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Does Denmark really have the highest tax in the world?

Denmark is known for having having high income tax but is it really the highest tax in the world?

Does Denmark really have the highest tax in the world?
The Tax Agency in Copenhagen. The most recent OECD report listed Denmark as the highest tax country followed by France, Belgium, Italy and Sweden. Some economists in Denmark disagree with the ranking. Photo: Niels Christian Vilmann/Ritzau Scanpix

It is well known that Denmark is a country of high taxes but during the election last year, several politicians complained that Denmark’s tax was the highest in the world.

“We are the world’s most heavily taxed country”, said Liberal’s (Venstre) party leader, Jakob Ellemann-Jensen, during a debate between prime ministerial candidates on DR in October 2022.

Then-leader of the Nye Borgerlige party leader, Pernille Vermund, made a similar point on Twitter, writing “we live in a country with the world’s highest tax burden”, in a post about failures in nursing homes.

More recently, the libertarian opposition party Liberal Alliance has also pushed the line that taxpayers are subject to a higher rate in Denmark than in any other country.

Politicians and parties making this assertion typically refer to the fact that the OECD (Organisation for Economic Co-operation and Development) has listed Denmark as the highest tax country for several years.

The most recent OECD report listed Denmark as top, followed by France, Belgium, Italy and Sweden.

But some economists disagree with the way tax is assessed in these world rankings, which makes Denmark’s tax system appear more extreme than it is.

How much do people in Denmark pay in tax?

A salary in Denmark will include the following deductions: Labour market tax (AM-bidrag 8%), State tax (bundskat 12%), Municipality tax (kommuneskat 25%), State pension contribution (ATP-bidrag 94.65 kroner).

If you have an income of 45,500 kroner per month (which is the average salary in Denmark, according to Statistics Denmark), that means around 45.1 percent will be taxed, and 94.65 will go towards the state pension, giving you a total of 24,884.85 kroner per month (3,340 euros per month) after deductions. 

Various tax deductions can result in this amount being reduced.

READ MORE: What salary can you expect to earn in Denmark?

Why is Denmark so high in the world rankings?

Analysis from Denmark’s economic-political thinktank Economic Council of the Labour Movement (Arbejderbevægelsens Erhvervsråd, AE) shows that some key factors are missing in the OECD calculations of countries’ tax burdens.

“The tax burden is the amount of personal income a typical person is meant to hand over to a government and the total income in society administered by the government,” AE’s chief analyst Jon Nielsen told The Local.

“The OECD calculates the tax-to-GDP ratio but that is not a good reflection of the tax burden for two main reasons.

“Firstly, the calculations include taxes on social benefits. Tax collected on social benefits is not income that shifts from the hands of citizens to government, it is income shifted from one area of government to another.

“In 1994, public pensions became taxed, so the tax-to-GDP ratio rose without the government getting higher revenue, or citizens getting lower disposable income, because benefits were set up to compensate people. So if you compare countries where social benefits are fully or partly taxed, we need a correction to make the comparison accurate,” Nielsen said.

This situation was noted by Statistics Denmark in its report ‘Taxes and Charges’ 2022.

“The second correction needed is that we should be using gross domestic income (GDI) to compare countries and not gross domestic product (GDP). GDP measures how much value is created within Denmark’s borders but a lot of Danish income now comes from abroad,” Nielsen told The Local.

“During the last thirty years, globalisation has set in and more income has come from assets abroad, for example through pension funds. If you include that income, the Danish tax burden is reduced,” Nielsen said.

If you take those factors into account, Denmark drops to fifth place among the OECD countries, an AE analysis concluded.

“The myth that we the have the highest taxes in the world makes people think of Denmark as somewhere exclusively highly taxed and an international exception, but we are not. We are in the higher ranks of course but there is nothing special about Denmark and high taxes,” Nielsen told The Local.

Is Denmark’s tax too high?

Politicians who favour lower taxes in Denmark might argue that the analysis by AE doesn’t change anything. 

“I have no doubt that there is more than one way to calculate the tax burden. But even if you use AE’s figures, it does not change the fact that the tax burden is very high in Denmark. Fifth place is also high,” the Conservative mayor of Lyngby-Taarbæk municipality, Sofia Osmani, told newspaper Politiken in October 2022.

AE’s chief analyst Nielsen argued that Denmark’s tax system is what provides an equal society.

“You can’t say that countries with high taxes are more expensive to live in. The fact that healthcare, childcare and education are financed by the tax system, means that the personal amount you have to spend on those items is less than in other countries,” Nielsen said to The Local.

“Denmark’s taxes are one of the reasons we have such an equal and highly productive society, where the general education level is high, the infrastructure works well and spending on research and development is high. The fact that we have high taxes is a key reason why our welfare system produces these equal and fair opportunities for all,” Nielsen said.

READ ALSO: How will new Danish government change income tax?

