Taxation in Denmark


Taxation in Denmark

The Danish income tax was introduced in 1903 and is now divided into state tax and local tax. The state tax is a progressive tax while the local tax is a flat tax.

The local tax varies from municipality to municipality. The highest local tax in 2007 is 26,71 % and the lowest is 20,14 %. Income below DKK 41,000 ($8,000) (2007-level, adjusted annually) is tax exempt. [cite web|url=http://www.tax.dk|title=Tax.dk|publisher=Spies Information|accessdate=2008-01-05]

There are three income brackets for the state tax. In 2007 income from DKK 39,500 to DKK 272,600 is taxed at 5,48%, income from DKK 272,600 to DKK 327,200 is taxed at additionally 6% and income above DKK 327,200 is taxed at 15% on top.

All income originating from terms of employment or self-employment are levied a social contribution at 8% before income tax. This contribution is widely regarded as "gross tax". The highest total income tax is therefore 62,28%.

A number of deductions apply. The general rule is that the taxpayer is able to deduct his expenses in acquiring his taxable income. There are many exceptions to this rule though. Employees have very limited possibilities for tax deduction as it is assumed that the employer covers the expenses related to the employee's work. The employer will then be able to deduct most of these expenses from his own taxable income.

Danish tax examples - as of 2008:
If you have what is considered a very low income (150,000 DKK equal to 31,250 USD) - you pay approx. 31,500 DKK income tax.
(Approx. 21% of the full amount.)
If you have what is considered an average income (375.000 DKK equal to 78,125 USD) - you pay approx 131,000 DKK income tax...
(Approx. 34.7% of the full amount.)

References


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