Denmark Global Payroll & Tax Information Guide

August 1, 2022 | 5 Mins Yana Todorova

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Payroll in Denmark – 2022 Updates

Denmark had the highest top statutory personal income tax rates (55.9%) among European OECD countries in 2021.

Denmark adjusted the personal income tax rates for 2022. The lower tax bracket tax rate was increased to 12.10% and the top threshold up to which the lower tax rate applies was increased to DKK 552,500.

On another hand, the Danish government, in a February 2022 draft bill, proposed imposing a ceiling for the deduction of salary expenses. The draft bill proposes an annual ceiling of DKK 7.5m (€1 million) per employee and is currently expected to be effective as of 1 January 2023.

Denmark Payroll – Basic Facts

The official currency in Denmark is the Danish Krone (DKK).

There is generally no payroll tax in Denmark apart from companies carrying out specific VAT exempted activities. Denmark imposes a Value Added Tax (VAT) on all taxable supplies of goods and services made by a taxable person. The current VAT registration threshold is DKK 50,000 annually. The current VAT rate is 25%.

The payroll cycle in Denmark is generally monthly, and employers must make payments on the same day of each month before the end of the month.

Income Tax

In Denmark, residents pay multiple taxes to the state and their municipality. The Dutch tax year runs from January 1st through to December 31st. However, the Danish corporate taxpayers are taxed on an annual basis and the corporate taxpayers may choose a tax year that is different from the calendar year.

Individuals who are fully tax residents in Denmark pay taxes on their worldwide income and pay taxes up to 52.07% or 55.90% including the AM tax in 2022. Individuals who are not fully tax liable may have limited tax liability in Denmark. They are taxed by up to 52.07% (55.90%, including AM tax) on income from sources in Denmark in 2022.

National taxes are categorized as bottom and top tax. The bottom tax includes the personal income and the positive net capital income. The Bottom tax is 12.10% for 2022. The base for the top tax for s person is the personal income plus positive net capital income. The top tax is 15% of the part of the top tax base exceeding DKK 552,500 for 2022.

The local income tax is calculated on taxable income ate a flat rate depending on the municipality. The average for the country is 24.98% for 2022.

By general rule the marginal tax rate can’t exceed 52.07% in 2022, however, the labour market tax (8% of the personal income), share tax, property value tax, and church tax are not comprised by this rule. Net capital income is taxed up to 42%.

Share Tax

Share income up to DKK 57,200 for individuals and DKK 114,400 for a married couple in taxed at 27%. Share income above this amount is taxed at 42%.

Church Tax

There is a flat rate depending on the municipality. For 2022 the average the country average is approx. 0.70%.

Social Tax

Danish employers must pay social security contributions for their employees. The Danish contributions are approximately EUR 2,000 per year per full-time employee.

Danish employers are obligated to pay contributions to the following seven types of social security schemes:
- ATP
- AUB
- AES
- AFU
- Pension Finance Scheme
- Maternity Leave Fund
- Industrial Injury Insurance

Corporate Tax

The standard CIT rate is 22%.

Withholding Tax

The general withholding-tax rate is 27% in 2022, irrespective of the ownership of the corporation.

- Dividends and interest: Up to 57.200 DKK are taxed at 27% for 2022. Dividends exceeding 57.200 DKK are taxed at 42%. If you are married, then a double limit of 114.400 DK applies.
- Royalties: Royalties are subject to a 22% WHT.

Value Added Tax

The standard VAT rate in Denmark is 25%.

Compensation and Benefits

Minimum Wage

There is no official minimum salary in Denmark. However, as of 2022 most minimum wages in the country hover around 110 DKK per hour.

Overtime

When an employee is requested to work overtime or work on holidays, 48 hours a week are the maximum hours allowed.

All overtime hours above 37 hours a week are paid at an overtime compensation rate of between 150% - 200% of the employees’ regular pay rate, depending on the collective bargaining agreement.

Hours of Work

The working week in Denmark is Monday to Friday. The working hours for commercial and public offices are usually 37-40 hours per week. The working day is usually between seven and eight hours long with lunch break varying from 30 min to an hour.

Holidays

There are 13 bank holidays in Denmark in 2022.

Leaves

Paid leave - In Denmark, the standard paid leave entitlement for full-time employees is 25 days per year, accrued at the rate of 2.08 days of paid leave for each month of service.

• Sick days - Employees are entitled to receive full salary during sick leave due to illness or injury.

• Maternity leave - A pregnant employee is entitled to 18 weeks of maternity leave, four weeks preceding the due date, and 14 weeks after the birth, where the first two weeks are mandatory.

• Paternity leave - The father is entitled to take two weeks of paternity leave during the mother’s 14-week period of maternity leave. There is no legal obligation for the employer to pay salary during the paternity leave. Parental leave - Following the initial 14 weeks of maternity leave, each parent has the right to use up to 32 weeks of leave. This time can be extended by either 8 or 14 weeks. However, this will decrease the amount of parental allowance received monthly.

• Other leave - People between 18 and 30 are liable to be called up for the national military or civil service by ballot for four months. Employees must be granted leave by the employer during national service and are protected against dismissal regarding requesting or taking such leave.

Foreign workers in Denmark

 

Visa Requirements

Foreigners who wish to work in Denmark must apply for a work visa and residence permit. To qualify for a Danish work visa, you need to find a job and receive an official employment letter from a Danish employer. The visa application process itself is quick and easy.

Everyone, except citizens of the European Union (EU), the European Economic Area (EEA), and Switzerland needs a visa to work in Denmark. A work visa is required even if you will be doing unpaid work or seeking sideline employment. In this case the employee must apply for a residence and work permit before entering Denmark.

Citizens of the EU wishing to work in Denmark must register with SIRI (the Danish Agency for International Recruitment and Integration), even though they do not need a visa.

Taxes

A special tax regime applies to foreigners employed by a Danish resident employer. Salary income is subject to taxation at a flat rate of 32.84%, including the 8% labor market tax, for one or more periods up to a total of 84 months. After 84 months, the foreign worker is taxed according to ordinary income tax rules.

 

For more information about how our Global Payroll Control Platform integrates with local payroll providers in Denmark, contact us today.

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