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Individuals in Denmark are subject to a number of taxes, including the national income tax, local income tax, church tax, real estate tax, inheritance tax and social security contributions.

An individual is considered a resident of Denmark if he/she has an abode in Denmark or if he/she stays in Denmark for more than six months. Resident taxpayers are taxable on worldwide income and gains. Nonresidents are taxed on Danish-source income.

Taxable income and rates
While Denmark's corporate tax rates are modest in international terms, the personal tax burden remains high when all forms of taxation are taken into account. Danish residents must pay tax on both earned and unearned income, including income from employment, benefits in kind, business, pensions, investments and capital gains. A special scheme for expatriates applies for their first three years in Denmark. Rates of national tax are low, but rates of local taxation are high.

Income tax and statutory contributions are normally deducted at source by the employer so that a wage earner with no unearned income is relieved of filing obligations.

The Danish individual tax system is progressive, and the tax payment is divided into the payment of county, municipal, church and national income taxes.

The county municipal and church income tax is calculated based on taxable income, with tax levied only on the part of taxable income that exceeds the personal tax relief allowance (DKK 42,900 for 2009). Each county and municipality determines its own tax rate. County tax was abolished in 2007 (although the tax burden will remain much the same because taxpayers pay a new 8% levy on their income to meet health care costs).

The average municipal tax rate is 24.8%. The average church tax rate is 0.88%.

National income tax is imposed at a rate of 5.04% on income from DKK 42,900 to DKK 347,200; and 21% on income above these thresholds.

Determination of taxable income
The principal deductions from individual income are the labour market contribution (8%), trade union dues and contributions to private pension schemes. Other deductions include the cost of commuting to work, the 8% health care levy and an employment tax credit of 2.5% of earned income up to a ceiling of DKK 13,600 in 2009.

There are no special deductions for children in calculating taxable income, but state payments for children (which are paid for children up to the age of 17) are tax-free. These payments range from DKK 10,232 to DKK 16,428 per year depending on the age of the child, with the highest amount paid for the youngest age group.

Dividends, interest and certain capital gains are taxed at 28% up to DKK 48,300; from DKK 48,300-DKK 106,100, the rate is 43%; and above DKK 106,100, the rate is 45%.

Special expatriate tax regime
Certain expatriate employees may be eligible for a 25% income tax rate for the first three years of employment. To qualify for the special regime, the individual must be a researcher or key personnel. Key personnel are defined as individuals with a monthly gross salary in excess of DKK 63,800, excluding labour market contributions and social security contributions. Further, the individual must not have-or at any time within the past five years prior to the employment have had-a direct or indirect part in the management, control or capital of the company in Denmark. The individual must not have incurred any tax liability to Denmark within the last three years before his/her employment in Denmark. Finally, the individual must agree to unlimited tax liability in Denmark (with some exceptions for researchers). The expatriate can benefit from the special tax regime for 36 months within a 10-year period. 

Capital taxes
For property that serves as an abode (including summer houses), the following rules apply:
  • Danish residents are taxed on property ownership, but generally not on capital gains on the sale of property; and
  • Property tax is levied at 0.1% of the value of the property up to DKK 3,040,000 and at 0.3% on any value exceeding that amount. The local authorities also tax the value of the land. Rates vary, but are generally less than 1% of the assessed value. 

For property that does not serve as an abode, Danish residents are not taxed on property ownership, but taxed on capital gains derived on the sale of the property.

Source: Deloitte

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