Taxes in Denmark
The topic of Danish taxes frustrates both foreigners and citizens alike, but there is no reason for it since we live in one of the most digitalised societies. The Danish taxation system is processed entirely online, and people can benefit from all services connected to reporting taxes and deductions with just a few clicks.
The Danish standard of living is well-known, and routed in the high taxation rates. There are some solid reasons for it. The free higher education and healthcare are just a couple of the many social security benefits Danish residents get when living, working and paying taxes in Denmark.
Introduction to taxation in Denmark
Denmark is built on trust, welfare and equality. The country is fully focused on citizens' rights and quality of life, therefore, it strives to provide broad access to GovTech/digital public services. Govtech is a term referred to any tech solution that digitalises governmental services and makes them easier to administer. Such as reporting to the Danish tax authorities.
From the moment internationals receive their residence and work permits, bank account and digital key(Nem/MitID), they have to set up their taxes online. This entails using their CPR and NemID/MitID to access the online tax portal known as SKAT. All institutions and companies in Denmark are directly linked to Skat (Danish tax authorities). The only thing a person needs to set up their tax card is the expected income for the accounting year and the year ahead. taxes are calculatedbased on these figures. The tax assessment notice is in March. People get a report if they overpaid or underpaid taxes. Don’t be surprised if there’s a queue to log onto Skat this day, people are eager to find out their situation.
What do you need to know about the Danish tax system at a glance?
The Danish tax system is progressive, meaning that citizens with lower incomes will have to pay less than those with higher incomes. The personal income tax is comprised of the following taxes:
- Labour market contribution(8%)
- State and Municipal taxes(≈ 24-26%)
- Health and pension(ATP) contributions(≈ 8-10%)
- Church tax (≈1%)
In order to receive a salary in Denmark, each person must pay taxes first. These taxes are usually paid through an A or B card. An A income(A-taxed card) is tax-deductible, whereas B income(B-taxed card) is more relevant for individuals with more than 1 income. The taxed card consists of all the abovementioned taxations. As an individual, you should not do anything except inform your employer which card to use when paying your salary.
Regardless of your income, all working individuals are taxed a fixed 8% rate that contributes directly to the Danish labour market(AM-bidrag). It covers state expenses related to unemployment. On top of this, the usual income tax rate is 37%.
What do you get out of your taxes in Denmark?
By paying taxes, citizens contribute to the state and the municipality institutions that help improve the city's infrastructure, support children and elderly, sponsor the police force and army and secure a good living environment in Denmark. In fact, Denmark is among the most livable cities with low crimes level. To start with, 8% goes to the Labour market. Collecting the tax enables individuals to get unemployment insurance (called A-kasse) for 2 years if they meet specific requirements. A-kasse allows you to take extra courses and improve your Danish language skills while the government supports you living in Denmark. In some cases, individuals cannot fulfil the requirements. In this case, they can apply for help from their local municipality.
Moreover, healthcare services are paid through taxes. Residents get free hospital and medical care. Getting an education is also free in Denmark, and students get an extra benefit in the form of scholarships, called SU, if they work more than 42 hours a week.