Article:

Amendments to the Danish tax scheme for inbound expatriates

25 January 2019

Anders Kiærskou , Manager, Tax |

The Danish parliament has adopted changes to the Danish tax scheme for inbound expatriates to better help Danish businesses attract highly skilled employees from abroad.

As noted in the October 2018 issue of tax:watch, in order to make it easier for Danish businesses to attract highly skilled employees from abroad, the minister of taxation presented a bill aiming to remove several issues preventing application of the special tax scheme for inbound expatriates.

The amendments have been adopted by the Danish parliament and take effect from 1 January 2019.

One amendment makes it possible to utilise the tax scheme for inbound expatriates in situations where the employee is already employed in a foreign branch of the Danish employer when he starts working in Denmark, or the employee is going to work for a Danish branch of his current foreign employer.

Previously, in these situations, the tax scheme for inbound expatriates could not be utilised, as it was a requirement that the employee became liable to Danish tax in connection with the commencement of employment with a Danish employer.

After the amendment, instead, it is a requirement that the employee becomes liable to Danish tax on remuneration from a Danish employer.

This allows the employee to utilise the tax scheme, even though he is already employed with the same legal entity when he starts working in Denmark.

Another amendment states that periods where the employee is on parental leave are disregarded in connection with determining whether the minimum salary requirement (see below) for utilising the tax scheme is met.

Consequently, having a baby should not disqualify from taxation according to the tax scheme for inbound expatriates due to decreased earnings during periods of parental leave.

Additionally, an amendment seeks to eliminate an obstacle that previously could hinder employees, who had left Denmark, from returning to Denmark and utilise the tax scheme for inbound expatriates for the remaining part of the total 7 years allowed.

Background

Due to the high rates of individual income taxes in Denmark compared to many other countries, a special Danish tax scheme exist for Danish businesses to attract skilled labour from abroad.

The scheme allows employees, recruited abroad, to relocate to Denmark and be taxed in Denmark on cash salary and certain benefits in kind from a Danish employer at a total flat rate of 32.84 pct. (8 pct. gross tax and 27 pct. tax on the remaining amount) for a total period of 7 years.

Conditions for utilising the scheme

Several conditions apply for an employee to be taxed according to the scheme.

Most notably, a minimum salary requirement exists, which is adjusted yearly.

From 1 January 2019, the monthly minimum salary according to the employment contract must amount to at least DKK 66,600 after deduction of mandatory social security contributions.

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.