Denmark

General Information

Country Name: Kingdom of Denmark
Currency: Danish Krone (DKK, kr.)
Primary Tax Authority: Danish Tax Agency (Skattestyrelsen)

Key Legislation:

Danish Constitution (Grundloven): Provides the fundamental legal framework for Denmark’s governance, including taxation principles.
Danish Tax Control Act (Skattekontrolloven): Regulates tax reporting, compliance, and administrative procedures.
Corporation Tax Act (Selskabsskatteloven): Governs corporate taxation in Denmark.
Personal Income Tax Act (Personskatteloven): Sets the framework for personal income taxation.
Value-Added Tax Act (Momsloven): Governs VAT on goods and services, aligned with EU VAT directives.
Tax Collection Act (Opkrævningsloven): Regulates the collection of taxes by Danish authorities.

Tax Authority and Collection Competence

Fiscal Authority Allocation:
Denmark operates under a centralized tax system. The Danish Tax Agency (Skattestyrelsen) is responsible for administering and collecting taxes nationwide.

Taxes Collected by Central Authorities:
Income tax, corporate tax, VAT, and customs duties are all collected centrally by the Danish Tax Agency.

Revenue Sharing Mechanisms:
Personal income tax revenues are shared between the national government and municipalities through a redistribution system. Municipalities receive a share of income taxes to fund local services.

Corporate Income Tax (CIT)

Standard CIT Rate: 22%
Taxable Income Definition: All worldwide income of Danish resident companies is subject to corporate tax. Non-resident companies are taxed on Danish-sourced income.
Deductible Expenses: Business-related expenses, such as salaries, depreciation, and interest payments, are generally deductible. Certain expenses, like entertainment costs, may have partial deductibility.
Loss Carryforwards/Carrybacks: Losses can be carried forward indefinitely. Carrybacks are not allowed.
Tax Incentives: Denmark offers R&D tax incentives and environmental allowances for companies investing in green technologies.

Value-Added Tax (VAT)

Standard VAT Rate: 25%
Scope of VAT: VAT is applied to most goods and services supplied in Denmark. Certain exports are zero-rated, and special rules apply for cross-border transactions within the EU.
Exemptions: Healthcare, education, financial services, and rental of real estate are generally exempt from VAT.
Reduced Rates: Denmark does not offer reduced VAT rates. The standard rate applies universally.

Personal Income Tax (PIT)

PIT Rates: Progressive tax rates range from 12.14% to 55.89%, depending on income levels and municipal taxes.
Municipal and Regional Taxes: These vary by location, with municipal taxes ranging between 22.5% and 27.8%.
Taxable Income Thresholds: Personal allowances reduce taxable income, with basic allowances set annually.
Deductions and Exemptions: Denmark allows deductions for union fees, transportation costs, and certain personal expenses. Contributions to pensions and charitable donations are also deductible.
Treatment of Foreign Income: Residents are taxed on their worldwide income. Non-residents are only taxed on Danish-sourced income. Denmark has a broad network of tax treaties to avoid double taxation.

Additional Mandatory Contributions

Overview:
Mandatory social security contributions in Denmark are lower than in many other EU countries, as most social services are funded through general taxation rather than payroll deductions. However, contributions are still required for certain areas like unemployment and labor market funds.

Social Security Contribution Rates:

Labor Market Supplementary Pension: 8% (employee contribution only).
ATP (Arbejdmarkedets Tillægspension): A small contribution split between employer and employee.
Employer and Employee Contributions: Contributions for social security are minimal and mostly borne by employers.

Withholding Taxes

Dividends: 27% withholding tax, reduced rates under tax treaties apply.
Interest: 0% withholding tax on interest payments to non-residents, subject to specific exemptions.
Royalties: 22% withholding tax on royalties paid to non-residents. Reduced rates apply under tax treaties.
Payments to Non-Residents: Subject to withholding taxes, though reduced rates may apply depending on tax treaties.

Transfer Pricing Rules

Documentation Requirements: Denmark follows the OECD guidelines on transfer pricing. Documentation is required for transactions between related parties.
Arm’s Length Principle: All related-party transactions must adhere to the arm’s length principle.
Penalties for Non-Compliance: Penalties for non-compliance can result in substantial fines and adjustments to taxable income.

Special Tax Regimes

Holding Companies: Denmark offers favorable tax treatment for holding companies, including exemptions from capital gains tax on shares and dividends under specific conditions.
Industry-Specific Incentives: R&D incentives, environmental allowances, and favorable tax treatment for certain renewable energy investments.
Free Trade Zones: Denmark does not have specific free trade zones, but it offers various incentives for companies engaged in international trade.

Other Taxes

Real Estate Transfer Tax: A 0.6% fee on the transfer of ownership of real estate.
Capital Gains Tax: Capital gains on the sale of shares are taxed at 27% up to a certain threshold and 42% above it.
Inheritance and Gift Tax: Inheritance tax rates vary between 15% and 36.25%, depending on the relationship between the decedent and the beneficiary.
Property Tax: Owners of real estate are subject to property tax, with rates set by the municipality. The national average is around 1% of the assessed value of the property.

Double Taxation Agreements (DTAs)

Key Partner Countries:
Denmark has an extensive network of DTAs, including treaties with the United States, the United Kingdom, Germany, China, and most EU countries.

Reduced Withholding Tax Rates under DTAs:
Tax treaties generally provide reduced rates for dividends, interest, and royalty payments.

Local Taxes

Municipal Taxes:
Danish municipalities impose taxes on personal income, which vary across municipalities. The average municipal tax rate is approximately 24%.

Compliance and Reporting

Corporate Tax Filing Deadlines: The corporate income tax return must be filed annually, with deadlines typically falling in June of the following year.
VAT Filing Requirements: VAT returns are generally filed quarterly, though large businesses may need to file monthly. An annual VAT return is also required.
Penalties for Late Filing/Non-Compliance: Late filing or failure to comply with tax regulations can result in fines and interest on unpaid taxes.

Recent Developments

Recent Tax Law Changes:
Denmark has made changes to its tax code to better align with the EU Anti-Tax Avoidance Directive (ATAD), focusing on limiting the use of hybrid mismatch arrangements and strengthening rules against aggressive tax planning.

Upcoming Reforms:
Denmark is considering further tax incentives for green energy investments, aiming to promote a sustainable economy. Additionally, the corporate tax rate may be reviewed in light of global minimum tax discussions.

Global Tax Initiatives:
Denmark supports the OECD’s Base Erosion and Profit Shifting (BEPS) framework and is actively involved in global initiatives aimed at implementing a global minimum corporate tax rate.

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