Tax Guide for Americans Living Abroad in Denmark

Living as an Expat in Denmark 

Denmark is a popular destination for expats due to its excellent quality of life, strong social welfare system, and progressive culture. The country offers a high standard of living, good healthcare, and high-quality education. Danes are known for being friendly, welcoming, and speaking excellent English, making it easy for expats to settle in and integrate. However, Denmark’s taxes for US expats can also be expensive due to the high tax rates and the cost of living.

It’s important to budget accordingly and plan for higher expenses. The weather in Denmark can also be challenging for some expats, as it tends to be cool and rainy for much of the year. 

If you’re an American expat living in Denmark, it’s essential to remember that you may be required to file a US income tax return or meet other reporting obligations, such as FBAR. In this article, we’ll provide you with all the necessary information to help you fulfill your expat tax obligations in both Denmark and the US, whether you’re already living there or considering a move. 

Denmark at a Glance

Expat Taxes for Americans Living in Denmark 

As an American living in Denmark, it’s important to understand the tax implications of being an expat. Denmark has a reputation for having a high tax rate, and as an American expat, you’ll have to navigate both US and Danish tax laws. 

First, as a US citizen or resident, you are required to report your worldwide income to the IRS, regardless of where you live or earn your income. This means you may be subject to double taxation, but there are ways to offset this, such as the Foreign Tax Credit. 

In Denmark, taxes are based on a progressive system, with higher earners paying a higher tax rate. You may also be subject to additional taxes, such as a church tax or municipal tax. 

It’s important to work with expert tax professionals like Greenback to ensure you’re fulfilling all your tax obligations and maximizing any potential deductions. With proper planning and guidance, navigating expat taxes in Denmark can be manageable. 

Who is Considered a Tax Resident in Denmark?

In Denmark, individuals who have a permanent home or residence in the country are considered tax residents. This means that if you have lived in Denmark for more than six months in a calendar year (more than 183 days), you are likely to be considered a tax resident and will be subject to Danish taxation on your worldwide income. 

If you are not sure whether you qualify as a tax resident in Denmark, you can contact the Danish Tax Agency (Skattestyrelsen) for guidance. It’s important to note that if you are a tax resident in Denmark, you are required to file an annual tax return and pay taxes on your income, including any income earned outside Denmark. 

Non-residents who work in Denmark may also be subject to Danish taxation on their income, depending on various factors such as the length of stay, type of work, and residency status. It’s essential to seek professional advice to ensure that you meet your tax obligations in Denmark. 

Income Tax Rates in Denmark

1. State Taxes: The national tax system in Denmark includes a bottom tax and a top tax on personal income.
   • The bottom tax rate is set at 12.09%.
   • The top tax is applicable at a rate of 15% on personal income exceeding a certain threshold. For 2023, this threshold is DKK 568,900 after considering a deduction of 8% for the labor market tax.
2. Local Taxes:
   • Municipal tax is levied on taxable income at a rate that varies depending on the municipality, with an average rate of about 25.018%.
   • Labor market tax is charged at 8% of personal income.
   • Church tax is also applicable for members of the Danish State Church (Lutheran), with an average rate of approximately 0.92%.
3. Share Income Tax:
   • Income from shares up to DKK 58,900 is taxed at 27%, and any income exceeding this amount is taxed at 42%.
4. Special Expatriate Scheme:
   • Expatriates employed in Denmark may opt for a special tax regime with a flat tax rate of 27% on their gross salary, subject to certain conditions. Including the labor market tax, the combined rate amounts to 32.84%.
5. Cap on Total Taxation:
   • The total marginal tax rate, including state, municipal, and certain other taxes, is capped at 52.07% for the year 2023. However, this cap does not include the labor market tax, share tax, property value tax, and church tax.
6. Taxation for Non-Residents:
   • Non-residents with limited tax liability in Denmark are taxed up to 52.07% on income from Danish sources, including the AM tax.

Other Taxes in Denmark

Income taxes in Denmark seem fairly low on their own. However, there are numerous other taxes that, when added to income tax, can push tax rates quite high.

Here are some other taxes Denmark may levy:

Labor Market Contribution

Denmark taxes all employment and self-employment income at 8% before income tax. This is called a “labor market contribution” or “gross tax” and is designed to cover sickness and unemployment benefits as well as job training.

Capital Gains Tax

Denmark levies a flat tax of 27% on capital gains — 42% for married filers. This is called a share tax. Gains and dividends are called income from shares.

Fortunately, you can deduct capital losses from your gains if Skattestyrelsen (the Danish version of the IRS) has been notified and received information regarding your purchase.

Church Tax

Members of the Evangelical Lutheran Church of Denmark, Denmark’s state church, pay a church tax to support the state church. Municipalities set their own flat church tax rates. PWC found that in 2022, the average church tax in Denmark was 0.7%.

Value-Added Tax

As an EU member, Denmark levies a VAT on many goods and services. The standard VAT is a flat 25%. Some goods, such as newspapers, are taxed at 0%. Others are exempted entirely, such as financial services, medical care, and passenger transport.

Property Tax

All Denmark property owners must pay a national property value tax based on the aggregate value of their owner-occupied home and the land it sits on. Property values are reassessed every other year for property tax purposes.

National property taxes are progressive:

These taxes are levied on Danish properties and properties in other countries. However, properties purchased no later than July 1, 1998, may qualify for a deduction. Rental property owners do not pay these taxes — instead, they pay taxes on their rental business’s net profits.

Additionally, Danish municipalities may levy property and land taxes on properties in their jurisdictions. Land taxes apply whether you live in or rent the property.

