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Is it worth applying for Denmark's 27 percent flat tax for highly paid foreign workers?

Is it worth applying for Denmark's 27 percent flat tax for highly paid foreign workers?
The offices of the Danish Tax Agency. Photo: Sarah Christine Nørgaard/Scanpix

The level of income tax in Denmark -- with a marginal tax rate of 56 percent -- is hardly calculated to attract highly paid international executives, which is why they can get an exemption from it for their first seven years. Is it worth it?

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What is the background to the 27 percent flat tax? 

The exemption was brought in back in 1992 by the Thatcherite government of Poul Schlüter.

"The reason behind the scheme is simply to to get more qualified employees to Denmark," Rasmus Kjærgaard Nielsen, Tax Director at PwC in Copenhagen, told The Local. "So it's a matter of getting the specialised workers and engineers and CEOs and whatever. But definitely, it does create an advantage for for individuals coming to Denmark, compared to individuals already living here."

Called the "Tax Scheme for Researchers" or Forskerskatteordningen, the scheme is ostensibly aimed at attracting PhD students and researchers, but is also open to so-called "high earners", making it more or less a no-brainer for any highly paid foreign executive coming to Denmark to work. 

The scheme has been facing growing criticism, with the Socialist Left Party last year calling for Danish citizens to be banned from using the scheme, while criticising the ever growing use of it by high-earners in Denmark. 

"It makes sense to have a researcher tax scheme for those who are really researchers and have highly specialized knowledge. But when you look at the numbers, the majority of those who use the scheme are people who earn over 70,000 kroner per month," complained Sigurd Agersnap, the party's tax spokesperson. "There are examples of Superliga players or sportsmen returning home, and people in top jobs or middle management positions. I don't think it is targeted enough." 

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How high is the 27 percent expat tax really? 

While the scheme reduces tax on all income to 27 percent, it does not cover labour market contributions or arbejdmarkedsbidrag, which takes the effective rate up to 32.84 percent. 

People who pay tax under the Tax Scheme for Researchers are also not eligible for any subsidies that can apply for regular taxpayers, for example deductions for commuting or pensions contributions.

The flat tax scheme applies to money paid by your employer, as well as to benefits such as your relocation allowance, bonuses, school fees, company car and work phone. Some other things, such as free housing, and the employee's own private income from abroad, are taxed according to Denmark's normal tax rate.  

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Who is eligible for the scheme? 
 
To quality as as a highly paid earner under the scheme you need to have a monthly salary of at least 75,100 kroner in 2024, after your ATP pension contribution has been deducted, with the minimum salary adjusted annually in line with inflation. 
 
You also need to start work in Denmark at the same time as you become eligible for the scheme, only moving to Denmark a maximum of one month before starting work. 
 
"That's where a lot of people get caught," said Elena Sevostyanova, a senior manager at KPMG in Copenhagen. "They don't understand that they cannot just be in Denmark and then jump on the expat tax scheme" 
 
This salary needs to be guaranteed in your employment contract before you start work. This means that bonuses, which may or may not be earned, do not count. The value of benefits such as housing allowance, company car, phone, internet and health insurance, does count, however.
 
You can find the full breakdown on the tax agency's website here
 
You must also be moving to Denmark for the job, and can only spend a maximum of 30 days allowed a year working outside Denmark.
 
While you can be a Danish citizen, you cannot have been a tax resident in Denmark or taxed in Denmark as a non-resident for ten years before applying for the flat tax.
 
You also cannot have have had a controlling influence or owned more than 25 percent of the shares in the company that is bringing them to Denmark for five years before taking the job. You also need to be hired by an entity with full tax liability in Denmark. 
 
You can use the scheme for a total of 7 years, or 84 months, after which point, you start to be taxed under Denmark's normal progressive tax system. 

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So is it worth it? 
 
"It generally always makes sense," Nielsen told The Local. "I think I have seen one example where it made better sense for an individual to use the ordinary rules, but that was because the individual had significant interest expenses, which are deductible in the Danish tax return. But for most people, it's definitely a no brainer." 
 
"It's a wonderful scheme. You can't get a lower tax rate than that," agreed Sevostyanova, although she warned that people should be aware that it only covers employment income and not other income from, for example, investments. "It's very specific what is written in the tax code about what you can apply this 32.8 percent tax rate to."

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Comments (1)

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with held 2024/03/08 14:20
A word of caution to an my expatriates applying for this reduced tax scheme. Make sure you have a reliable and experienced Danish tax advisor or you will end up paying full Danish tax and a very difficult discussion with your employer or enjoyment agency. My experience was my U.K. based employment agency put me through a Danish tax consultancy. I was advised and given the reduced tax rate. Only to find out after 2 years the Danish tax authorities decided I was not eligible for the reduced scheme, and I was moved onto the full Danish taxation. I am now in a very stressful battle with my U.K. agent, the inexperienced Danish tax advisor and the Danish tax authority. Be careful!

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