Taxes in Denmark

Written by Lais Cattassini Moderated by Oleksandra Dosii

Lais Cattassini

Lais is a Brazilian journalist and copywriter with over 17 years of experience, writing about things she knows really well (travelling, cinema, social media trends) and things she loves learning about.

Oleksandra Dosii

Oleksandra is a dedicated marketer with a passion for growing HR-tech products. She believes content marketing is about delivering high-quality content that provides value—not just generating leads. Since 2016, Oleksandra has been involved in tech talent relocation.

Last update: October 10, 2024

Next update: Scheduled for February 1, 2025

Denmark's tax system is known for its high tax rates and comprehensive welfare benefits. It is a progressive tax system, meaning that those with higher incomes pay a larger percentage of their income in taxes.

Danish residents are taxed based on their global income. The income tax system is divided into municipal and state taxes. The Municipal Tax varies depending on where the individual lives, but it is typically between 22% and 27%. The State Tax follows the same rate no matter where in the country you live, but the actual amount you pay will be dependent on your income.

The corporate income tax rate in Denmark is 22%, which is competitive compared to other EU countries. The Danish tax system supports an extensive welfare state, which includes free healthcare, education, and generous unemployment benefits. High taxes are balanced by high levels of social security and public services.

What is the income tax in Denmark?

Denmark's income tax system is one of the most comprehensive and progressive in the world, characterised by relatively high tax rates but balanced by a strong welfare system. The income tax in Denmark is composed of various layers that include state, municipal, and labour market taxes, with a progressive structure aimed at redistributing wealth.

Municipal taxes are a significant part of the overall income tax in Denmark. The rates vary depending on the municipality where the individual lives but typically range from 22% to 27%. This tax is collected by local governments and used to fund local services such as healthcare, education, and infrastructure.

The state tax in Denmark is divided into two categories: basic state tax and top-bracket state tax. Basic State Tax (Bundskat) is a flat rate applied to income above a certain threshold. As of 2024, the basic state tax rate is 12% and applies to all taxable income above DKK 50,500.

High-income earners pay an additional 15% tax on income exceeding a specific threshold. For 2024, the top-bracket tax applies to annual income above DKK 588,900. This tax is designed to ensure that higher earners contribute more to the state, which funds various welfare services.

All employees in Denmark must also pay a labour market contribution (Arbejdsmarkedsbidrag or AM-bidrag) of 8% of their gross earned income (including salaries and wages). This tax is deducted before the calculation of other taxes, making it a pre-tax deduction. The revenue from the AM-bidrag helps fund unemployment insurance, pensions, and other employment-related social security programs.

Social Security contributions

Denmark funds most of its welfare system through general taxation. This system is largely financed by income tax, VAT (value-added tax), and other indirect taxes, with only a small part of social security covered by direct contributions from employees.

The primary direct social security contribution in Denmark is the Labour Market Contribution (Arbejdsmarkedsbidrag or AM-bidrag).

Unlike many countries where employers are required to make substantial payroll contributions for employee social security, Denmark has minimal mandatory employer contributions to the social security system.

Online tax calculator for taxes in Denmark

Calculating taxes in Denmark requires understanding your income, deductions, and potential contributions, which will depend on the city in which you live.

You can calculate your net income here.

The Danish government also has a tool to determine which allowances and deductions you can claim.

Annual tax returns in Denmark

In Denmark, the tax return system is designed to be straightforward and largely automated, thanks to the Danish Tax Authority (SKAT).

Each year, SKAT prepares a pre-filled tax return (called "Årsopgørelse") for every taxpayer, usually available online by mid-March of the following year. This return includes all the income, deductions, and taxes paid over the year, collected from various sources such as employers, banks and government agencies.

Taxpayers access their tax returns via TastSelv, SKAT's online self-service system. Through this portal, individuals can view, edit, and submit their tax returns. The deadline for making changes to the pre-filled tax return is May 1 each year. However, if you're self-employed or have complex income sources, the deadline can be extended to July 1. The Danish tax year runs from January 1 to December 31.

Self-employed individuals must provide additional information beyond the pre-filled return, including business income and expenses, depreciation of equipment and assets, and VAT reporting (if applicable).

