Taxation in Denmark
Encyclopedia
The Danish
income tax was introduced in 1903 and is now divided into government tax and local tax. The state tax is a progressive tax
while the local tax is a flat tax.
All income from employment or self-employment is levied a tax of 8% before income tax . This contribution is termed a "gross tax".
Income below DKK
42,900 (USD 7,600) (2010-level, adjusted annually) is tax exempt (except from the gross tax).
Paid interest up to DKK 50,000 is tax exempt. Commuting exceeding 24 kilometers/day receives a DKK 1.90 per kilometer tax exemption. For commutes exceeding 100 kilometers per day, the rate is reduced to DKK 0,95 per kilometer.
The local tax varies from municipality to municipality. The highest local tax in 2009 is 27.80% and the lowest is 22.70%.
The regional health care tax is 8%. It is now set and handled by the government, as the regions no longer have the right to levy taxes independently.
The government tax has three income brackets (base, medium and top), though two are currently coinciding. In 2010 income from DKK 42,900 to DKK 389,900 is taxed at 3.67% and income above DKK 389,900 is taxed an additional 15%.
The income tax can be broken down like this:
The sum of all tax percentages (municipal tax, state taxes and health care contribution) cannot exceed 51.5%.
On top of the other taxes, members of the Danish National Church pay an addition 0.4% to 1.5% church tax
. The rate depends on the municipality. While the church is a state institution, the church tax does not count toward the maximum 59% marginal tax, and one can be exempted from paying this tax.
A number of deductions apply. The general rule is that the taxpayer is able to deduct his/her expenses in acquiring their taxable income, although there are many exceptions to this rule. Employees have very limited possibilities for tax deduction as it is assumed that the employer covers the expenses related to the employee's work. The employer will then be able to deduct most of these expenses from his own taxable income.
Danish tax examples as of 2010:
Under the Danish tax system, therefore, it is perfectly conceivable for a high-wage earner to pay out up to 51.5% of their total income after Gross Tax, giving a total of 57% of the total income.
Denmark also has a non-deductible Value Added Tax
(VAT) of 25%.
Denmark
Denmark is a Scandinavian country in Northern Europe. The countries of Denmark and Greenland, as well as the Faroe Islands, constitute the Kingdom of Denmark . It is the southernmost of the Nordic countries, southwest of Sweden and south of Norway, and bordered to the south by Germany. Denmark...
income tax was introduced in 1903 and is now divided into government tax and local tax. The state tax is a progressive tax
Progressive tax
A progressive tax is a tax by which the tax rate increases as the taxable base amount increases. "Progressive" describes a distribution effect on income or expenditure, referring to the way the rate progresses from low to high, where the average tax rate is less than the marginal tax rate...
while the local tax is a flat tax.
All income from employment or self-employment is levied a tax of 8% before income tax . This contribution is termed a "gross tax".
Income below DKK
Danish krone
The krone is the official currency of the Kingdom of Denmark consisting of Denmark, the Faroe Islands and Greenland. It is subdivided into 100 øre...
42,900 (USD 7,600) (2010-level, adjusted annually) is tax exempt (except from the gross tax).
Paid interest up to DKK 50,000 is tax exempt. Commuting exceeding 24 kilometers/day receives a DKK 1.90 per kilometer tax exemption. For commutes exceeding 100 kilometers per day, the rate is reduced to DKK 0,95 per kilometer.
The local tax varies from municipality to municipality. The highest local tax in 2009 is 27.80% and the lowest is 22.70%.
The regional health care tax is 8%. It is now set and handled by the government, as the regions no longer have the right to levy taxes independently.
The government tax has three income brackets (base, medium and top), though two are currently coinciding. In 2010 income from DKK 42,900 to DKK 389,900 is taxed at 3.67% and income above DKK 389,900 is taxed an additional 15%.
The income tax can be broken down like this:
- Social contribution (Gross tax) - 8%
- Over DKK 42,900:
- Municipal tax - 23% - 28%
- Health tax (Region tax) - 8%
- Base state tax - 3.76%
- Over DKK 389,900:
- Top state tax - 15%
The sum of all tax percentages (municipal tax, state taxes and health care contribution) cannot exceed 51.5%.
On top of the other taxes, members of the Danish National Church pay an addition 0.4% to 1.5% church tax
Church tax
A church tax is a tax imposed on members of some religious congregations in Austria, Denmark, Finland, Germany, Iceland, Italy, Sweden, some parts of Switzerland and several other countries.- Germany :About 70% of church revenues come from church tax...
. The rate depends on the municipality. While the church is a state institution, the church tax does not count toward the maximum 59% marginal tax, and one can be exempted from paying this tax.
A number of deductions apply. The general rule is that the taxpayer is able to deduct his/her expenses in acquiring their taxable income, although there are many exceptions to this rule. Employees have very limited possibilities for tax deduction as it is assumed that the employer covers the expenses related to the employee's work. The employer will then be able to deduct most of these expenses from his own taxable income.
Danish tax examples as of 2010:
- If you have what is considered a very low income (DKK 150,000, USD 26,550) you pay approx. DKK 44,500 in income tax (including gross tax), i.e. approx. 29.7% of the full amount.
- If you have what is considered a very low income (DKK 150,000, USD 26,550), and you pay DKK 20,000 annually in interest, you pay approx. DKK 38,000 in income tax (including gross tax), i.e. approx. 25.3% of the full amount.
- If you have what is considered an average income (DKK 375,000, USD 66,370) you pay approx. DKK 134,800 in income tax, i.e. approx. 35.9% of the full amount.
- If you have what is considered an average income (DKK 375,000, USD 66,370), and you pay DKK 30,000 annually in interest, you pay approx. DKK 125,100 in income tax, i.e. approx. 33.04% of the full amount.
- If you have what is considered a high income (DKK 780,000, USD 138,050), you pay approx. DKK 351,200 in income tax, i.e. approx. 45.0% of the full amount.
- If you have what is considered a high income (DKK 780,000, USD 138,050), and you pay at least DKK 50,000 annually in interest, you pay approx. DKK 334,900 in income tax, i.e. approx. 42.9% of the full amount.
Under the Danish tax system, therefore, it is perfectly conceivable for a high-wage earner to pay out up to 51.5% of their total income after Gross Tax, giving a total of 57% of the total income.
Denmark also has a non-deductible Value Added Tax
Value added tax
A value added tax or value-added tax is a form of consumption tax. From the perspective of the buyer, it is a tax on the purchase price. From that of the seller, it is a tax only on the "value added" to a product, material or service, from an accounting point of view, by this stage of its...
(VAT) of 25%.