Your address registered by the Danish authorities on 5 September 2017 determines, in which municipality you will pay municipal tax in 2018.
The first weekend of September is a good time to move if you are about to move from e.g. Langeland - or another municipality in Denmark with a high tax rate - to the municipality of Rudersdal, which currently holds the country's lowest municipal tax rate.
If, on the other hand, the situation is the opposite, and you are about to move from an inexpensive municipality to an expensive municipality - in terms of municipal tax - then you might consider postponing the move to the second weekend in September. In fact, the tax savings obtained by doing so may cover the moving expenses.
It is your registered address on 5 September 2017, which determines the municipality where you will pay municipal tax in 2018. If you are relocating to Denmark from abroad in 2017 after this date or in 2018, the municipality, where you first register your address in Denmark, will determine where you will pay municipal tax in 2017 and 2018. Hence, if you are initially going to live in a temporary home when relocating to Denmark, you could benefit from choosing a municipality with a low tax rate.
According to the Ministry of Taxation's overview of municipal tax rates in 2017, the rates fluctuate between 22.5 pct. (Rudersdal) and 27.8 pct. (Langeland) - a difference of 5.3 pct.
Municipal tax is calculated from net taxable income. With the current tax rates, a married couple with a total net income of DKK 600,000, moving from Herlev to Ringsted municipality, can expect an annual increase in municipal tax of DKK 18,000 - equivalent to DKK 1,500 a month – due to the 3-pct. difference in the municipal tax rates between the two municipalities.
In households, where top bracket tax is paid, in many cases, the tax rate ceiling will reduce the significance of differences in municipal tax rates.
If the sum of the state tax rates (bottom bracket tax, health contribution and top bracket tax) and the municipal tax rate (applicable church tax not included) exceeds 51.95 pct. (2017), the rate for calculating the top bracket tax is reduced by the difference. There is also a special tax rate ceiling for positive net capital income.
It should be noted that a saving in municipal tax is, in some cases, offset by rising costs for property tax, day care payments, etc. Additionally, housing costs have an impact on the overall situation. However, it does not change the fact that savings can be obtained by planning a move, if this is possible. Naturally, the registered moving date must be in accordance with the actual circumstances.
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.