This guide describes the tax scheme for foreign researchers and key employees who are recruited abroad and who are employed by a Danish enterprise or research institution. The scheme applies to all sectors and to both Danes and foreigners.
In the guide, you can read about the conditions which the enterprise and the employee must fulfil in order to be eligible for taxation under the special tax scheme.
Whether you are an employee or an employer, it is a good idea to read the entire guide.
You can read more about the special tax scheme in Assessment Guide, Double taxation 2009-1 (Ligningsvejledningen, Dobbeltbeskatning 2009-1), section D.B.5.
The special 25 per cent tax scheme may only be used during one or more periods which in total do not exceed 36 months.
Employees who entered the scheme in 2008 or later may choose to pay tax at a rate of 33 per cent for a period of 60 months. The choice must be made at the latest before the final date for filing tax returns for the year of taxation in which the employee chooses to be taxed under the special tax scheme for the first time. The choice applies to the entire period during which the scheme is being used.
It is possible to distribute the 36 or 60 months over an unlimited period of time. However, this requires that the employee fulfils all the relevant conditions when entering into new contracts of employment. This means, among other things, that the employee must not have been subject to full tax liability or limited tax liability on earned income and commercial income etc. for a period of 3 years before the scheme may be used again. This does not apply, however, if the tax liability is terminated between two contracts of employment under the scheme or if a maximum of one month passes between the contracts of employment.
Employees who are subject to the rules concerning supplementary tax liability may also distribute the 36 or 60 months over an unlimited period of time. The periods during which the employee is liable to pay tax but in which the scheme is not used are, however, included in the calculation of the so-called 48-month period. For further details, see the section Supplementary tax liability.
Employees may change their choice once
The choice of tax rate and period may be changed once. This must be done before the expiry of the first 36 months during which the scheme has been used. Employees who on 19 June 2008 were covered by the 25 per cent tax scheme in accordance with the previous provision have the same access to changing their choice.
This section tells you about the conditions which you as an employee must fulfil in order to become eligible for the special tax scheme.
As an employee, you must not have been fully liable to taxation in Denmark or subject to limited tax liability on earned income or commercial income etc. within the last 3 years prior to your employment.
If you have previously been employed in Denmark under the special tax scheme, the fact that you were liable to pay tax during these periods will be disregarded if your tax liability ceased at the same time as your previous employment ceased.
Example: You were working under the scheme in Denmark in 2007, after which you stayed abroad in 2008 (cessation of tax liability). You may subsequently use the scheme in your new employment in Denmark in 2009 even though it has not been at least 3 years since you were last liable to pay tax here.
You must not, however, be employed within the same group.
See also the section Previous employment with the same enterprise or group.
Full or limited tax liability must commence concurrently with the start of your employment under the special tax scheme. If you move to Denmark, however, you may start your stay here up to one month prior to the commencement of your employment. This also applies even if full tax liability commences from the beginning of your stay.
If you switch to another contract of employment which is also covered by the special tax scheme, a maximum of one month may pass between your old employment and the new one. If more than one month passes, you must once more fulfil all conditions.
Special conditions for researchers
If you are employed to engage in research and your qualifications as a researcher have been approved - see the section Approval of researchers etc. - you may use the special tax scheme. This also applies if you have been subject to limited tax liability on earned income as a guest lecturer etc. at universities and other research institutions during one or more periods within the last 3 years before the commencement of your new employment. During those 3 years, such periods of limited tax liability may have had a total duration of no more than 12 months.
As an approved researcher, you may also use the scheme even though you have become subject to full tax liability as a result of having stayed in Denmark for more than 6 months. For this to be possible, you must have stayed here as a guest lecturer, and your stay must have been financed exclusively by foreign funds. The period of full tax liability may have covered a maximum of 12 months within the past 3 years prior to your new employment.
To use the special tax scheme, you must not have been employed with the same enterprise or an enterprise within the same group for a period of 3 years prior to and one year after the cessation of your tax liability in Denmark.
However, you may use the scheme if you have not been employed with the enterprise or the group for a period of 3 years prior to your employment under the special tax scheme.
