The obligation for individuals to submit a tax return has been changed to an obligation to verify an information scheme (“Oplysningsskema”) and the individual is no longer liable for incorrect information in the scheme, nor is the individual able to alter the information. Instead this obligation will fall to third party providers (e.g. employers, pension providers, etc.) reporting the information.

Based on the reported information, the Danish Tax Administration will issue an annual tax return, which the individual is obliged to review in order to verify that the reported information is correct.

If, however, the individual has any special circumstances (e.g. foreign income, foreign properties etc.), the individual will be obliged to submit an extended tax return, as such income is not reported by any third party and the income must be filed by the employee as a consequence.

The Income Year

As a general rule, the income year (tax year) runs from 1 January to 31 December.

Registration

When companies are operating in Denmark and/or delivering goods or services in Denmark without being present, the company is obliged to register as a company in Denmark and thus receive a CVR-number. This is done by submitting a registration form, which can be found online. As a part of the registration process, the company/entity must state if they are an employer and if salary will be paid to the employees, as employers shall withhold tax when paying salary to an employee.

When a CVR-number is obtained, a separate code or Nem-ID to access the tax authorities system is required and must be obtained separately. The access is vital to comply for reports and withholding.

Nem-ID is a Digital Signature Employee Certificate. The Nem-ID is used for identifying yourself as an employee/agent of a particular company or organization. An application is made by appointing a Nem-ID administrator for the company. The administrator is able to act on the company’s behalf with regard to issuing and administrating other Nem-ID signatures. The signatures grant access to information from the Danish authorities, such as outstanding tax, outstanding social security contributions etc. The administrator can issue three free signatures. It is possible to add additional services for a fee.

Additionally, all companies/entities are entitled to gain access to a Digital Mailbox (“Digital Postkasse”) through which all correspondence from the Danish authorities is received.

Furthermore, there is an obligation to register Foreign Service providers working in Denmark in the RUT register, for both foreign employees and companies. The RUT register is the Danish Government’s official report of a foreign service. The reason to why any foreign service providers must be registered in the RUT register is so that the Danish Authorities can ensure that foreign companies are covered by the same health, safety and tax conditions in Denmark as a Danish company is. Please note in this regard, that registration in the RUT register entails an obligation to pay AFU contribution.

Further information can be found on the following governmental webpages:

• Social Security (for employers)
• Social Security (for employees)
• Registration
• Income Tax
• Digital Mailbox
• RUT

Income Tax in Denmark

Withholding and Calculation of Income Tax

An employer, who has legal jurisdiction in Denmark, shall withhold Danish taxes and labour market contribution (“AM-bidrag”) when paying salary to an employee. The same goes for employers, who do not have legal jurisdiction in Denmark, but are present in Denmark through a permanent establishment or if the salary is paid by a legal representative, who has legal jurisdiction in Denmark.

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.

The penalty for late payment (2020 / 2021) is 0.7% per month of the tax due.

Payment of taxes is made possible on the basis of a monthly online report on withholding through the E-Income-System (Skattestyrelsen). Reports must be uploaded the last day of the month with the penalty for late reports being DKK 800. Months with no withholding must be reported actively with a “zero-report” Third party service providers (payroll service providers) must be licensed by the Danish Tax Authorities in order to file withheld tax on behalf of their clients.

Social Security in Denmark

When dealing with situations within the European Union, EEA and Switzerland, Regulation 2004/883 is applicable. Pursuant to that, an individual is covered by social security in the country in which he works. If, however, he is working in two countries or more, he is covered by the jurisdiction in the country in which he lives, provided that more than 25% of the work is carried out there. Otherwise, he will be covered by the jurisdiction in the country in which the employer has its registered office. If an individual is stationed abroad, he will be covered by social security in the country in which he normally works, provided that the secondment is no longer than 24 months and that he is not replacing another secondment.

