Contractors’ Questions: Is the Expat Tax Scheme best for a contract in Denmark?

Contractor’s Question: I've been offered a contract in Copenhagen, Denmark and wondered whether executing it under the Expat Tax Scheme would be better than putting payment for it through my UK 'Ltd' company?

Expert’s Answer: Given the fact Denmark requires registration for tax purposes from the 1st day of service for contractors working in Denmark, the use of a UK limited company is highly unlikely to be a compliant model without a branch of the ‘Ltd’ being registered in Denmark. Such a registration process is, in itself, a long and complex procedure and likely to return a similar level of revenue as if the candidate fulfils the ETS criteria, and thus renders the company option redundant. Add to this the uncertainties around Brexit and the difficulty in securing an A1 from the UK related to Denmark, and the complications deepen.

Notification of arrival in Denmark must be made at the local municipality within five days of securing a fixed place of residence as part of the CPR number (Civil Personal Registration (CPR) application. 

A CPR number is a requirement for registration under a Danish payroll and also therefore the local employer will use the contractor’s CPR number to apply for Expatriate Tax Scheme (ETS), also referred to as “Article 48E” status from the Danish tax office (SKATT).

To obtain a CPR on the basis of residence, the UK contractor must meet the following criteria:

1. The stay in Denmark must last more than three months

2. A residence or a fixed place of abode in Denmark

3. The contractor is legally entitled to stay in the country

ETS or ‘Article 48E’

ETS allows highly skilled expat workers an alternative to normal Danish progressive income tax (circa. 55%), and is based on a flat rate income tax of 32.84%.

In order to qualify for the ETS-package, the contractor must meet the following requirements:

• Not have paid normal income tax in Denmark within the last 10 years
• Have an average monthly salary of minimum €8,775
• Have an employment contract in Denmark
• The contract must not run longer than seven years

Lastly, congratulations on both the contract and the fact that it’s in Denmark. The country offers strong retentions under payroll conditions due to low Employer’s Social Security contributions compared with the rest of the EU, and its neighbouring countries such as Sweden where Employer Social charges are in excess of 31%! Happy contracting!

The expert was Jon Clarke, commercial compliance director of overseas contracting advisory 6CATS International.