Example: Your tax liability ceases as you take up employment with an enterprise abroad. You will then not be able to use the scheme in a Danish enterprise within the same group unless you break off your employment with the group for a period of at least 3 years.
This rule has no bearing on persons who have never been liable to taxation in Denmark prior to their employment with a foreign subsidiary and who subsequently take up employment with the Danish parent company.
Nor may you have been posted abroad, within 3 years prior to your employment, as a PhD student with your salary being paid by Danish public funds.
As an employee, you must not have been directly or indirectly involved - within the past 5 years prior to your employment - in the management of or have had control or significant influence over the enterprise where you are being employed. This condition applies throughout your employment under the special tax scheme.
If your employer's enterprise is a company etc. and you are a shareholder in the company, you must not:
Included are shares belonging to your close family as well as shares belonging to companies etc. over which your close family has exercised control. The definition of close family is set out in Section 4(2) of the Danish Capital Gains Act (Aktieavancebeskatningsloven).
If your employer's enterprise is personally owned, you must not:
When assessing whether control is being exercised, the same criteria are applied as for shareholders. This means that you must not directly or indirectly own more than 50 per cent of the capital (voting rights).
On the other hand, these conditions regarding co-ownership also imply that e.g. a manager or director who is not and has not been a co-owner of the employing enterprise may use the special tax scheme.
Taxation under the special tax scheme ceases immediately if you as an employee no longer fulfil one or more of the conditions.
When an employment contract under the scheme comes to an end, you may become liable to supplementary taxation in certain situations. You may become liable to supplementary taxation if you fail to terminate your tax liability before a certain deadline. Read more in the section Supplementary tax liability.This section provides information about the conditions which you as an employer must fulfil in order for your employee to become eligible for the special tax scheme.
As an employer, you must belong to one of the following groups:
In those situations referred to under items b and d above, it is a condition for the use of the scheme that the employee is attached to the permanent establishment and that his or her salary constitutes an operating expense on the part of the permanent establishment.
The employer may also be a limited partnership. But, if so, it is a condition that all the participants in the limited partnership belong to one of the above-mentioned groups (a to f) in relation to the work which is to be carried out.
Below, you can read more about the requirements which the contract of employment must meet.
If the employee has entered into several concurrent contracts of employment with different employers, the special tax scheme may be used only if all the conditions are fulfilled in respect of each contract of employment.
It is also possible to combine several consecutive contracts of employment as long as the conditions are fulfilled in respect of the individual contracts.
As a general rule, it is not a condition that the work must be performed in Denmark.
A special rule applies, however, to employees who are fully liable to taxation and resident in Denmark in accordance with a double taxation treaty. These tax payers cannot use the special tax scheme if the right of taxation of the salary is transferred to the other country. This may e.g. be the case if the employee is staying in the other country for more than 183 days within a 12-month period or if the salary is paid by a foreign employer or the Danish employer's permanent establishment abroad.
Note that the special tax scheme cannot be used in connection with stays abroad of more than 6 months if the salary is taxed pursuant to Section 33 A of the Danish Tax Assessment Act (Ligningsloven).
In 2009, the salary must amount to not less than DKK 63,800 a month before tax but after deducting labour market supplementary pension fund (ATP) contributions, labour market (AM) contributions or any obligatory foreign social contributions. The amount of DKK 63,800 also comprises the value of free car if the employee has a free car.
It is important to note that the salary requirement is based on the salary after the deduction of AM contributions and ATP contributions. The actual salary requirement thus exceeds DKK 63,800. For 2009, AM contributions amount to 8 per cent of gross salaries, and the actual salary requirement is thus DKK 69,348 to which must be added ATP contributions. Please visit www.atp.dk to see the exact level of ATP contributions.
No minimum salary requirements apply for approved researchers who are to engage in research.Within the same calendar year, the salary requirement must be met as an average monthly salary. The monthly salary must appear from the contract of employment.
It is possible to agree on a lower salary or no salary during e.g. a holiday period provided that the salary in the remaining months is so high that the requirement for an average monthly minimum salary as a whole is met within the calendar year.
