Denmark’s Expat Tax Changes: How activpayroll Can Help You Transition

Changes to Denmark’s taxation system mean expat employees and their payroll departments should take note...

In November 2017, the Danish government voted to amend its Special Tax Scheme for expat workers within the country. Prior to the change, expats within Denmark taxed under the special scheme - also known as ‘the expat scheme’ - were eligible for a 26% tax rate for a period of 5 years. Under the amended rules (in effect since 1 January 2018), that period has been extended to 7 years.

Tax Details

The details of the amended tax regime are as follows:

  • The special flat tax rate period for expat employees has been extended from 5 years - to 7 years.
  • To finance this extended period, the scheme’s special tax rate has been increased from 26% to 27%.
  • Factoring in the Danish labour market contribution, the effective tax rate for expat employees under scheme has increased from 31.92% to 32.84%.
  • Expats currently taxed under the special regime may take advantage of the extension as long as their original 5 years have not expired by 1 January, 2018.

Average standard rates of taxation in Denmark are currently between 41%-56%, meaning the expat regime compares favourably for both employees currently part of the scheme, and those wishing to join it in the future. Eligibility criteria for the expat regime have not changed, and are laid out in the Danish Withholding Tax Act, Section 48E.

Payroll Transition

Beyond the obvious effect on individual taxpayers, the January changes also have implications for payroll departments - and for employers who are, from 1 January 2018, liable for individuals’ year-end statements in Denmark. For businesses with the resources to manage global employee populations, adjusting to the new regime may be a formality, but for smaller organisations, it may be necessary to seek the services of a payroll provider, familiar with Denmark’s tax landscape, to help with the transition. A third-party payroll provider offers both procedural expertise and efficiency - and can facilitate the following steps:

  • Expat survey: Payroll departments will need to identify and collect relevant information on any inbound expat assignments to Denmark.  
  • Analysis & evaluation: With sufficient information collected, the employee population must be analysed and evaluated by the payroll team. For tax purposes, decisions will need to be made about the duration of expat assignments in Denmark - and whether they should be extended.
  • Compliance awareness: Payroll departments must ensure that the implementation of Denmark’s new tax regime, with the existing payroll solution, does not negatively affect compliance requirements across territories.
  • Impact assessment: The payroll department must examine the effect of the new regime on the existing payroll infrastructure and any global solution already in place - and be able to report findings back to employers in detail.
  • Communication: As with any changes to an internal process, payroll departments must coordinate and communicate with other departments, particularly HR, in order to ensure the ongoing, successful implementation of changes for employees in Denmark, who are part of a global employee population.

Global Integration

Global payroll solutions are finely-tuned: while Denmark’s new regime for expats is being widely received as a net positive for employees, the intricacies of its effect on payroll should nonetheless be considered carefully. Secure the best outcome for your expat employees by ensuring your payroll system is prepared ahead of time for the challenges of the new tax landscape.

To ensure your expat employees adjust to Denmark’s tax regime, check out our dedicated Denmark insight guide