From 2017, the requirements for taxation according to the tax scheme for inbound expatriates were relaxed slightly in relation to work performed abroad. A binding ruling sheds light on how this is to be interpreted.
According to the current rules, a Danish tax resident employee, who is taxed on salary in Denmark according to the special Danish tax scheme for inbound expatriates, can work abroad for a maximum of 30 days within the calendar year under such conditions that the country of work has the right to tax salary for work performed in that country according to its double tax treaty with Denmark.
Before 2017, work performed abroad under such conditions would disqualify the employee from taxation on salary in Denmark according to the tax scheme for inbound expatriates.
After the introduction of the 30-day rule, it remained unclear exactly when the taxpayer would be disqualified from taxation according to the tax scheme, should the employee exceed the 30-day limit.
Would the employee be disqualified with future effect beginning on the 31st day of work abroad, or would the employee be disqualified from the first workday of the year spent abroad or perhaps simply from the beginning of the year?
The National Tax Board was recently asked these questions in a request for a binding ruling and answered that the employee would be disqualified from taxation according to the tax scheme from the first day of work abroad in the income year under such conditions that the country of work can tax salary for work performed in that country.
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.
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.