New tax for individuals covered by foreign social security(Taxwatch (Tax news in english))
25-08-2010 07:20
Af
Anders Kiærskou
As part of the Danish tax reform in 2009, a new law on labour market contribution was adopted with effect from 1st January 2011.
The new law means that individuals working and paying taxes in Denmark will have to pay the 8 pct. labour market contribution from 1st January 2011 even though they are covered by social security in another country, as the labour market contribution is converted into an income tax.
Until the new law takes effect, individuals covered by foreign social security - either according to EU regulation (former E101) or a bilateral agreement - are exempt from paying the Danish 8 pct. labour market contribution.
The new law naturally implies an increase in taxes for the individuals concerned.
The 8 pct. labour market contribution is deducted before other income taxes are calculated. For individuals who are covered by foreign social security and taxed according to the different Danish tax schemes, the combined Danish tax rates will change as follows:
|
Tax Scheme
|
Tax rate before 1st January 2011 (pct.)
|
Tax rate after 1st January 2011 (pct.)
|
| 25 pct. tax scheme |
25 (flat rate) |
31 (flat rate) |
| 33 pct. tax scheme |
33 (flat rate) |
Approx. 38.4 (flat rate) |
| Hydrocarbon tax scheme |
30 (flat rate) |
35.6 (flat rate) |
| Int. hiring-out of labour |
30 (flat rate) |
35.6 (flat rate) |
| Ordinary Danish tax |
Approx. 51.5 (marginal rate) |
Approx. 55.4 (marginal rate) |
On top of this, the foreign social security contributions most be paid. Individuals taxed as residents in Denmark without being resident in another country according to a double tax treaty can deduct foreign compulsory social security contributions.
The 8 pct. labour market contribution was earlier considered a social security contribution as opposed to a tax. A few years ago the law was amended, giving the labour market contribution status as an income tax – also in relation to the double tax treaties.
Tax payment is generally not exempt because of coverage by social security in another country. Exemptions from paying the labour market contribution were however upheld until adoption of the new law.
Abolishment of these exemptions with the new law is the reason for individuals covered by foreign social security will have to pay the 8 pct. labour market contribution from 1st January 2011.
Questions can be addressed to Anders Kiærskou at aek@bdo.dk
Til nyhedslisten