Taxation in Denmark
|An aspect of fiscal policy|
All income from employment or self-employment is taxed at 8% before income tax. This tax is termed a "gross tax". (Danish: Arbejdsmarkedsbidrag)
Interest paid up to DKK 50,000 is tax deductible. Commuting exceeding 24 kilometers/day receives a DKK 1.90 per kilometer tax deduction. For commutes exceeding 100 kilometers per day, the rate is reduced to DKK 0.95 per kilometer. A number of other deductions apply. The general rule is that the taxpayer is able to deduct his/her expenses in acquiring their taxable income, although there are many exceptions to this rule. 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.
The state tax has three income brackets (base, medium and top), though two are currently coinciding. In 2010 income from DKK 42,900 to DKK 389,900 is taxed at 3.67% and income above DKK 389,900 is taxed an additional 15%.
The income tax can be broken down like this:
- Social contribution (gross tax) - 8%
- Over DKK 42,900 -
- Municipal tax - 23% - 28%
- Health tax (Region tax) - 8%
- State tax
- Below DKK 42,900 - 0%
- Over DKK 42,900 to DKK 389,900 - 3.76%
- Over DKK 389,900 - 15%
Danish tax examples as of 2010:
- very low income (DKK 150,000) - approx. DKK 44,500 in income tax (including gross tax), i.e. approx. 29.7% of the full amount.
- very low income (DKK 150,000), and you pay DKK 20,000 annually in interest - approx. DKK 38,000 in income tax (including gross tax), i.e. approx. 25.3% of the full amount.
- average income (DKK 375,000) - approx. DKK 134,800 in income tax, i.e. approx. 35.9% of the full amount.
- average income (DKK 375,000), and you pay DKK 30,000 annually in interest - approx. DKK 125,100 in income tax, i.e. approx. 33.04% of the full amount.
- high income (DKK 780,000) - approx. DKK 351,200 in income tax, i.e. approx. 45.0% of the full amount.
- high income (DKK 780,000), and you pay at least DKK 50,000 annually in interest - approx. DKK 334,900 in income tax, i.e. approx. 42.9% of the full amount.
Under the Danish tax system, therefore, it is possible for a high-wage earner to pay up to 51.5% of their total income after gross tax, giving a total of 57% of total income.
Land value tax
The Danish ejendomsskat (or Municipal Property Tax) is a land value tax, which taxes the base value of the land according to either:
- The total value of the property minus the value of improvements or
- The value of the property last tax year, altered by a growth/decline percentage.
Local and other taxes
The local tax varies from municipality to municipality. The highest local tax in 2009 is 27.80% and the lowest is 22.70%.
The regional health care tax (Danish: Sundhedsbidrag) is 8%. It is now set and handled by the government, as the regions no longer have the right to levy taxes independently.
The sum of all tax percentages (municipal tax, state taxes and health care contribution) cannot exceed 51.5%.
On top of the other taxes, members of the Danish National Church pay an addition 0.4% to 1.5% church tax. The rate depends on the municipality. While the church is a state institution, the church tax does not count toward the maximum 59% marginal tax, and one can be exempted from paying this tax.
|Year||Tax level (Denmark)||Name|
In Denmark, VAT is generally applied at one rate, and with few exceptions is not split into two or more rates as in other countries (e.g. Germany), where reduced rates apply to essential goods such as foodstuffs. The current standard rate of VAT in Denmark is 25%. VAT in Denmark is one of the highest rates, alongside Norway and Sweden. A number of services have reduced VAT, for instance public transportation of private persons, health care services, publishing newspapers, rent of premises (the lessor can, though, voluntarily register as VAT payer, except for residential premises), and travel agency operations.