| Income taxation in Denmark is based on the so-called "global income concept".
This implies that persons who are resident in this country will be taxed on all
income, whether or not it was earned in this country. There are, however, various
forms of tax relief, so that you will not be paying tax to two countries on the
same income (double taxation). |
| During your first year in Denmark your income will be adjusted to represent a "full-year
income" - so as to allow for the graduation in the Danish tax system. Based
on the adjusted full-year earnings, a full-year tax will be calculated which is
then reduced according to the ratio between the part-year amount and full-year amount,
so that you will be paying tax only on the amount you have actually earned. Conversion into full-year income (example): If you move to Denmark on 1 September 2001 and manage to earn DKK 100,000 (after labour market contributions, etc.) in Denmark in the 2001 year of taxation, the result could be as follows:
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| If you are fully tax-liable in Denmark, you will be taxed - in principle - on all
income, whether it was earned in this country or elsewhere. Because of the global
income concept, foreign income will not be given special treatment but will be treated
in accordance with Danish tax rules even if the income has already been taxed in
another country. In order to avoid such double taxation Denmark has concluded treaties, with a large number of countries, that specify who has the right of taxation in which areas. Besides, Danish tax laws contain rules about reduction of the tax. These rules may be applied to cases where no double taxation treaty exists - or where it is more advantageous to apply these rules rather than the rules in the double taxation treaty. List of the countries with which Denmark has concluded double taxation treaties (as at 1 January 2001): Argentina, Australia, Austria, Bangladesh, Belgium, Brazil, Bulgaria, Canada, China, Cyprus, the Czech Republic, Egypt, Estonia, Finland, France, the Faroe Islands, Germany, Great Britain, Greece, Greenland, Hungary, India, Indonesia, Ireland, Iceland, Israel, Italy, Jamaica, Japan, Kenya, Korea, Latvia, Lithuania, Luxembourg, Malaysia, Malta, Morocco, Mexico, the Netherlands, New Zealand, Norway, Pakistan, the Philippines, Poland, Roumania, Russia, Singapore, Slovakia, South Africa, Spain, Sri Lanka, Sweden, Switzerland, Tanzania, Thailand, Trinidad and Tobago, Tunesia, Turkey, Ukraine, the U.S.A., Vietnam, and Zambia. Double taxation treaties with the former Soviet Union apply to states that are associated with the SNG (with the exception of Kazakhstan and Turkmenistan). There is also a double taxation treaty with the former Yugoslavia; this treaty is now applied to Croatia, Macedonia, Slovenia and the Federal Republic of Yugoslavia (Serbia/Montenegro). |
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Tax relief | The
double taxation treaties ensure that the same income is not taxed in more than one
country. The system operates in the following manner: the country of residence will
levy taxes on the global income (whether it comes from domestic or foreign sources)
and will grant tax relief for such part of the income as comes under another country's
right of taxation. When the tax is calculated, the relevant country's double taxation treaty with Denmark will be taken into account. It will lead to a total or partial lapse of any Danish tax if you can show that the income has been taxed in another country. It is up to you to apply to the local tax administration for a reduction of your tax, and it is up to you to provide documentation for the amount of tax you have paid abroad. Wage/salary-earners and self-employed persons must still pay labour market contributions even if, by virtue of a double taxation treaty, they pay no taxes to Denmark (additional details may be found in the section "Labour Market Contributions, etc."). More information about the double taxation treaties and the various forms of relief is available from the local tax administration. |
| A tax will be calculated on the basis of your total income, including the foreign
pay and any deductions. Afterwards, the calculated tax will be reduced in accordance
with the provisions of the double taxation treaty. There is a number of different methods that may be used for the calculation of tax when you have income from more than one country. The method to be used in your case depends on the double taxation treaty in question and the type of income you have. The "credit method" and the "exemption method" are the two most widely used methods. |
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Credit method | Under
this method Denmark is entitled to include the foreign income fully in the statement
of the taxable income. The double taxation is then eliminated by reducing the Danish
tax by the tax that has been paid to the other country on the foreign income. Example (simplified):
Reduction under the "credit method" can never exceed that part of the Danish tax which has been levied on the foreign income. |
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Exemption method | Under
this method the tax is reduced by that part of the Danish tax which has been levied
on the foreign income. In other words, in this case it is irrelevant how much tax
was actually paid to the foreign country. Example (simplified):
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| If the other country has not entered into a double taxation treaty with Denmark,
the tax is generally reduced in accordance with the credit method, cf. above. However, if you have had earned income during a stay abroad while you are subject to full tax liability in Denmark, the tax reduction may possibly be calculated in accordance with the exemption method. This assumes that the stay abroad lasts six months or more. |