Double Taxation
Date of publication16 Feb 2001 00:00
Serial numberP nr. 13 (GB)
SummaryThis guide addresses persons from other countries who are employed in Denmark or move to Denmark. It deals with only the most general tax rules.
What's new?Yearly adjustment 
ISBN number978-87-7552-237-3

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).
Full-Year Income
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:
 
Income from 1 September to 31 December 2001 (122 days):  
DKK 100,000
Full-year income (100,000 x 365/122 days): DKK 299,180
Full-year tax on DKK 299,180 would be, for example:  
DKK 117,552
Part-year tax (117,552 x 100,000/299,180): DKK 39,291
 
Double Taxation Treaties
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).
 
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.
Tax Relief under a Double Taxation Treaty
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.
 
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): 
Danish IncomeDKK 100,000
Foreign IncomeDKK 50,000
Total IncomeDKK 150,000
 
Danish tax calculated on the basis of the total income of DKK 150,000
 
 
(for example) DKK 45,000
Tax paid to the other countryDKK -10,000
Danish Tax after "credit"DKK 35,000
 
Reduction under the "credit method" can never exceed that part of the Danish tax which has been levied on the foreign income. 
 
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):
Danish IncomeDKK 100,000
Foreign IncomeDKK 50,000
Total Income DKK 150,000
 
Danish tax calculated on the basis of the total income of DKK 150,000  
(for example) DKK 45,000
Reduction for exemption (45,000 x 50,000/150,000)  
DKK -15,000
Danish tax after "exemption"DKK 30,000
Tax Relief without Double Taxation Treaty
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.