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How have work permit rules been changed in Denmark?

After the Danish parliament last week voted to ease some work permit requirements, we take a closer look at which rules have been changed.

How have work permit rules been changed in Denmark?

Parliament to voted last week to make changes to Denmark’s immigrations rules designed to make it easier to for companies to hire internationally.

The bill, which was submitted to parliament in February by immigration minister Kaare Dybvad Bek, permanently reduces the minimum wage required under the Pay Limit Scheme (Beløbsordning), making it easier for companies to recruit skilled workers from non-EU countries.

It also opens up the country’s fast-track work permit certification scheme to companies with as few as ten employees, extends the job search period for foreign graduates of Danish universities to three years, adds more job titles to the Positive List for People with Higher Education, and extends the Start-up Denmark scheme for entrepreneurs. 

The new rules come into effect on April 1st, after which work permits can be applied for under the new rules.

Pay Limit Scheme 

The Pay Limit Scheme is an arrangement by which work permits are granted to non-EU nationals. Under the scheme, work permits can be granted to applicants who have been offered a wage above a set amount by a Danish employer.

Under the old rules that minimum wage was 448,000 kroner per year. The law change permanently reduces it to 375,000 kroner per year.

Foreign workers can now be given a work permit under the scheme on the lower wage, but it should be noted that that jobs given to non-EU citizens hired internationally are still subject to rules ensuring equivalent pay for the roles.

This means that if the role being hired for was normally paid 425,000 kroner, for example, employers will still have to pay this level, and not the 375,000 kroner minimum. 

Fast-track work permit 

The Fast-track Scheme allows certified companies to employ foreign nationals with special qualifications more quickly and easily than through the standard pathway.

If an employer and employee agree they want the new job to be started quickly, the employer can be given power of attorney to submit an application under the Fast-track Scheme on behalf the employee. It is a prerequisite that the employer is certified to use the Fast-track Scheme.

In short, this means that employers, by registering the scheme, can enable their foreign hires to be granted a temporary work permit so they can start their job immediately after arriving in Denmark, or – if the employee is not exempted from Danish visa rules – get them a permit including an entry visa within 10 days.

The new rules allow companies with as few as 10 employees to register for the scheme, a reduction from the minimum of 20 under the old rules.

Job search period for foreign graduates of Danish universities 

The outgoing rules allow students who have completed and been awarded a Danish Professional Bachelor’s (vocational), Bachelor’s, Master’s degree or PhD degree to can for an establishment card.

This is a residence and work permit that allows the graduated student to stay in Denmark for two years, the period of time the permit is valid, to enable them to apply for jobs and establish themselves on the labour market.

There are certain conditions attached to the establishment card: You must not give up your Danish address or stay abroad for longer than 6 successive months, and the permit does not allow you to work in other Schengen countries.

Under the new rules, all foreign nationals who complete degree programmes with the above classifications will automatically be given a three-year (a longer period than the two years given under the old rules) “job seeking period” in which they have the right to live and work in Denmark.

Positive List for People with Higher Education

The Positive List is a list of professions experiencing a shortage of qualified professionals in Denmark.

Danish Residence and work permits can be granted based on offers of jobs included in the Positive List. Applicants must have an educational background that makes them qualified for the job.

The Positive List is usually updated twice a year, in January and July, but the new rules open up this list to a broader range of applicants.

No information is currently available as to who will be covered by this broader scope, but the now-passed bill which implements the changes mentions that “regional labour market councils” and “specialised a-kasser” [unemployment insurance providers] can conclude there is “a national lack of qualified labour” and that job offers can thereby qualify for the positive list.

Start-up Denmark scheme for entrepreneurs

Start-up Denmark is a scheme for foreign entrepreneurs. Two-year work permits can be granted based on a business idea which must be approved by a panel of experts appointed by the Danish Business Authority. If the business is successful, the permits can be extended for three years at a time.

The scheme can be used by both individuals and teams of up to three people who want to start a business together in Denmark through a joined business plan.

There must be specific Danish business interests that favour of the establishment of the business in Denmark, and normal businesses such as restaurants or retail do not normally qualify under the existing rules.

However, like with the Positive List, the rule changes open the scheme to a broader range of applicants.

While it seems the new rules could benefit a broad target group of potential skilled foreign workers who see opportunities in Denmark, they “may be a game changer for the smaller companies hiring employees within industries with lower salary thresholds where the new hire has only a few years of experience,” Rikke Wolfsen, country manager Global Immigration practice with the Danish section of financial services company EY, told The Local in previous comments about the lower salary thresholds. 

Full details of the new rules and their relevant application pages and materials will be published on the website of the Danish Agency for International Recruitment and Integration (SIRI), the agency which processes work permit applications, on April 1st.

We will also report additional detail relating to, for example, the Positive List and job seeking period for graduates.