Expansion of the Danish tax scheme for inbound expatriates

24 November 2017

Anders Kiærskou, Manager, Tax |

According to a new bill, the Danish tax scheme for inbound expatriates will be expanded.   

With a recent political agreement and subsequently proposed bill, the government and other political parties intend to expand the period where employees can use the special Danish tax scheme for inbound expatriates from the current total of 5 years to a total of 7 years.

However, the tax percentage will increase from the current 26 pct. to 27 pct. of the employee’s salary calculated after deduction of 8 pct. gross tax.

Consequently, the total taxation according to the scheme will increase from currently 31.92 pct. to 32.84 pct.

The tax rate according to the scheme is independent of the size of the salary, and there are no deductions.

According to the bill, employees fulfilling the requirements for using the scheme, who have not already been taxed according to the scheme for a total of 5 years on 1 January 2018, when the bill is proposed to take effect, will be able to utilise the scheme for the expanded period of up to 7 years in total.

The expansion of the maximum period, where the scheme can be used, combined with the increased tax rate, is expected to have a neutral effect on the tax revenue.

The agreement to expand the scheme is concluded in order to accommodate wishes of Danish businesses. Due to the high personal income tax rates in Denmark in comparison with many other countries, the tax scheme for inbound expatriates exist in order for Danish businesses to be able to attract highly qualified employees and researchers from abroad.

Compared to taxation according to the ordinary Danish progressive tax system, where the marginal tax rate is approx. 56 pct. on yearly income exceeding approx. ½ mio. DKK, the scheme is quite favourable.

Despite the slightly increased tax rate, the expansion of the tax scheme will likely be good news for most employees already using the scheme or employees, who will be taxed according to the scheme in the future.

In order for an employee to be taxed on salary according to the special tax scheme, there are several conditions that must be met.

In our leaflet, these conditions are described.

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. Please sign up here.