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TAXES

Four ways to (legally) lower your tax bill in Denmark

Denmark has a reputation for having higher taxes than most other countries. These deduction rules can help you to reduce your annual bill.

Published: 16 September 2021 16:43 CEST
Four ways to (legally) lower your tax bill in Denmark
Knowing which deductions you might be entitled to claim can help ensure you don't overpay on your tax bill. Photo: Thomas Lekfeldt/Ritzau Scanpix

Denmark recently overtook France to become the highest tax country in the European Union, according a new comparison of tax rates across the bloc.

The 2020 edition of Taxation Trends in the European Union found that Denmark’s government in 2019 raised 46.1 percent of GDP in tax revenues.

While that fits in with the country’s long-established model providing a high social security net, there are a number of deduction rules to be aware of if you want to ensure you’re not paying more than you need to.

Self-employed and employed people alike can adjust their tax returns by logging in to the skat.dk website and entering the deductions on their forskudsopgørelse (preliminary tax return, prior to March) or årsopgørelse (annual return, calculated and displayed on the SKAT website at the beginning of March). The deadline for the latter falls in May each year.

READ ALSO:

Travel deduction (kørselsfradrag) 

If you travel a long distance to get to and from work, you may be entitled to deduct some of your travel expenses from your taxable income.

The travel deduction, or kørselsfradrag, is designed to cover the cost of travelling to and from work over a set minimum distance. It applies to rail and car journeys alike (for cars, the cost of fuel used for commuting comprises the deductible amount).

You can claim the deduction if you travel at total of 24 kilometres to get to and from work (12 kilometres each way, in other words). This only applies on days when you actually travelled from your home to a place of work, and not, for example, for days you spent working from home.

As such, many people claimed a much lower travel deduction in 2020 compared to preceding years, with home working mandatory for many during the Covid-19 pandemic.

The value of the deduction is 26 percent. As such, if you spent 1,000 kroner on travel in a year, your tax bill can be reduced by 260 kroner.

Food and accommodation (kost og logi) 

Like with transport, you can get a deduction for the cost of food and accommodation (such as hotel stays) from your tax bill, if these are incurred when you stay away from home for work. In this case, by applying a daily rate for deduction.

Deductions are also granted for so-called “double householding” (dobbelt husførelse) if you have a temporary work place far from your home, which, due to the distance, requires you to take accommodation rather than travel from home each day.

The maximum amount for which you can be given a deduction is 29,300 (for the 2021 tax year).

Work clothes, textbooks, courses (and more) 

With a few exceptions, the cost of things that you need to buy to be able to do your job – clothing, textbooks or equipment – can be applied as a tax deduction.

It should be noted that such items must only be bought for work use, so if, for example, you purchase a laptop and use it for both work and personal matters, it won’t be tax deductible.

If you have a home office or workshop, you can deduct costs for the room in a narrow set of circumstances only: the type or extent of the work you do in the room must prevent it from any other (private) home use. A laboratory would qualify, for example, but a desk in the corner of your bedroom won’t.

However, you can apply a deduction to at least 6,500 kroner of your income if you are eligible for this deduction.

Likewise, clothes and textbooks must be impossible to conduct your work without for them to qualify for deductions. Think uniforms, not suits; and academic journals in your specific field, not National Geographic.

Unemployment insurance and union membership (A-kasse og fagforening) 

If you are member of an unemployment insurance provider (A-kasse) or a union – which the majority of people on the Danish labour market are – then you can claim a deduction for your membership fees.

EXPLAINED: Should I sign up with a Danish union and get unemployment insurance?

There are rules for the maximum costs you can claim a deduction for – around 6,000 kroner per year for unions, for example, which may be a little less than you actually pay.

As with the other deductions listed above, you include these costs in your tax return by logging on to the website of the Danish Tax Authority, SKAT, and entering them in the appropriated boxes on your preliminary or annual return.

Sources: SKAT (1), (2), (3)

READ ALSO: What do Denmark’s proposed welfare reforms mean for foreign residents?

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For members

WORKING IN DENMARK

What you need to know if you lose your job in Denmark

It's not fun to lose your job, but Danish laws and collective agreements give you a number of rights and there are steps you can take to help insure yourself against the possibility of being out of work.

Published: 8 March 2023 15:02 CET
What you need to know if you lose your job in Denmark

Denmark is currently experiencing a labour shortage and low unemployment. Many companies and sectors are calling for additional foreign labour to meet their recruitment needs, something the government appears to be willing to take steps to accommodate.

