Tax scheme for foreign researchers and key employees
Date of publication
10 Feb 2011 10:08
Serial number
P nr. 28 (GB)
Summary

This guide describes the special tax scheme for researchers.

What's new?
Updated guide with new rules adopted in 2010
ISBN number
978-87-7121-048-4
Introduction

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 2011-1 (Ligningsvejledningen, Dobbeltbeskatning 2009-1), section D.B.5.

Taxation under the scheme

Employees who by 1 January 2011 are taxed according to the existing rules of 25% taxation can choose to continue this. The choice is binding, and it applies until the period of 36 months from the first use of the special tax scheme runs out, or until the tax liability stops before the 36 months - though no later than 2013. The choice must be made no later than 31 December 2011 and must be reported to SKAT by filling out and sending the form 01.012 1 to SKAT, Udland Bruttoskat, which is stated on the form.

If the employee wishes to distribute the 36 or 60 months, it is required, however, 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 etc. and commercial income for a period of 10 years before the scheme may be used again. This does not apply, however, if a maximum of one month passes between the contracts of employment.

If you are an employee

This section tells you about the conditions which you as an employee must fulfil in order to become eligible for the special tax scheme.

Tax liability in Denmark before and during employment

As an employee, you must not have been fully liable to taxation in Denmark or subject to limited tax liability on earned income etc. or commercial income within the last 10 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 2009, after which you stayed abroad in 2010 (cessation of tax liability). You may subsequently use the scheme in your new employment in Denmark in 2011 if it has not been at least 10 years since you, according to the regular tax rules, 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 - 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 10 years before the commencement of your new employment. During those 10 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 10 years prior to your new employment.

Previous employment with the same enterprise or group

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. Similary, the rules have no bearing on approved researchers. See the section Approval of researchers.

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.

Co-owner of the employer's enterprise

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 SKAT assesses whether control is being exercised, the same criteria are applied as for shareholders. This means that you or your close family 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.

If you do not fulfil the conditions throughout the period of employment

Taxation under the special tax scheme ceases immediately if you as an employee no longer fulfil one or more of the conditions.

If you are an employer

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:

  1. Persons or estates of deceased persons that are subject to full tax liability
  2. Persons or estates of deceased persons that are subject to limited tax liability on income from carrying on business through a permanent establishment or from participating in such a business in Denmark
  3. Companies that are subject to full tax liability
  4. Foreign companies that are subject to limited tax liability on income from carrying on business through a permanent establishment or from participating in such a business in Denmark
  5. Institutions - such as governmental and municipal institutions
  6. Foundations, associations etc.

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.

Limited partnerships

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.

If the employer does not fulfil the conditions throughout the period
Taxation under the special tax scheme ceases immediately if you as an employer no longer fulfil one or more of the conditions.
Requirements for the employment

Below, you can read more about the requirements which the contract of employment must meet.

More than one contract of employment with different employers

If the employee has entered into several concurrent contracts of employment with different employers, the special tax scheme for the individual contract of employment may be used only if all the conditions are fulfilled in respect of the individual 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.

Requirements as to where the work is to be performed

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 taxpayers 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).

Salary amount

In 2011, the salary, on average, must amount to not less than DKK 69,300 a month before AM-bidrag and tax but after deducting labour market supplementary pension fund (ATP) contributions. The amount of DKK 69,300 also comprises the value of any free car and multimedia.

If the employee pays obligatory foreign social contributions, there are circumstances in which these contributions can be deducted in the calculation of tax. See section ATP, AM-bidrag, obligatory foreign social contributions.

If the employee pays contributions to an employer-administered pension scheme to which exemption of contributions has been granted, the contributions will not be included in the salary when SKAT assesses if the salary requirement has been fulfilled. This applies to the employer's contributions as well as to the employee's contributions to the pension scheme.

See more in the section Pension schemes.

No minimum salary requirements apply for approved researchers who are to engage in research.
Average monthly salary according to the contract of employment

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.
How to register employees for the scheme

Within 8 days of the obligation to deduct tax commencing, the employer must fill in form 01.012 and submit it to SKAT, Udland Bruttoskat listed on the form.

The employer must enclose a copy of the contract of employment together with any documentation concerning obligatory, foreign social security, any approval of qualification as a researcher 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 registration of the employee for the scheme and 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.
Choice of the scheme after commencement of employment

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.

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 again. This also applies to the condition that you must not have been liable to taxation in Denmark for the past 10 years prior to the commencement of your employment.

Calculating the tax

The 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 and multimedia.

