Tax Guide for Americans Living Abroad in Denmark

Tax Guide for Americans Living Abroad in Denmark

As an American expat living in Denmark, there’s a good chance you will have to file a tax return in both countries. Below, we’ll discuss everything you need to know in order to meet your expat tax obligations for the US and Denmark.

Denmark Taxes at a Glance

  • Tax Year: January 1 to December 31.
  • Tax Deadline: May 1. Taxpayers can request an extension that lasts until July 1.
  • Currency: Krone (DKK)
  • Population: Danish
  • Number of US Expats in Denmark: Around 9,000
  • Capital City: Copenhagen
  • Primary Language: Danish
  • Tax Treaty: Yes
  • Totalization Agreement: Yes

Living as an Expat in Denmark

Like many Nordic countries, Denmark has numerous social welfare programs. A few of these include:

  • Free public healthcare
  • Free education (Danish and EU students only)
  • Disability pensions
  • Unemployment insurance

Naturally, these programs come at the cost of higher taxes. In fact, the Tax Foundation found that Denmark had the highest personal income tax rates among Organization for Economic Cooperation and Development (OECD) nations in 2022.

American expats must also remember that they may be required to file a US income tax return or meet another reporting obligation, such as FBAR.

Whether you are considering a move to Denmark or already live there, we will help you clear up your tax obligations below.

Who is Considered a Tax Resident in Denmark?

You are a tax resident of Denmark if you meet one of two tests:

  • You stayed in Denmark for more than six consecutive months
  • Your permanent home is located in Denmark

Income Tax Rates in Denmark

Denmark has a marginal income tax system at the national level for residents. This marginal system has two income tax rates: top and bottom rates. 

Here are Denmark’s personal income tax brackets for 2022:

Income (DKK)State Tax
0 – 50,7600%
50,761 – 544,79912.10% (the bottom rate)
544,800+15% (the top rate)

Localities may levy additional income taxes. These vary by locality.

The sum of local and national tax rates cannot exceed Denmark’s tax ceiling. In 2022, that tax ceiling is 52.07%. The LMC and numerous other taxes are excluded from this rule.

2022 Danish Income Tax Rate For Non-Residents

Danish nonresidents are only taxed on income sources in Denmark. The income tax rates are the same in most cases.

The IRS tax code is 7,000 pages. Want the cliff notes version for expats? Let us help.

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:

Property Value (DKK)Tax Rate
0 – 3,040,0000.92%
3,040,001+3%

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 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.

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. Refunds are sent to your bank account automatically in many cases.

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. 

The due date for Form 1040 is typically April 15, but expats get an automatic extension to June 15. 

Pro Tip

If necessary, you can even request a further extension to October 15

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. 

Ready to Knock Out Your Denmark Expat Taxes?

Hopefully, this guide has helped you understand the Danish tax system and how it affects US expats in Denmark. If you want to learn more or need assistance dealing with your income taxes, our expat tax team is ready to help.

Don’t just guess. Get the best advice from one of our expat expert CPAs and EAs.
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