Of course, none of these things mean individual companies might not be experiencing headwinds or that the situation can change. There are various kinds of business needs that could be the catalyst for a restructuring, such as financial hardships or pending mergers. This can also mean that some employees will lose their jobs.

If you do lose your job in Denmark, you are covered by certain aspects of the law. It is also a good idea to think about taking the necessary measures — such as A-kasse membership — that can protect your from some of the financial implications of unemployment.

Notice periods 

If you are covered by the Salaried Employees Act (Funktionærloven), then you are entitled to certain notice periods before any significant change happens to the terms of your employment.

You can see in your contract whether you are a salaried employee (funktionær), but generally, the term applies to staff who have been employed for over 1 month and work more than 8 hours weekly, on average.

Sectors in which staff are considered funktionærer include business and administration, purchasing, selling, technical and cleaning services; and management and supervision. In short, people who work in offices, sales or purchasing or certain types of warehouse jobs are likely to be covered.

Areas which may not be covered include factory work or craftsmanship, nor are people hired through temp agencies (vikarbureauer) covered by the act.

The notice periods provided by the Salaried Employees Act cover things like notification of termination of employment or significant changes to your job duties. 

The amount of notice that you are entitled to is determined by how much seniority you have, as follows:

0-6 months of employment

1 month’s notice

6 months to 3 years

3 months

3 years to 6 years

4 months

6 months to 3 years

3 months

6 years to 9 years

5 months

More than 9 years

6 months

When you have worked at the company for 12 or more years, you are also entitled to additional compensation (Danish: fratrædelsesgodtgørelse) if you are let go from your job, per the Danish Salaried Employees Act.  

The compensation is 1 month’s salary after 12 years’ employment and 3 months’ salary after 17 years of employment.

It is possible that your company will also provide other additional payments due to restructuring activities. This varies from company to company and is not part of the Danish Salaried Employees Act. 

Should I join an A-kasse?

Membership of an unemployment insurance service provider, an A-kasse (arbejdsløshedskasse) is the first step to keeping your income steady while you begin the process of finding new employment. Finding a new job is a task the A-kasse itself can assist you with.

It can be difficult to figure out which A-kasse to join and while some are cheaper than others, it’s not just about paying an insurance premium. In the event that you become unemployed, it’s good to have an A-kasse that is an appropriate fit for your background, so that they can better help you with your plan to get back into the workforce.

A-kasser are private associations which have been authorised by the Danish state to administer unemployment benefits. The state regulates the requirements for receiving benefits while the A-kasse administers the benefits.

If you are interested in A-kasse membership, you must apply to the A-kasse of your choice, either as a full-time or part-time insured member. A-kasse members pay a tax-deductible monthly fee, which gives them the right to receive unemployment benefits (dagpenge) should they become unemployed.

There are a lot of rules that you’ll have to familiarise yourself with, including when you will be allowed to apply for benefits and how long you can receive them for. Members must meet certain eligibility requirements to receive unemployment benefits, which include being a member of an A-kasse for at least 12 months.

According to Denmark’s digital self-service website Borger.dk, one must also have earned at least 246,924 kroner (2022) in the past three years for full-time insured and 164,616 kroner (2022) for part-time insured. You also have to have worked for a certain period of time within the last three years, which varies depending on whether you were insured as full-time or part-time.

READ ALSO: A-kasse: Everything foreigners in Denmark need to know about unemployment insurance

What else should I keep in mind?

In general, the Danish labour market system is not primarily based on laws, as you may be used to from other countries, but on agreements and negotiations, primarily collective bargaining agreements or overenskomster between trade unions and employer associations. You may have heard of the concept ‘the Danish model’ (den danske model) referred to in this regard.

A large proportion of people who work in Denmark are therefore trade union members.

Collective bargaining agreements cover many aspects of Denmark’s labour market, from wages to paid parental leave. 

A lesser-known fact about the Danish labour model is that employees covered by collective bargaining agreements won’t have to negotiate general employment terms – regardless of whether they are trade union members.

There are large central agreements in both the public and private sectors. Therefore, employees whose contracts are regulated by a central bargaining agreement won’t individually have to negotiate general terms of employment, like working hours or a minimum salary. 

The particular collective agreement upon which your contract is based may be mentioned in your contract, and if it isn’t, you can ask your employer. 

READ ALSO: What is a Danish collective bargaining agreement?

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