IT contracting in Denmark – Money and Tax

Profile by Matt Walters of Capital GES (Updated September 2016).

Introduction

Although traditionally a country based more on the agricultural industry, Denmark’s manufacturing and service industries have grown greatly in the last 50 years.  Although known to be quite expensive by the Danish, most foreign contractors will find Denmark relatively affordable.   

I. Registration

You do not need to register for tax in Denmark, but you must ensure you file your annual tax return on time each year. The tax year in Denmark is the calendar year, and tax returns must be filed in either May or July of the following year depending on your circumstances.  Citizens of all foreign countries must register with the appropriate Danish authorities after a certain period of employment.

II. Taxation in Denmark

The Danish tax year is the calendar year, and tax returns must be filed between May and July of the following year. Taxpayers are generally subject to a national income tax, a municipal tax and a health contribution. Expatriates can choose to have their salary income taxed at a flat rate of 26% under certain circumstances.

Danish tax allowances and credits:

i.   Expenses                 

Interest expenses are deductible under certain conditions.

ii.   Alimony                 

Alimony paid to a separated or divorced spouse and to children under the age of 18 years who do not live with the taxpayer is deductable from total taxable income.

iii.  Personal                 

A personal allowance of avg. DKK 42’900 (£5,100) may be claimed on national income tax and a separate personal allowance may also be claimed on municipal tax.

III. Social Security

Social security must be paid on your full salary in Denmark. As of 2011, you must contribute to the Danish social security system even if your employer is not based in Denmark.  Employees pay an average ATP (Labour market supplementary pension) contribution of DKK 1’080 per month.  As of 2011, the social security AM (labour market) contribution of 8% is treated as income tax.  

IV. Work permits

Citizens of all EU member states except Finland and Sweden may freely work in Denmark for up to 3 months, after which they must apply for a registration certificate with the Regional State Administration office.  Citizens of Finland, Iceland, Norway, and Sweden may freely enter Denmark to reside or work, but must register at the Citizen’s Service.  Citizens of all other countries, including Switzerland and Liechtenstein must apply for a residence permit.