Denmark is one of few European countries which apply special and favourable tax rules for expatriates including foreign researchers.
Living up to a set of conditions expatriates are eligible to pay tax at 25 per cent of income for the first three years providing the concession is claimed from the start and that the expatriate becomes unlimited tax liable to Denmark (some exceptions for researchers). There are several conditions for the 25 per cent tax regime.
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The expatriate must not have incurred tax liability to Denmark from a number of income items within the last three years prior to the employment in Denmark.
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The expatriate must not have been seconded from Denmark to work abroad by the company or by a group related company.
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The expatriate must not have been employed by a foreign group related company within a period of three years after termination of Danish tax liability, as described above. The condition is considered fulfilled if the expatriate has not been employed by the company or a group related company within the last five years prior to the employment at the company.
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The work must be carried out in Denmark. The employee can perform business travelling but as a general rule not less than two thirds of the work must be carried out in Denmark.
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Finally, the expatriate must not have – or at any time within the last five years prior to the employment have had – direct or indirect part in the management of, control with or capital in the company in Denmark.
This tax regime is available for researchers and key personnel. Key personnel are defined as those with a monthly gross salary in excess of DKK 60,100 in 2007 after mandatory contribution to social security to either Denmark (8 per cent) or to the home country (via the EU regulation 1408/71). The total remuneration includes salary, holiday pay, free car etc. However, free housing is taxed according to regular rules. The expatriate can benefit from the special tax regime for 36 months within a 10-year period.After the 36 months, the expatriate is subject to normal Danish tax. Please note that all researchers and some key personnel that fulfil certain conditions can stay in Denmark for an unlimited period after the 36 months. Others can only stay in Denmark for a total period of 5 years.
Special rules for researchers
Favourable rules apply for foreign employees who are officially approved as qualified researchers:
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Approved researchers need not be fully tax liable in Denmark.
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Approved researchers are not as other foreign key employees required complying with remuneration requirements.
The public research councils decide on the basis of application whether a given employee can be approved as researcher. The application form can be downloaded at the Danish Research Agency.
Representative office
Key employees in a representative office fulfilling the requirements in Denmark are not eligible to the 25 per cent expatriate tax. The reason for this is that in order to achieve the expatriate tax, the company must be established as a legal entity or a permanent establishment with a turnover. Usually, a representative office does not produce a turnover – it is primarily a sales support unit.
What to do?
If you are going to use the 25 per cent tax scheme for expatriates, it is advisable to let the local tax authorities run through the job contract in order to check out whether you can meet the requirements.
In any case, any resident in Denmark must have a tax card. The local tax authorities will issue a tax card based on an assessment of your income. The employer automatically withdraws your tax from your salary during the year on the basis of your tax card.
You can also find more information at www.workindenmark.dk.
More information can be found in the factsheet “Taxation”, which can be downloaded here.