The salary requirement must be met in accordance with the contract of employment. If the monthly salary is too low, the employer cannot raise the average monthly salary above the minimum limit by e.g. paying a bonus at the end of the year.Within 8 days of the obligation to deduct tax commencing, the employer must fill in form 01.012 and submit it to the tax centre listed on the form.
The employer must enclose a copy of the contract of employment together with any documentation concerning exemptions from the payment of AM contributions as well as any other necessary documentation. SKAT then assesses whether the employer and the employee fulfil the conditions for the special tax scheme. No separate tax card is issued, but SKAT notifies the employer about the withholding of tax under the scheme.
If the contract of employment is extended or terminated before the end of the period of employment, the employer must inform SKAT thereof.If the employee is not registered for the scheme until after the employer has withheld ordinary provisional tax on income taxed at source (A-tax) one or more times, the tax paid in respect of the current year will be adjusted upon agreement with the employer or by outstanding tax being levied or overpaid tax refunded according to the general rules. In this context, all conditions must have been fulfilled from the outset.
Employees who wish to use the special tax scheme for past years of taxation may make a request for their tax assessment to be resumed by SKAT.As an employee, once you have chosen to be taxed under the special tax scheme, it is not possible to opt out of the scheme with retrospective effect. You must therefore, before the final date for filing your tax return for a given year of taxation at the latest, choose whether you wish to use the scheme for the year of taxation in question.
If the conditions for using the scheme have been fulfilled during the entire year of taxation, you may choose to use the scheme for the entire year of taxation in question or opt out of it. If the conditions have only been fulfilled for part of the year of taxation, you may choose to use the 25 per cent or 33 per cent tax scheme for that part of the year of taxation during which the conditions have been fulfilled.
If you have opted out of the scheme and wish to be comprised by the scheme again at a later point in time, all conditions must be fulfilled. This also applies to the condition that you must not have been liable to taxation in Denmark for the past 3 years prior to the commencement of your employmentThe income taxed under the special tax scheme must be salary income (A-income) for the recipient. The value of free food and accommodation is not comprised by the scheme.
Salary income is thus monetary remuneration payable under the contract of employment in the form of salary, holiday benefits, fees, bonus, commission etc. as well as the value of a free car.
The employer's payment of the employee's private expenses, e.g. housing expenses, removal costs, school fees and partially free telephone, is also salary income. The employee is liable to ordinary income tax on salary in the form of fringe benefits made available by the employer and which do not constitute salary income.
As regards the special tax scheme, it is thus important to determine whether salary is in the form of monetary remuneration or in the form of fringe benefits. What is of decisive importance is who is legally entitled to make arrangements in respect of the asset - e.g. the house. If, for example, the employer owns a house and makes this house available to the employee, the value of accommodation must be taxed as ordinary taxable income. If, on the other hand, the employee has bought the house/entered into the tenancy agreement, the amount paid by the employer to cover the costs incidental thereto constitutes salary income and will thus be covered by the scheme. The employee must then pay only 25 per cent/33 per cent tax on the amount.Tax is calculated on the salary after deduction of ATP and AM contributions (labour market contributions). If the employee is fully liable to taxation and resident in Denmark, the employer is not to withhold tax on the part of the salary which corresponds to the amount of the documented expenses for obligatory foreign social contributions.
If the employee is subject to limited tax liability and covered by social security in an EU/EEA member state and has concluded an agreement with the employer on payment of the contributions, the employer is not to withhold tax on the part of the salary which corresponds to the amount of the documented obligatory foreign employer's social contributions.
If the obligatory (employer's) social contributions are paid on both income under the scheme and income taxed in accordance with the general rules, the contributions will be divided proportionately.
ATP and AM contributions are deducted from the salary by the employer. Employees who are comprised by the special tax scheme must pay ATP and AM contributions according to the same rules as other salary/wage earners. The AM contribution constitutes 8 per cent of the gross salary. Information on the level of ATP contributions can be found by visiting www.atp.dkPension contributions towards employer-administered pension schemes which are deducted from personal income, are not to be included in the basis for calculating income tax.
These include contributions to Danish schemes, but the rule generally applies to pension schemes in Sweden, the UK, Switzerland and the Netherlands as well as approved schemes in EU and EEA member states. Contributions to pension schemes in countries other than those mentioned above must be included in the basis for calculating A-tax.
