How does income tax work in Denmark?
Denmark is an expensive place to live, which makes understanding taxes even more important.
All wage earners in Denmark pay an income tax (indkomstskat), which consists of various components. The largest part of most people’s income tax is municipality tax (kommuneskat), which I about 25 percent of your gross income (the actual percentage varies by 1-2 percent depending on the municipality in which you live).
A salary in Denmark also include deductions for labour market tax (AM-bidrag 8%), state tax (bundskat 12%) and 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 percent will be taxed, and 94.65 will go towards the state pension.
Various tax deductions can result in this amount being reduced, the most common one being for commuting to work.
READ ALSO:
- Five ways to (legally) lower your tax bill in Denmark
- EXPLAINED: How does Denmark’s tax deduction for commuting work?
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Depending on your earning levels, you may also be taxed at higher rate for the highest bracket of your salary. This high-wage tax bracket is called topskat (literally “top tax”).
The amount you need to earn to pay topskat changes each year but in 2024, the threshold is 640,108 kroner. After labour market contributions (AM-bidrag), this is 588,900 kroner.
If you earn less than this, you don't pay topskat. If you earn more than this, you pay a tax rate of 15 percent on all earnings from this threshold and up.
To give an example, if you earn 690,108 kroner before labour market contributions, you will pay 15 percent topskat on 50,000 kroner of your earnings – the amount by which the threshold is exceeded.
A major tax reform to be phased in from next year will see several changes to the income tax system, particularly in relation to top tax and other tax brackets.
Topskat will be halved for persons whose annual income is under 750,000 kroner, meaning they will pay a rate of 7.5 percent on income that falls into the topskat bracket, instead of the regular 15 percent. This “lower” rate of topskat has been termed mellemskat (“medium-tax”).
A new rate will meanwhile be introduced for the very highest earners, often referred to in Danish as toptopskat, literally “top-top-tax”. The new bracket will apply to people with annual incomes over 2.5 million kroner.
As well as income from employment, other types of personal income are included in the tax calculation. These can include pension distributions, social security benefits, property earnings, remuneration for advisory assistance and dividends from Danish companies.
A complex list and system of deductions (fradrag) is used by the Danish tax model, such as the commuter deduction mentioned above as well as pension contributions, trade union and unemployment insurance memberships, home services and work costs. Deductions can be applicable to the various types of income or tax base.
Do you have any specific questions about the Danish tax system you’d like us to write about? Let us know.
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All wage earners in Denmark pay an income tax (indkomstskat), which consists of various components. The largest part of most people’s income tax is municipality tax (kommuneskat), which I about 25 percent of your gross income (the actual percentage varies by 1-2 percent depending on the municipality in which you live).
A salary in Denmark also include deductions for labour market tax (AM-bidrag 8%), state tax (bundskat 12%) and 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 percent will be taxed, and 94.65 will go towards the state pension.
Various tax deductions can result in this amount being reduced, the most common one being for commuting to work.
READ ALSO:
- Five ways to (legally) lower your tax bill in Denmark
- EXPLAINED: How does Denmark’s tax deduction for commuting work?
- EXPLAINED: What is Denmark’s B-tax and who has to pay it?
Depending on your earning levels, you may also be taxed at higher rate for the highest bracket of your salary. This high-wage tax bracket is called topskat (literally “top tax”).
The amount you need to earn to pay topskat changes each year but in 2024, the threshold is 640,108 kroner. After labour market contributions (AM-bidrag), this is 588,900 kroner.
If you earn less than this, you don't pay topskat. If you earn more than this, you pay a tax rate of 15 percent on all earnings from this threshold and up.
To give an example, if you earn 690,108 kroner before labour market contributions, you will pay 15 percent topskat on 50,000 kroner of your earnings – the amount by which the threshold is exceeded.
A major tax reform to be phased in from next year will see several changes to the income tax system, particularly in relation to top tax and other tax brackets.
Topskat will be halved for persons whose annual income is under 750,000 kroner, meaning they will pay a rate of 7.5 percent on income that falls into the topskat bracket, instead of the regular 15 percent. This “lower” rate of topskat has been termed mellemskat (“medium-tax”).
A new rate will meanwhile be introduced for the very highest earners, often referred to in Danish as toptopskat, literally “top-top-tax”. The new bracket will apply to people with annual incomes over 2.5 million kroner.
As well as income from employment, other types of personal income are included in the tax calculation. These can include pension distributions, social security benefits, property earnings, remuneration for advisory assistance and dividends from Danish companies.
A complex list and system of deductions (fradrag) is used by the Danish tax model, such as the commuter deduction mentioned above as well as pension contributions, trade union and unemployment insurance memberships, home services and work costs. Deductions can be applicable to the various types of income or tax base.
Do you have any specific questions about the Danish tax system you’d like us to write about? Let us know.
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