Relaxed conditions for utilising the Danish 26 pct. tax regime

29 January 2016

Recent rulings by the National Tax Tribunal leads to slight relaxation of the conditions for utilising the Danish 26 pct. tax regime. Some approved researchers may be able to utilise the regime despite initial rejection.

The Danish tax authorities have recently published new guidelines concerning the conditions for utilising the 26 pct. tax regime for approved researchers.

The 26 pct. tax regime allows highly skilled individuals and approved researchers recruited abroad by Danish employers to be taxed on their salary for work performed in Denmark at a flat rate of 31.92 pct. (8 pct. gross tax and 26 pct. tax of the remaining amount).

This tax regime is favorable compared to ordinary Danish tax at a marginal rate of 56 pct.

Several conditions apply in order to use the tax regime. For example, a minimum salary requirement must be met unless the employee is a researcher approved by the Danish authorities.

In recent years, the Danish tax authorities generally only allowed researchers to utilise the 26 pct. tax scheme if approval as researcher had been granted by the Danish authorities from commencement of the employment.

However, a ruling by the National Tax Tribunal has resulted in the aforementioned new guidelines being published concerning this condition.

With effect from 1 January 2016, the Danish tax authorities accept that the employment begins prior to the approval as researcher has been granted by the authorities as long as an application for approval as researcher has been submitted within one month from commencement of the employment.

The new guidelines further specify that resumption of tax assessments from the tax year 2011 can be granted, if a taxpayer has been denied access to use the 26 pct. tax scheme as researcher on the grounds that approval as researcher had been granted subsequent to commencement of the employment.

Another ruling by the National Tax Tribunal, yet to be publicized on the website of the Danish tax authorities, seems to indicate that recent years’ strict adherence to formal requirements in relation to the employment contract – a practice contrary to the Danish tax authorities’ usual emphasis on substance over form – may be relaxed.

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.