Whether the employee chooses to be taxed at a rate of 25 per cent or 33 per cent, the total salary in the form of monetary remuneration or in the form of free car is comprised by the scheme.
The employee must not receive salary in the form of monetary remuneration or in the form of free car as ordinary taxable income from the same employer at the same time.
The tax is levied on the total salary income without deductions of any kind.
Read more about the limitations in the access to deducting employee deductions from and carrying forward losses to other income in the section: Deductions in respect of expenses associated with other income.
Commuting deductions, food and accommodation deductions, double housekeeping expenses, privately established pension schemes, trade union fees, contributions to unemployment funds or other employee expenses are not deductible from income under the special tax scheme. Nor are any personal allowances.
See also the section Other income.
You as the employer or your agent must deduct 25 per cent or 33 per cent A-tax as well as AM contributions from your employee's salary. The withholding of tax must be made in connection with the payment or crediting of the salary. The employer must pay the tax to SKAT.
The reporting of salary information to eIndkomst and the payment of A tax and AM contributions must be made each month exactly as for the other employees of the enterprise. When declaring salary information for employees under the special tax scheme, the type of income must be indicated with "Forskerordningen (08)" (Researcher scheme (08)) and with "48" indicated in the field Kode 68 (Code 68). If the employee has chosen to pay tax at a rate of 33 per cent, the type of income must be indicated with "Forskerordningen (08)" (Researcher scheme (08)) and with "33" indicated in the field Kode 68 (Code 68).
If an employee switches to ordinary taxation during his or her employment, the information for periods during which his or her salary was paid under the special scheme must be reported to eIndkomst as mentioned above. Periods during which income is subject to ordinary taxation must be reported separately to eIndkomst with an indication of the type of income as "almindelig indkomst" (ordinary income). Do not write "48" in the Kode 68 (Code 68) field here.
Read more in the guide eIndkomst.If you as an employee have other income, e.g. free accommodation made available by your employer, you are liable to ordinary income tax on such income. This also applies to directors' fees and remuneration in respect of any non-competition clauses.
For further information, please refer to the brochure Taxation - when moving to Denmark.As an employee, if you have other income, you are entitled to tax deductions. However, you are only entitled to deductions in respect of expenses that are not associated with the income taxable under the special tax scheme. You are e.g. entitled to deductions for contributions to privately established Danish pension schemes, certain foreign pension schemes or contributions to an unemployment fund.
Any net interest expenses etc. in respect of debts owing by you during the period of time in which you are using the special tax scheme must be distributed over the period which such interest expenses etc. concern. This also applies to losses on debt covered by the Danish Gains on Securities and Foreign Currency Act (Kursgevinstloven).
This means that if you have taken out a loan in year 1, the interest thereon must for tax purposes be accrued to the years 1, 2, 3 etc., even though it may have been agreed that the interest for the first years does not fall due until later.
During the years in which you use the scheme, you cannot carry forward any non-commercial deficits for offsetting in years of taxation in which you are no longer taxed under the scheme. This applies e.g. to interest on loans in real property.
You may only carry forward losses associated with business activities to your spouse. Nor may your spouse carry forward any losses which you are not allowed to carry forward yourself.
When calculating the tax payable on other income, you will also be entitled to a personal allowance. The personal allowance amounts to DKK 42,900 in 2009. Any unused portion of your personal allowance cannot be transferred to your spouse. Nor can your spouse's bottom limit for middle-bracket tax be raised by any unused portion of the bottom limit for middle-bracket tax on your part.
For further information, please refer to the brochure Taxation - when moving to Denmark.
If you are subject to limited tax liability or if you are fully tax liable and a resident abroad in accordance with a double taxation treaty, you are only entitled to deduction for expenses associated with income which is taxable in Denmark pursuant to the treaty with the country in question.
