Doing Business in Denmark: A Crash Course in the Danish Tax System
Are you considering expanding your business to the Danish market? The Danish tax system is complex, and there are several important points to consider to gain easier access to the market. Birka Wendy Mouritzen and Nana Gajhede from Bech-Bruun provide an overview of the most crucial aspects relating to corporate taxation, employer and employee contributions and taxation of individuals.
Birka Wendy Mouritzen
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Nana Gajhede
View firm profileCorporate Taxation in Denmark
Taxable income is subject to a corporate tax rate of 22%. This rate applies uniformly to public limited companies, private limited companies, and branches. Nonetheless, it is important to distinguish between corporate tax residency, as this will determine whether the company is subject to unlimited or limited tax liability in Denmark.
Unlimited tax liability
If a company is a resident of Denmark, it will be subject to corporate tax on its income and gains from Danish territory, as well as on inbound dividends, interest, and royalties. A company is considered to be resident in Denmark if it is either (i) incorporated in Denmark or (ii) incorporated abroad with its effective management in Denmark. Effective management is based on the location of day-to-day business decision-making.
Limited tax liability
If a company is not a resident of Denmark, it can be subject to limited tax liability. Limited tax liability will occur either through a branch or a non-incorporated presence. A non-incorporated presence may be in the form of employees working in Denmark, who on a habitual basis conclude agreements on behalf of the foreign company, which may form a permanent establishment (PE). If a foreign company operates through a PE, it is taxed on all income attributable to or received by the PE.
If a foreign company operates in Denmark through a branch or PE, it is taxed on all income attributable to or received by the PE. A foreign company with a PE in Denmark must file an application with the Danish Business Authority to register the PE with an online form. Usually, the registration is completed within two to three weeks of submitting the application.
Mandatory Employer and Employee Social Security
Employers and employees in Denmark are required to contribute to various social security schemes. This includes the following schemes (rates applicable in 2025):
- Danish Labour Market Supplementary Pension (ATP): Employers pay DKK198.00 monthly (DKK2,376 annually), and employees pay DKK99.00 monthly (DKK1,188 annually).
- Employers Contribution to Education (AUB): Employers pay DKK897.50 quarterly (DKK3,590 annually).
- Danish Labour Market Occupational Disease Insurance (AES): Employers pay an annual fee ranging from DKK252.00 to DKK9,690, depending on the industry.
- Statutory Maternity Scheme: Employers pay DKK387.50 quarterly (DKK1,550 annually).
- Financial Contribution (Finansieringsbidrag): Employers pay DKK99.25 quarterly (DKK397.00 annually).
- Holiday Administration: Employers pay DKK5.00 quarterly (DKK20.00 annually).
- Administration Fee to the Danish Holiday Account (Feriekonto): Employers pay DKK6.00 monthly (DKK72.00 annually).
Tax Rates for Individuals
Foreign employees working in Denmark may be subject to Danish tax based on their residence and duration of stay. Depending on the circumstances, they may face limited tax liability for work done in Denmark or full tax liability on worldwide income.
Denmark has a progressive personal income tax system, which means that the higher the income, the higher the taxes. The marginal tax rate is 56% (including labour market contributions). This includes the following components:
- Labour Market Contribution (AM-bidrag): This amounts to 8% of the gross salary.
- Church Tax (kirkeskat): This is a tax depending on whether the individual is a member of the Danish National Church. If the employee is a member, the varies depending on where the employee lives, but it is on average around 0.87%.
- Municipal Tax: This depends on the municipality the employee lives in but will on average be around 25.1%.
- Bottom-Bracket Tax (bundskat): In 2025, this 12.01% tax applies to income exceeding DKK51,600 for individuals over 18.
- Top-Bracket Tax (topskat): In 2025, a 15% tax applies to income above DKK611,800 after labour market contributions, with a total tax cap of 52.07%, excluding labour market and church taxes but including municipal, bottom-bracket, and top-bracket taxes.
Hired-Out Employees
Employees formally hired by a foreign company, who are temporarily working within the core operations of a Danish company under its instruction and risk, may be subject to the hiring-out of labour rules.
The rules require the Danish company to withhold a 30% hiring-out of labour tax and 8% labour market contributions (effective tax of 35.6%) from payments to the foreign company and remit these amounts to the Danish tax authorities.
Advantageous Tax Scheme for Foreign Researchers and Highly Paid Employees (the Expat Scheme)
The Danish tax system includes the possibility to use a lower tax rate for researchers and highly paid employees. Provided that the expat scheme conditions are met, the expats are taxed at a flat rate of 27% of their gross salary and labour market contribution of 8% (effective tax of 32.84%). The expat scheme can only be used for a period of up to 84 months (amounting to a total of seven years).
To use the tax scheme, the following requirements must be met:
- The monthly salary must on average amount to at least DKK78,000 (2025) after Danish social contributions (ATP).
- The employee must be subject to limited or unlimited tax liability to Denmark while working under the expat scheme.
- The employment must commence within a month after moving to Denmark.
- The employee may not exercise control over the employing entity.
- The employee must not have been subject to full or limited liability of certain Danish income within the past ten years (exceptions apply).
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