When it comes to personal income tax, Denmark and the other Scandinavian countries are generally considered a high tax area.
The level of income tax reflects several things:
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A high level of welfare. The Danish welfare model is based on the principle that different population groups enjoy decent living conditions and equal opportunities in terms of education, social welfare etc.
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Health care, education, elderly care, kindergartens for children etc. are to a very large extent financed through taxes and provided by the public sector, while in other countries welfare services are to a larger extent financed by private users and produced in the private sector.
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Social security is to a very large extent financed indirectly through taxes rather than directly by employees or employers.
Characteristics
A person is considered a resident in Denmark for taxation purposes, if Denmark is the principal residence, or if a person resides in Denmark for more than six months.
See special rules for expatriates here.
A person resident in Denmark has to pay taxes of his or her global income whether or not the income is generated in Denmark. The tax system is progressive i.e. the higher the income, the higher the level of tax (to a certain level – the so-called “tax ceiling”).
Calculation of taxable income is illustrated in the factsheet "Taxation”, which can be downloaded here.
Deductions
All persons over 18 years of age are entitled to a personal allowance of DKK 39,500 (2007). Furthermore, there are deductions in taxable income for e.g.:
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Contributions to pension scheme
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Interest expenses
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Costs of transportation between home and work exceeding 24 km
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Union subscription
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Contributions to unemployment insurance
Detailed rules apply in regard to each deduction.
Social security
A person resident in Denmark is covered by the social security system in Denmark. In Denmark it is primarily the government and employees who contribute to social security. Employees by a ”labour market contribution” of 8 per cent.Foreigners, who are stationed in Denmark and can prove that he or she is covered by the social security system of the native country, are not liable to contribute to social security in Denmark. This is also the case for foreigners from countries which Denmark has concluded a social agreement with.
The level of personal taxation incl social security for Danish residents is illustrated in the factsheet “Taxation”, which can be downloaded here.