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.
Tax-free reimbursement of expenses
If the employer reimburses expenses incurred by the employee in connection with the performance of his or her work, such reimbursement is exempt from taxation according to the same rules as apply to ordinary income taxation.
ATP, AM-bidrag, obligatory foreign social contributions

ATP and AM-bidrag are deducted from the wage by the employer. The employee, who is covered by the special tax scheme, must pay ATP and AM-bidrag under the same rules as regular wage earners. AM-bidrag amounts to 8% of the gross pay. You can find information of the ATP amount at www.atp.dk.

Tax is calculated on the salary after deduction of ATP and AM-bidrag.

If the employee is covered by social security in an EU/EEA country and obligatory foreign social contributions are paid by either the employee or the employer, and it is deducted in the salary after the inclusion of ATP and AM-bidrag, there are circumstances in which these contributions can be deducted in the final calculation of tax according to the special tax scheme.

This can be the case if

the employee is fully liable to taxation and resident in Denmark after a double taxation agreement with an EU/EEA country.

the employee is subject to limited tax liability and has concluded an agreement with the employer on payment of obligatory foreign employer's countribution in an EU/EEA country.

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.

Pension schemes

Pension 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/EEA member states. Contributions to pension schemes in countries other than those mentioned above must be included in the basis for calculating A-tax. 

The total salary is subject to 26 per cent taxation

The total salary in the form of monetary remuneration or in the form of free car and multimedia 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.

No deductions

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.

Employers must report and pay AM-bidrag and A-tax

It is the employer or his agent who must deduct AM-bidrag at 8% and A-tax at 26% of the 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 employer must report salary information to eIndkomst (e-income) and pay A tax and AM contributions each month exactly as for the other employees of the enterprise. When reporting salary information for employees under the special tax scheme, the type of income must be indicated with "Forskerordningen (08)" (Researcher scheme (08)) and income type with "26" indicated in the field Kode 68 (Code 68). If the employee has chosen to pay tax at a rate of 25 per cent, the type of income must be indicated with "Forskerordningen (08)" (Researcher scheme (08)) and the income type with "48" indicated in the field Kode 68 (Code 68).

If contribution to foreign social security can be deducted at the calculation of A-tax, the contribution must be stated in box 89. At the same time the income type must be indicated with "Forskerordning (08) and the income type with 26 / 48.

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 indicate "26" or "48" in the Kode 68 (Code 68) field here.

Read more in the guide eIndkomst. Please note that this guide is only available in Danish.
If you as an employee have other income

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 guide Taxation - when moving to Denmark.
Deductions in respect of expenses associated with other income

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, e.g., that you can only deduct interest expenses for the period 1 July - 31 December, if you end the special tax scheme 30 June in a year.

Deficit from non-business activities

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 cannot forward non-business losses to your spouse. Nor may your spouse carry forward any losses which you are not allowed to carry forward yourself.

Personal allowance

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 2011. Any unused portion of your personal allowance cannot be transferred to your spouse. Nor can any unused portion of your spouse's tax-free allowance for positive net income from capital used in the calculation of his or her top-bracket tax be transferred to you.

For further information, please refer to the guide 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.
How to prepare your annual tax assessment notice as an employee

Income which is subject to tax under the special tax scheme will, like other income salary, be preprinted on your tax assessment notice Thus, you only need to inform SKAT about income which is not preprinted or is missing on your tax assesment notice.

Read more in the section If you as an employee have other income and in the guide Taxation - When moving to Denmark.
Approval of researchers

The concept of "research 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 for researchers. 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 work in public research institutions and similar work in private enterprises. Thus, research activities undertaken in, for example, the pharmaceutical sector or the IT business can also be included.

Approval procedure

The approval procedure is described below:

In connection with employment at institutions covered by the Danish University Act (Lov om universiteter m.fl.) and the Danish Government Research Institution Act (Lov om sektorforskningsinstitutioner), the management of the institution decides whether the qualifications as a researcher can be approved. 

In order to obtain approval for his or her qualifications as a researcher, the taxpayer 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.

To be covered by the rules of the researcher scheme, it is required that the employee, in addition to having his/her qualifications as a researcher approved, engages in research. This must be stated in the employment contract which is included in the application of approval as a researchers. It must be a proper research position. Positions which do not contain the usual research obligations do not qualify for the special tax rules for researchers. This does not mean that the position cannot contain teaching obligations, but the research obligation must amount to an extent which is usual for a research position at a university or a research institut.

The employee must have been approved as a researcher 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.
Tax authorities in Denmark

SKAT comes under the Danish Minister for Taxation. You can find relevant addresses of tax centres etc. 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.