How does the Danish tax system work? Key points for you to know

Income tax rates in Denmark

Before we delve into the taxation of personal income in Denmark, it's crucial to note that the information provided here is for informational purposes only and should not be construed as specific recommendations.

For personalised advice on your tax situation while working in Denmark, it's advisable to consult with a tax advisor.

Denmark is known for a lot of good things but taxation might not be one of them. Denmark is the number one country in Europe with the highest top statutory income tax rate.

In Denmark, individuals may be taxed in different ways depending on their residency status and income sources. Here's a breakdown:

1. Full tax liability: Individuals who are considered residents in Denmark are subject to full tax liability, meaning they are taxed on their worldwide income. However, if they are considered tax residents in another country according to a: Double Taxation Treaty, abbreviated DTT, they may not be fully liable for tax in Denmark. Meanwhile, various deductions are available, reducing the effective tax rate in most cases

2. Limited tax liability: Individuals with limited tax liability to Denmark are only taxed on income derived from Danish sources. These sources include:

   • If you work in Denmark and receive compensation from a company or entity that operates within Danish legal boundaries

   • Salary for work in Denmark if the stay exceeds 183 days within a 12-month period

   • Other types of personal income like: Directors' fees; pension distributions and social security benefits

   • Compensation received for services provided under specific regulations governing the hiring out of personnel

   • Income from a business enterprise with a permanent establishment in Denmark

   • Income from property located in Denmark

   • Dividends and royalty income from Danish companies

   • Remuneration for advisory assistance

Now we are ready to check out the structure of the personal income tax in Denmark as individuals are subject to various taxes on their personal income, including: National income tax, municipal tax, labour market tax and church tax.

Each type of income is taxed differently and at varying rates. This will affect deductions and overall tax liabilities.

Types of Income:

1. Personal: Includes salary, benefits, self employment earnings and pension income
2. Capital: Encompasses interest earnings, net capital gains and related expenses
3. Share: Covers capital gains and dividends from shares
4. Property Value: Reflects the value of properties, whether situated domestically or internationally

Tax Rates (2024):

• State Taxes:

  • Bottom Tax: 12% of personal income
  • Top Tax: 15% of personal income exceeding DKK 588,900 (after deduction of labour market tax)

• Local Taxes:

  • Municipal Tax (average): 25% of taxable income
  • Labour Market Tax: 8% of personal income

• Share Tax:

  • Up to DKK 61,000: 27%
  • Beyond DKK 61,000: 42%

Additional Notes:

• The total marginal tax rate cannot surpass 52.07% (excluding labour market tax, share tax, property value tax and church tax)
• Net capital income is taxed at rates up to 42%, with deductions allowed but not fully effectual

National Taxes:

Bottom tax: Levied at 12% on personal income and positive net capital income

• Top tax: Set at 15% on the portion of the top tax base exceeding DKK 588,900 after deducting 8% labour market tax
• Top top tax: Additionally, starting from 2026, a new additional top top tax ('Top topskat' in Danish) of 5% is introduced for income exceeding 2.5 million DKK

Local Taxes:

• Municipal tax: Calculated at a flat rate based on taxable income, with the national average at approx 25%
• Labour target tax: Amounts to 8% of personal income

Share Tax:

• Income up to DKK 61,000 taxed at 27% and above that threshold taxed at 42%

Church Tax:

• Imposed at a flat rate, typically around 0.85%, depending on the municipality. If you tell the Danish Tax Authority that you are not a member of the Danish State Church which is Lutheran, then you will not pay this tax

What do I get for my taxes?

Denmark is considered a welfare state. What does it mean?

Being labelled as a welfare state means that Denmark places a high priority on social welfare and public wellbeing. In practical terms, this translates to a robust system of social policies and programmes designed to provide citizens with a wide range of benefits and services. These may include:

• Universal healthcare
• Free education
• State educational grant
• Generous social security benefits
• Affordable childcare
• Unemployment benefits
• Assistance for the elderly and disabled

The goal of a welfare state is to ensure that all members of society have access to essential services and support, regardless of their socio economic status. By prioritising the welfare of its citizens, Denmark aims to create a more equitable and inclusive society where everyone has the opportunity to thrive and contribute to the collective good.

A good way to compensate for the high income tax is to get a higher salary, so let's see how to negotiate salaries in Denmark.