Tax scheme for foreign researchers and highly paid employees
26 February 2021
Taxation of only 32.84 % on salary income sounds good, but the application process is unfortunately often associated with long processing times from the Danish Tax Agency.
Denmark offers a special tax regime to foreign researchers and highly paid employees. Employees or researchers may elect to be taxed at a rate of 32.84 % on cash salary and certain benefits-in-kind for up to 84 months. All other income, including benefits-in-kind - generally other than company car and free telephone - are taxed at the ordinary rates. The average monthly salary in cash must be at least DKK 69,600 after deduction of social security contributions for highly paid employees, while there is no minimum salary requirement regarding researchers. For more information about the rules and conditions regarding the tax scheme, see our Worth Knowing About article.
To be covered by the tax scheme, an application must be filed with the Danish Tax Agency. Currently, it often takes approx. 12-18 months before the Danish Tax Agency has processed the application. During the period, where the Danish Tax Agency processes the application, the employer will have to decide how to report salary and withhold tax for the employee.
Either, the employer can proceed by utilizing the tax scheme, as if the application already was approved by the Danish Tax Agency – this means that 8 % AM-contribution and 27 % A-tax of the remaining amount (totaling 32.84 %) must be withheld from the salary. If the Danish Tax Agency does not approve the application, the employer and the employee are jointly liable for the remaining withholding tax.
As an alternative, the employer can procced as if the employee shall be taxed according to the ordinary tax rules. In this case, the employee will have to pay ordinary tax rates, where the marginal tax rate is approx. 56 %. This entails that the employee must obtain a tax card, which tells the employer how much A-tax to withhold. If no tax card is available, the employer is required to withhold 8 % AM-contribution and 55 % A-tax of the remaining amount. Provided the Danish Tax Agency accepts the application, the employer must amend the salary reporting subsequently. Consequently, this solution can be cumbersome.