Expatriate Executive: Denmark

Summary of local taxation situation

A foreign national working in Denmark or based there will be taxed in Denmark either as a resident or as a non-resident.

Residence applies to individuals who:

• spend more than 183 days in the country; or
• have habitual residence in Denmark.

In order to lose tax residence it is simply necessary to stop fulfilling any of the above criteria in a given tax year.

Resident individuals are taxed on their worldwide income; non-resident individuals are taxed only on their local-source income, unless 75% of their income is Danish-source, in which case they are taxed on worldwide income. Income is defined to include many types of capital gain.

Income tax applies both at national level and at local level. For both residents and non-residents, the basic national tax rate is 15%, payable on income above DDK347,200. The government tax on taxable income for 2010 is 3.67%. The second-tier tax on earned income and capital gains of 6% was revoked on January 1, 2010. The third-tier tax rate on income and capital gains exceeding DKK389,900 is 15%. Local income tax averages 24.9% (2010) depending on the district, but non-residents do not pay it. The highest marginal rate of income tax is 59%. Some types of foreign employee can elect to pay flat rates of tax of 25% or 33% on their whole income for the first three or five years of their employment in Denmark.

Certain types of share income are taxed separately, at 28% for share income of up to DDK48,300, and 42% over DDK48,300. Capital gains on certain types of debt security were taxed at 51.5% until the end of 2009. In 2010, the rate was reduced to 49.5% and will fall to 42% in stages between then and 2014.

There are personal allowances, normally of DDK42,900 (although certain allowances are not available to expats opting for the 25/33% regime). Most types of pension contributions are deductible, but there is a limit of DDK46,000 per annum in some circumstances.

Employed individuals pay social security taxes of about 8%. Private pension contributions are tax deductible up to EUR5,165 per annum.

There is no Alternative Minimum Tax in Denmark, and no wealth tax.

Stamp duty of 6% applies to real estate acquisitions, and there are municipal real estate taxes of between 1% and 3%.

Inheritance taxes apply to Danish residents at 15% for family members and 40% for others.

NB: Danish tax rules are considerably more complicated than the above simplified summary, and professional advice on the situation of any particular individual is a necessity.

Offshore Investment Opportunities

Before taking on Danish residence, there is a case for putting income-generating assets into trust in less highly taxed countries. Danish residents must make an annual declaration of overseas assets.

Once Danish residence has been terminated, and if non-residence is expected to be permanent, then an ex-Danish resident is free to invest offshore in order to obtain the best possible returns.

www.lowtax.net contains extensive information on the investment, tax and legal regimes in 50 of the main offshore jurisdictions. Further information is available in our Investment Information Providers Section, and the four main types of offshore investment are described in the Guide to Offshore Investment on this site.

NB: The suggestions given above do not constitute investment advice. They are intended only to assist individuals in finding appropriate professional advice, which is essential for anyone planning offshore investment.