Taxes in Denmark

Overview of the Danish tax system

Taxes are collected by the Danish Tax Agency (SKAT), which is responsible for administering tax laws. Anyone who lives and works in Denmark and has an income is liable to pay taxes.

How is the tax revenue used in Denmark?

The tax revenue collected in Denmark funds various public services, including healthcare, education, social welfare, infrastructure, and other initiatives. Denmark is known for its high-quality public sector services , provided to all citizens and residents.

The following areas, among others, are funded through tax revenue:

• The Danish healthcare system
• Social welfare programs in Denmark, such as unemployment benefits, pensions, and child support
• The education system, free for all students - including international students
• Infrastructure projects, such as roads, bridges, and public transportation

Read more about taxation in Denmark here.

Tax rates

The income tax rates range from about 37% to about 53% depending on income level and what the tax includes. Also, income taxes in Denmark include various taxes, such as the national taxes, local municipal taxes, labor market tax, share tax, and church tax.

Some of these taxes will vary depending on what municipality you live in.

The national taxes make up the biggest part of the income tax paid by taxpayers in Denmark. When discussing national taxes, the taxes are divided into bottom and top taxes - these are also called bottom-bracket taxes and top-bracket taxes.

The national tax rates in Denmark are progressive - meaning that those with higher incomes pay a higher tax rate.

Types of taxes in Denmark

Taxes in Denmark are typically divided into direct and indirect taxes. Direct taxes are levied directly on individuals and businesses (such as income tax and property tax). In contrast, indirect taxes are included in the price of goods and services (value-added-tax and Excise taxes).

There are several types of taxes in Denmark, including but not limited to:

• Income tax
  Income tax is the primary source of revenue for the Danish government. As mentioned earlier, the income tax rates are progressive, depending on the individual’s income.
  
• Value-added tax (VAT)
  Value Added Tax (VAT) is a tax on goods and services the end consumer pays. The VAT rate in Denmark is currently 25%.
  
• Excise duties
  Excise duties are levied on specific goods and services, such as alcohol, tobacco, and gasoline, to discourage consumption.
  
• Property taxes
  Property tax is a tax on the value of real estate property. In Denmark, property tax is paid by the property owner and is calculated as a percentage of the property's assessed value.
  
• Capital gains tax
  Capital gains tax is a tax on profits earned from the sale of assets such as stocks, bonds, and real estate. The Capital gains tax is calculated as a percentage of the profit made on the asset's sale.
   
• Inheritance and gift tax
  In Denmark, an inheritance tax is paid by the recipient of the inheritance. The tax rate depends on the value of the inheritance and the relationship between the deceased and the heir.
  
• Labor market contribution tax (AM-bidrag) and ATP contributions
  AM-bidrag is a labor market contribution tax of about 8% of the gross pay - paid by both employees and employers. The tax is used to fund unemployment insurance and job training programs. ATP Livslang Pension contributions are also mandatory for both employers and employees . The ATP tax being deducted from your payslip is informed by many factors, such as whether you’re employed in the private or public sector.
  
• Municipal taxes
  Municipalities levy municipal taxes to fund local public services, such as schools, hospitals, and waste management. The taxes vary depending on the municipality.
  
• Church tax (optional)
  Church taxes are levied on members of the Church of Denmark to fund the church’s operations and maintenance of church buildings. The tax is optional, and the rate differs from municipality to municipality.
  

A tax and B tax

A tax (A-skat) and B tax (B-skat) are terms used to describe the different tax rates that are deducted from your salary.  The A tax card is used for the primary income tax that all Danish taxpayers pay.

The tax is based on taxpayers' income during the tax year and will include deductions. A-skat will be paid automatically each month.

B-tax is a supplementary tax paid by certain groups of taxpayers - such as self-employed individuals, freelancers and company directors with varying income. With b-tax it’s your own responsibility to pay tax and labor market contributions accordingly.

Read more about A tax and B tax at skat.dk

Tax deductions

Several tax deductions available to taxpayers can help lower the taxable income. These include, but are not limited to:

• Mortgage interest deduction
  If you own a home in Denmark and have a mortgage, you can deduct your mortgage interest payments from your taxable income.
  
• Retirement contributions
  You can deduct these contributions from your taxable income if you contribute to a retirement account in Denmark - such as a pension plan.
  
• Basic employment deduction (personal allowance):
  All taxpayers in Denmark are entitled to a yearly standard deduction of 48,000 kr. from their taxable income - or 38,400 kr. if you are under 18 years old.
  
• Deduction for transport:
  If you have commuting expenses, such as public transportation costs or mileage, you may be able to deduct these expenses from your taxable income.
  
• Deduction for trade union fees:
  If you're a member of a union in Denmark, you can deduct certain union fees from your taxable income.
  
• Home office expenses:
  If an individual works from home, they may be able to deduct certain expenses related to their home office, such as utilities and office supplies.

It’s important to note that these deductions have specific requirements, and not everyone will be eligible. Be sure to check the Danish tax authorities’ website for more information.

Tax assessment notice and preliminary income assessment

In Denmark, the tax assessment notice (årsopgørelse) documents and summarizes an individual’s tax situation for a given year.

It contains detailed information about the individual’s income, deductions, and tax liabilities for the year in question - and whether you are entitled to a tax refund, or have to pay back tax.

It’s always a good idea to update information and numbers frequently to stay on top of your tax situation and pay the right tax. This is done through the preliminary income assessment .

The Danish tax authorities provide information and assistance on their website , and private tax consultants are available to help you navigate the Danish tax system.

Moving or living in Denmark? Don’t forget your Danish bank account

Lunar is a Danish, award-winning digital bank. If you become a user, you can open a free Danish bank account that includes a digital card as well as an easy-to-use banking app.

You can also open your NemKonto with Lunar, which you’ll need to receive payments from the Danish authorities and welfare system.

The sign-up process is easy and 100% digital, meaning you can do it from the comfort of your home.