If, however, the situation is not covered by the above-mentioned regulation, the Danish law on ATP will apply. According to the law, employees carrying out work in Denmark, are covered by social security in Denmark, provided that certain requirements are fulfilled.

Whenever an individual is carrying out work in a foreign country, he is obliged to obtain an A1 certificate. The A1 certificate is a documentation, confirming that an employee is covered by social security in one country when carrying out work in another country. As a rule, it is the employee who has the obligation to apply for the A1 certificate, but the employer is able to apply on behalf of the employee. When an employee is seconded, both the employee and the employer are obliged to apply for the A1 certificate. It is, however, enough if one of them is applying.

The certificate application form is online and requires certain information about the employee and the employment.

Payments for Social Security are required to be paid on a quarterly basis. The payment deadline varies depending on the type of social security. The penalty for late payments is 1.5% per month.

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. It is recommended that the employer is assisting the employee with considering the Danish tax and social security liabilities, as the obligations of the employer is adjusted and affected by these.

A company must be registered as an employer in order to comply with the requirements for reporting/withholding.

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 (unless employees are covered by the hiring out of labour regime or the hydrocarbon tax regime). If the employee is not registered with the Danish Tax Authorities, the authorities must be informed.

Expat new employees are required to provide the following documentation:

• Work Visa
• Copy of Passport (or other ID card)
• Copy of Marriage Certificate
• Local Bank Account Details
• File Preliminary Tax Assessment

Additional documentation may be requested by the tax authorities.

Pension Schemes (Tax Relevant) in Denmark

Deductions for Pension Contribution

There are two different Danish pension schemes: - deductible arrangements and net-of-tax arrangements. Many Danish employees are set up with a mandatory pension arrangement, where the employer has an obligation to contribute to the arrangement on a monthly basis. The employee can also have private arrangements as well. The tax treatment of the pensions depends on the sort of saving and setup – see below for further elaboration.

Personal Pension Payable in Installments (Ratepension)

This pension scheme is paid out in installments over a period of at least 10 years. The pay outs to the individual commence at the earliest when the individual reaches 62 years of age. Contributions to this pension scheme are deductible and exempted from tax (Employer Contributions) at the point of contribution. The limit for annual contributions made to this scheme is DKK 55,900 (2019). Contributions exceeding this limit are taxable and non-deductible.

Annuity Pension (Livsvarig Livrente)

This scheme ensures payouts throughout the entire lifespan of the contributor. Employer Contributions are deducted in the full payment of salary before tax is calculated. Pension payments made within the same year not exceeding DKK 51,500 (2019) within one year are fully deductible. If this pension scheme is employer administrated there is no ceiling/limitation on deductible contributions.

Leavers in Denmark

When an employee’s employment is terminated, there are generally not many requirements for the employer to comply with. However, the employee will most likely be entitled to a payment due to his holiday accruals. The employer is generally required to pay any outstanding holiday accrual to the Holiday Fund (FerieKonto), when the employee finally ceases their employment (end of notice period).

Danish payrolls run on a monthly basis. Each month the employer is required to obtain the recent tax information from the tax card of the employees. A tax card is a digital document, stating the tax rate and deductions of an employee, based on their registration and issued by the Danish Tax Administration. Furthermore, the monthly payroll information must be uploaded to the Danish Tax Authorities site in order to pay withheld taxes and report the current month’s details.

The Danish Tax Administration is the main entry point for several reports, which they communicate to the applicable authorities (social security, etc.). Pension reports are dealt with using a separate process.

A payslip must be issued for each month of payroll, which describes the month’s salary in detail.

Payroll reports must be kept for at least five years.

Digital Mailbox

Correspondence with a Danish authority takes place through an online Digital Mailbox (“Digital Postkasse”). All companies/entities registered with a Danish CVR-number are obligated to gain access to the Digital Mailbox. This is done by obtaining a Nem-ID (see above for further elaboration).

All expenses relating to social security are invoiced through the Digital Mailbox.