Tax residency for foreign students

27 november 2015

A new administrative practice adopted by the Danish tax authorities mean that it will be easier for foreign students to stay in Denmark for longer periods of time without becoming resident in Denmark for tax purposes.

 

A fundamental part of determining the Danish tax position of an individual coming to Denmark is to assess whether the individual becomes resident in Denmark for tax purposes. Being resident in Denmark for tax purposes implies that an individual is subject to Danish taxes on his worldwide income according to Danish national tax law.

An individual who is not resident in Denmark for tax purposes is only taxed in Denmark, if he obtains certain types of income stemming from Danish sources. For example, an individual is taxed as a non-resident on salary for work performed in Denmark for a Danish employer or on rental income from real property located in Denmark.

Tax residency is associated with having a home available in Denmark combined with taking up residency here. Danish tax residency can also be induced by a stay in Denmark lasting at least 6 consecutive months including shorter trips abroad for holiday purposes etc. even though the individual does not have a home available in Denmark – i.e. if the individual stays at hotels etc. in Denmark.

A special rule applies for foreign students and tourists allowing them to stay in Denmark for up to a total of 365 days within any 2-year period without becoming resident in Denmark for tax purposes provided that they continue to be resident for tax purposes in their home country and provided that they do not work as self-employed in Denmark during their stay here.

So far, this rule has only been applied to individuals without a home in Denmark. However, in a recent ruling by the National Tax Board, it was determined that the application of the rule should be extended to individuals with a home in Denmark. Otherwise, the scope of the rule is very limited as most individuals staying in Denmark for up to 365 days within a 2-year period will likely acquire a home in Denmark.

The above article is taken from tax:watch, our electronic English newsletter on Danish Tax and VAT matters. tax:watch is issued on the last Friday of each month and is free of charge.