On certain conditions, however, you may use the cross-border worker rules (Section 5 A-5 D of the Danish Withholding Tax Act (Kildeskatteloven)) together with the special tax scheme. According to these rules, you are entitled to deduction for certain expenditure incurred in connection with family and personal circumstances to which normally only persons with full tax liability who are resident in Denmark are entitled. The rules are described in D.B.8.If you incur expenses in connection with the earning of the income taxed under the special tax scheme, such expenses are not deductible from other income. This applies to e.g. commuting expenses, expenses for food and accommodation, removal expenses and double housekeeping expenses.
Trade union fees will normally be associated with the earning of the income under the scheme and are therefore not deductible from other income either.All persons who are tax liable in Denmark must file details of their income with SKAT every year. This happens when you report information for or check the correctness of your annual tax statement.
You do not need to inform SKAT about any income taxed under the special tax scheme. You must, however, submit information on other income in accordance with the general rules.
Read more in the section If you as an employee have other income and in the brochure Taxation - When moving to Denmark.Persons subject to the rules concerning supplementary tax liability
You are comprised by the rules concerning supplementary tax liability if, within a period of 5 years prior to your first employment under the special tax scheme, you:
You will not be liable to supplementary taxation if you are a researcher (see below).
Supplementary tax liability means that a new tax calculation is made. You will then pay ordinary income tax for the periods during which you have used the scheme. SKAT regulates the tax for all the periods and calculates interest in accordance with the general rules.
You can avoid becoming subject to supplementary tax liability if you move away from Denmark within a maximum of 48 months from the end of the 36-month or 60-month period during which the scheme has been used. If you have stayed in Denmark between two periods of being taxed at a rate of 25 per cent or 33 per cent, such periods will be included in the calculation of the 48 months.
You must have ceased to be fully tax liable for at least 3 years, also if you move away from Denmark before 48 months have passed.
During the 3-year period after the 48 months or after the cessation of the full tax liability, you must not be subject to limited tax liability on income from an employer with whom you have previously been employed under the scheme. During the 3-year period, you can also not be employed with another Danish employer in the same group without being liable to supplementary taxation.
Persons not subject to the rules concerning supplementary tax liability
The rules concerning supplementary tax liability do not apply:
The concept of "research and development work" has been defined by the OECD and will be applied when determining whether a person fulfils the conditions for being taxed under the special tax scheme. R&D is defined as comprising creative work undertaken on a systematic basis in order to increase the stock of knowledge and the use of this stock of knowledge to devise new applications. This applies both within technical/scientific areas such as research within health science, social science, financial planning, system analyses etc. The joint denominator for these areas is the requirement for a news element.
No distinction is made between research and development work in public research institutions and similar work in private enterprises. Thus, research and development activities undertaken in, for example, the pharmaceutical sector or the IT business can also be included.
The approval procedure is described below:
In connection with employment at institutions covered by the Danish University Act (Lov om universiteter m.fl.), the Danish Government Research Institution Act (Lov om sektorforskningsinstitutioner) and the Danish University of Education Act (Lov om Danmarks Pædagogiske Universitet), the management of the institution decides whether the tax payer's qualifications as a researcher can be approved.
In order to obtain approval for his or her qualifications as a researcher, the tax payer must be able to document qualifications which correspond to the level required to be appointed as an assistant professor (adjunkt) or at a higher level or as a researcher/project researcher (forsker/projektforsker) or at a higher level at institutions as mentioned under "Public research institutions". Such employment requires scientific qualifications equivalent to those required at PhD level or a similar level.
Approval of the employee as a researcher must have been granted before the commencement of the contract of employment. It is accepted, however, that the employee takes up his or her duties before such approval is granted if the approval is received within the time it normally takes to process an application for approval of qualifications as a researcher.
An executive order has been issued regarding the approval of researchers etc. pursuant to Section 48 E of the Danish Withholding Tax Act, order no. 568 of 22 June 2000.SKAT comes under the Danish Minister for Taxation. You can find relevant addresses of tax centres etc. at www.skat.dk under the menu item Kontakt. Citizens and businesses may contact any tax centre in Denmark for assistance. However, some tax centres specialise in specific fields and, in some cases, you will therefore be referred to another tax centre.
The Danish Ministry of Taxation and the National Tax Tribunal also come under the Minister for Taxation. The Ministry of Taxation is charged, inter alia, with the preparation of bills for presentation to the Danish Parliament.