Taxation in Denmark
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The Danish income tax was introduced in 1903 and is now divided into a state income tax and a local income tax. The state income tax is a progressive tax while the local income tax is a flat tax.
Income tax
All income from employment or self-employment is taxed at 8% before income tax. This tax is termed a "gross tax". (Template:Lang-da)
Income below DKK 42,900 (USD 7,600) (2010-level, adjusted annually) is income tax-free, but subject to the gross tax.[1]
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 income 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%
Plus -
- Over DKK 42,900 -
- Municipal income tax - 23% - 28%
- Health income tax (income tax financing Regions) - 5%
- State income 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.
Whichever of those two assessments is lower results in the base land value.[2][3] This base land value is taxed at between 1.6 and 3.4% in 2013,[3] although some individual properties may pay more or less.
Proceeds from selling ones home - if there is any home equity (Danish: friværdi) - are not taxed, as the marginal tax rate on capital income from housing savings is around 0 percent.[4]
Local income taxes and other income taxes
The local income tax varies from municipality to municipality. The highest local income tax in 2009 is 27.80% and the lowest is 22.70%.[5]
The regional health care tax (Template:Lang-da) is 8%. It is set and handled by the central government, as the regions never have had the right to levy taxes independently unlike the counties.
Maximum income tax level
The sum of all income tax percentages (municipal income tax, state income taxes and the central government income tax financing health care in the Regions called health care contribution (Danish: Sundhedsbidrag)) cannot exceed 51.5%.[6]
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.
VAT
| Year | VAT level (Denmark) | Name |
| 1962 | 9% | OMS |
| 1967 | 10% | MOMS |
| 1968 | 12.5% | MOMS |
| 1970 | 15% | MOMS |
| 1977 | 18% | MOMS |
| 1978 | 20.25% | MOMS |
| 1980 | 22% | MOMS |
| 1992 | 25% | MOMS |
Denmark has a non-deductible value added tax (VAT) of 25%,[7] - MOMS (Template:Lang-da, formerly meromsætningsafgift). The tax is subject to the European Union value added tax Directives.
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.
References
- ^ http://www.skat.dk/SKAT.aspx?oId=133800
- ^ http://www.tax.dk/pjecer/ejendomsskat.htm
- ^ a b http://www.skat.dk/SKAT.aspx?oId=1648149
- ^ Danish Economic Councils Spring Report 2008 English Summary, p. 11
- ^ "SKAT.dk". The Danish Ministry of Taxation. Retrieved 2009-01-16.
- ^ "SKAT.dk". The Danish Ministry of Taxation. Retrieved 2010-07-18.
- ^ VAT in Denmark, p. 4.