Once you've reviewed and submitted your tax return, SKAT calculates your final tax liability. This determines whether you owe additional taxes or are eligible for a refund.

In addition to the annual tax return, Danish taxpayers receive a preliminary tax assessment at the start of each year. This assessment estimates your income and taxes for the coming year based on information from previous years. If your circumstances change (e.g., a salary increase, new job, or deductions), you should update this preliminary assessment to ensure accurate withholding.

How to pay less taxes

Every taxpayer in Denmark is entitled to a personal allowance, which is a tax-free amount that reduces your taxable income. For 2024, the personal allowance is DKK 49,700 for individuals aged 18 and over.

Other than that, taxpayers can also claim deductions:

Work-related deductions (Befordringsfradrag)

If you commute long distances to work, you are entitled to a commuting deduction for travel over 24 kilometres each way. The deduction rate varies based on distance.

Union membership fees and A-kasse contributions

If you are a member of a trade union, you can deduct your annual membership fees from your taxable income.

Payments to A-kasse (unemployment insurance fund) are also deductible. These contributions provide unemployment benefits in case you lose your job.

Interest deduction on loans

You can deduct interest paid on loans, including mortgage interest and personal loans. This deduction applies to both national and foreign loans, helping to lower the overall tax burden if you have significant debt.

Pension contributions

Contributing to a private pension scheme can provide significant tax relief. There are two main types of pension contributions that allow for deductions:

• Contributions to an annuity pension, which are fully deductible up to DKK 80,600 per year (2024 limits).
• Contributions to a life annuity pension, which don't have a limit.

Home improvement and service deductions (Håndværkerfradrag or Servicefradrag)

Denmark offers tax deductions for certain home improvements and services through the servicefradrag scheme. You can deduct labour costs for certain work on your home, including energy-saving renovations, cleaning, gardening, and childcare services.

Charitable donations

Donations made to approved charitable organisations are tax-deductible.

Capital gains and investment income

If you have investment income from dividends, interest, or capital gains, you can reduce taxes on this income.

Childcare deductions

Parents with children in daycare can deduct childcare expenses from their taxable income. This can include costs related to daycare, after-school programs, and private childminders.

Talk to a tax advisor

For those with more complex tax situations, especially expats with international income, it may be beneficial to consult a tax advisor or accountant. These services ensure you pay correctly and can help collect benefits, allowances, and deductions. For expats, services like these can be even more beneficial, as they help foreigners overcome language barriers and the complicated tax regulations of a new country.

Other taxes in Denmark

In Denmark, the tax system is comprehensive and includes various taxes beyond income taxes.

Value added tax (VAT)

VAT is a consumption tax added to the price of goods and services. It's a form of indirect tax collected at each stage of production and distribution. The standard VAT rate is 25%.

Property tax (Ejendomsværdiskat)

Property tax is levied on residential real estate based on its assessed value. The tax is calculated on the estimated value of the property as determined by the Danish Tax Authority.

Property tax rates are based on the value of the property and are calculated on a percentage of the property value. The tax rate is 0.92% of the property that is valued at up to DKK 3,040,000. If your property is valued above this amount, the tax rate is 3% above this threshold.

Land tax (Grundskyld)

Land tax is a municipal tax imposed on the value of the land you own, excluding buildings and other structures. It's used to fund local services and infrastructure. The rate varies by municipality, typically between 1.6% and 3.4% of the property's assessed land value.

Only people who own property are obligated to pay this tax.

Vehicle registration tax (Registreringsafgift)

This tax is levied on the purchase of new and used vehicles. It's calculated as a percentage of the vehicle's value and aims to regulate vehicle ownership and environmental impact. The rate varies based on the vehicle's value, type, and CO2 emissions. It typically ranges from 85% to 150% of the vehicle's value.

Inheritance and gift tax (Arveafgift and Gaveafgift)

Taxes on inheritances and gifts are levied on the transfer of assets. The rates and exemptions vary based on the relationship between the giver and the recipient.

Tax treaties with Denmark

If Denmark has a double taxation agreement with the country you are from, your Danish tax may be reduced. Here is the complete list of countries that have agreements with Denmark.