On 9 June 2020, Denmark’s government passed legislation (L199) that relaxed a number of tax regulations for mobile employees working inside and outside the country. The legislation specifically affects the tax liability of employees who have been forced to stay in Denmark under current Covid-19-related lockdown rules.
Lockdown Effects on Tax Residents
For individuals considered tax residents of Denmark, a specific set of rules for tax exemption can be applied. Employees that have a home or accommodation in Denmark but who normally work outside the country, are exempt from Danish tax liability if they are not present in the country for longer than 42 days within a 6-month period.
However, current coronavirus restrictions have meant that many mobile employees who would not normally stay in their Danish accommodation for longer than that 42-day threshold, have now breached this threshold. In normal circumstances, these individuals would take on tax liability in Denmark. If their stay in Denmark exceeds 42 days within the period 19th March - 13th June, the stay within that period will not count towards the 42 days.
Tax Relief Measures
L199 makes provisions for mobile employees within Denmark by allowing them to opt into a limited tax liability regime specifically for wages and remuneration earned during their lockdown-imposed stay.
Employees are eligible for the limited tax liability if they have been resident in Denmark between 9 March 2020 and 30 June 2020. It’s worth noting that mobile employees should carefully examine their tax status: if they normally reside in a country with a double taxation treaty (DTT) with Denmark it is likely that they won’t be affected by this change in tax liability since their exemption threshold is set at a maximum of 183 days within a 12 month period.
Danish Employees on Secondment
Employees who normally work on secondment in other countries but who cannot return to those countries because lockdown measures are in place there, are also covered by L199 provisions. In this context, the tax relief period is applicable from 9th March 2020 until the point at which the country in which they work is reopened and they are able to return (although that date cannot be later than 30 June 2020).
Employees staying in Denmark as a result of a restriction on their secondment may work in Denmark during that period although any income they earn will be subject to Danish tax liability.
Foreign Researchers and Highly Paid Employees
Employees in Denmark working on the foreign researchers and highly paid tax scheme are also eligible for the L199 tax relief if they have had to remain inside or outside Denmark between 9 March 2020 to 30 June 2020.
Similarly, employees on the highly paid tax scheme who have had their salaries impacted by the coronavirus crisis will still be eligible for the scheme even if their salary does no longer meet the salary level. As an additional measure, employees who have lost their jobs as a result of the pandemic (and resulting lockdown restrictions) will receive an extension to the normal period for finding a new job under the terms of the scheme. The deadline for finding new employment is 1 August 2020 - under normal circumstances, from the point at which they left their roles, employees would only have 1 month to find new employment under the scheme.
Non-resident employees are eligible for the scheme even if they are working from home during the covid-19 crisis.
Update on the Øresund-agreement
During the covid-19 crisis, people of Denmark and Sweden have not been able to travel and work in either country. Given the specific circumstances of the region, Denmark and Sweden have entered into a specific agreement altering tax and social security of those employees. During the crisis, nothing should change for these employees in terms of their original position, meaning that if the individual was covered by Danish tax and social security, this should remain so. However, depending on the amount or number of days working from home, this could have a specific impact if the employee is not able to stay any time in Denmark within the 3 months period.
For more information on Denmark's labour laws, tax, and payroll landscape, browse activpayroll’s Denmark Global Insight Guide: find background on Denmark's global economic profile, major industrial sectors and common business practices.
To keep up with coronavirus support measures for employers and employees browse activpayroll’s news page.