Tax exemption when working abroad

29 April 2016

An employee paid by the hour for work performed abroad including transportation time to and from his home in Denmark was granted tax exemption on the salary.

A special Danish tax provision allows employees to be tax free in Denmark on salary for work performed abroad under certain conditions.

The conditions entail that the employee must stay abroad for at least 6 months.

During any 6-month period of the stay abroad, the employee may only visit Denmark for a maximum of 42 days. Travel days where the employee spends part of a day in Denmark count as whole days in Denmark in this respect.

When the employee visits Denmark, it must as a main rule be for holiday purposes etc. only. The employee may only perform work in Denmark if it can be substantiated that the work relates directly to his work abroad and it is necessary that he performs this work in Denmark.

This last condition was the subject of a recent ruling by the National Tax Tribunal. The case concerned an employee working in Sweden. The employee was remunerated by the hour and was paid for the travel time between his country of work, Sweden, and his home in Denmark.

The Danish tax authorities argued that the travel time - for which the employee was remunerated - did not constitute necessary work performed in Denmark. For that reason, the conditions for utilizing the tax exemption rule were not met in the opinion of the Danish tax authorities.

The National Tax Tribunal was of another opinion and ruled in favour of the employee. The transportation time in Denmark was not considered work. Hence, the remuneration for the transportation time did not constitute salary for work performed in Denmark meaning that the employee met the conditions for tax exemption on his salary.

The ruling by the National Tax Tribunal seems fair. Had the employee been paid by the month, there would likely not have been an issue to begin with which makes it difficult to understand that remuneration by the hour in itself should disqualify for tax exemption.

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.