Corporate Tax

Denmark taxes almost all corporate income at a flat rate of 22%. 

This tax rate does not apply to upstream oil and gas companies. They use separate rates. Each one is “ring-fenced,” meaning tax losses from other income sources cannot be deducted against income from these oil and gas sources.

One tax rate is a flat 25% rate, similar to the regular 22% corporate tax rate but higher. 

Denmark also taxes profits from oil and gas exploration and extraction on the Danish continental shelf at 52%. This is Denmark’s “hydrocarbon tax”. The 25% tax is deductible when calculating the hydrocarbon tax, rendering a 64% effective tax rate.

Pension Growth Tax (PAL Tax)

Denmark taxes pension scheme growth at a flat rate of 15.3%. The pension fund or insurance company managing the pension withholds and pays taxes on behalf of the plan owner.

Individuals moving abroad can apply for exemptions from this tax.

Social Security

Denmark has a comprehensive social security system with universal, means-tested, and contributory benefits programs. These include:

• Family benefits
• Health insurance
• Maternity and sick leave
• Pension
• Unemployment benefits

Income taxes provide most of this system’s funding. However, employees and employers are required to make small social-security-specific contributions as well. 

Employees pay DKK1,135.80 per year, while employer contributions amount to about DKK8,000 – 10,000 per year.

The US and Denmark have a totalization agreement that can help US expats working in Denmark determine which country’s social security system they fall under. You can find a summary of this program on the US Social Security Administration’s website.

Tax Deadlines in Denmark

Denmark’s tax year runs from January 1st to December 31st, just like the US. 

If you have any income or deductions that are missing from your tax assessment notice, you must report them by May 1st by making changes to your notice through the E-tax system (called TastSelv). You can request an extension to July 1st.

Does the US Have a Tax Treaty with Denmark?

The US and Denmark have had a tax treaty since 1948 but signed a new treaty in 2001. This treaty helps US expats living in Denmark avoid double taxation while setting maximum tax rates for certain income and facilitating information exchange between each country.

Additionally, expatriates in Denmark and scientists assigned to Denmark may be allowed to apply for a flat 27% tax rate on their salary as well as the taxable value of any company car, company-paid telephone, and company-paid health care insurance. This special rate lasts for up to 7 years. You will continue to pay the 8% LMC while you have this tax rate.

Does the US Have a Totalization Agreement with Denmark? 

Yes, the US has a Totalization Agreement with Denmark, also known as a Social Security Agreement. The purpose of this agreement is to eliminate dual social security coverage and taxation for individuals who work in both the US and Denmark. 

Under the agreement, US expats who are employed in Denmark and their employers are only required to pay social security taxes in one country, depending on where the work is being performed. The agreement also helps ensure that individuals who have worked in both countries are eligible for social security benefits in each country based on their contributions. 

It’s important to note that the Totalization Agreement with Denmark only applies to social security taxes, not income taxes. US expats in Denmark may still be required to pay income taxes in both countries and should consult a tax professional or the Danish Tax Agency (Skattestyrelsen) for more information. 

What Tax Forms Do Americans Living in Denmark Have to File?

American expats in Denmark must file tax returns in the US and Denmark.

Let’s look at the tax forms required in each country:

Danish Tax Forms For Expats

A lot of Danish tax filing is automated. There are two documents you must keep track of.

Preliminary Income Assessment

Your preliminary income assessment estimates your expected income, tax deductions, and the tax rate your employer uses to withhold taxes if you’re employed. This form is available in November each year.

In general, you only need to make changes if your financial situation changes. That way, your tax assessment notice is updated to reflect your finances accurately.

Tax Assessment Notice

Unlike in the US, your tax return — called a tax assessment notice — will likely be filled out at tax time. This notice summarizes your taxes paid over the past year and includes information about your income, deductions, and allowances. 

It also informs you of whether you have overpaid and deserve a refund or underpaid. In many cases, refunds are sent to your bank account automatically.

All you must do is approve and sign this form if you overpaid or paid the correct amount.

However, if anything looks incorrect, or if you have income or deductions that are not on the form, you must make those changes. You must also pay taxes owed if you are underpaid.

US Tax Forms for Expats 

IRS Form 1040: Individual Income Tax Return 

Form 1040 is the standard US individual income tax return. Virtually every US citizen is required to file Form 1040 regardless of where they live and work. 

Typically, taxpayers must file Form 1040 by April 15th. However, the IRS automatically extends expats’ due date to June 15th. Taxpayers can also request a further extension to October 15th.

IRS Form 8938: Statement of Specified Foreign Financial Assets (FATCA) 

If you own non-US financial assets above certain thresholds, you must file a FATCA report. The specific threshold depends on your filing status as well as whether you are a bona fide resident of France. 

Once you’ve completed your FATCA report, file it with your Form 1040. 

FinCEN Form 114: Report of Foreign Bank and Financial Accounts (FBAR) 

If you have a total of at least $10,000 in one or multiple non-US bank accounts, you have to report it by filing FinCEN Form 114, better known as FBAR. 

This form must be filed electronically through the FinCEN BSA E-Filing System. As with Form 1040, the standard due date is April 15, but if you miss that deadline, there’s an automatic extension until October 15. 

Navigating Tax Compliance for US Expats in Denmark

We trust that this guide has provided you with a better understanding of the Danish tax system and its implications for US expats living in Denmark. If you desire more information or require assistance with your income taxes, our expat tax team is available and eager to assist you.

Contact us, and one of our customer champions will gladly help. If you need very specific advice on your specific tax situation, you can also click below to get a consultation with one of our expat tax experts.