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The Basics of Denmark's Tax System

October 06, 2021
Denmark is such a pleasant country that it's no wonder many people would want to live here. It has a stable economy, the people are nice, the place is beautiful—what's not to love? If you're able to, you'll want to relocate here as soon as possible. However, moving to Denmark means you'll have to take up new responsibilities. The most common of which is to pay taxes. Now, the Danish tax system is completely different from those in other countries. If you don't know even the basics of it, you can kiss your comfortable new life here goodbye. Fortunately, here's what you need to know about it.

The Basics of Denmark's Tax System


What Makes You Required to Pay Taxes in Denmark?

There are many factors that make a person required to pay taxes in Denmark. The most common is that they are legal residents of the country and are working under a Danish company. There's also the case of becoming a tax resident, wherein the person works and stays in Denmark for around 183 days (approximately six months) in a year. And even those who aren't legal residents and are not staying in the country but are earning income from Danish companies nonetheless are also required to pay proper income tax. This also includes those who profit off of properties in Denmark.


The Top and Bottom Income Tax

Relatively to the tax systems of France, Belgium, and other European countries, a taxpayer's income tax rate in Denmark will depend on how much he/she earns per year. However, the way they go about it is a lot more unique. The Danish tax system divides its income tax rates into two brackets: the bottom and top income tax rates. For those who earn less than DKK 544,800.00 a year (as of 2021), their income tax rate is at a fixed 12.11%. They belong to the bottom bracket. Meanwhile, those who earn more than DKK 544,800.00 a year will have a fixed income tax rate of 15%. They belong to the top bracket.

The Basics of Denmark's Tax System



The Different Local Taxes in Denmark

Denmark also imposes different local taxes on its residents. Firstly, there's the municipal tax which focuses on taxable income. Unlike personal income tax, however, the municipal tax rate is fixed depending on the municipality where the taxpayer is residing. Statistics Denmark listed down the current tax rates of the country's municipalities, the highest of which is Copenhagen at 34%. Secondly, there's also the job market tax, which is at a fixed 8% for all taxpayers in the country. And finally, there's the Church tax. Charged only to members of the Evangelical Lutheran Church, which is the country's dominant religion, the tax rate depends on the fixed rate set by the municipality.


Demark's Share Tax

There's also Denmark's share tax that many have to think about. Those who earn a shared income of around DKK 56,500.00 or less in a year (as of 2021) have to pay taxes at a fixed rate of 27%. For married couples, however, the benchmark is around DKK 113,000.00 per year. The tax rate for those who earn more than the aforementioned figures will be 42%. As it stands, Denmark remains one of few European countries wherein married couples have to pay taxes for their shared income.

The Basics of Denmark's Tax System
Source: Flickr.com/ Tony Webster


The Danish Welfare System

All in all, these taxes help keep a variety of systems in place in Denmark. Particularly, the Danish Welfare System. Thanks to the tax system, the government is able to provide countless benefits and assistance to all residents in the country. This, of course, includes a universal healthcare system, free education, easy access to information such as libraries and research centers, and assistance to the unemployed and the sick. It's because of such an effective welfare system that Denmark continues to draw in more and more people to relocate here. And the more new residents, the more taxpayers to help keep the system in check.


The Special Expatriate Scheme

Denmark's tax system also has a special scheme for expats living in the country. Called the 'Special Expatriate Scheme,' it allows foreign workers and researchers to pay a fixed income tax rate of 27% during their first 84 months (approximately seven years) in the country. However, in order to be eligible for this scheme, the foreign taxpayers have to meet certain conditions. One is that they have to guarantee a regular monthly salary even if they work part-time or as freelancers or consultants. Another is that they have to earn at least DKK 69,600.00 a year (as of 2021).


Denmark's Value-Added Tax

As of 2021, Denmark's Value-Added Tax (VAT) is at a fixed 25%. This accounts for all goods and services one can purchase in the country. More often than not, the prices of most items have already reduced the VAT once you purchase them in the store and the like. There are, however, a few services where the VAT doesn't apply. They include public transport, healthcare services, publishing newspapers, and monthly rent. There are also other types of goods that have lower or even zero VAT since they're necessities. These include essential goods such as medicine, foodstuffs, books, and the like.

The Basics of Denmark's Tax System


Learning about Denmark's tax system is essential if you plan to stay or even work here for a long period of time. It won't hurt knowing the basics even before you get to the European country yourself!




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