Ah, taxes, one thing it’s impossible to escape from, especially in Denmark. And oh, how easy life would be if we could somehow exclude them from our lives. But hey, these taxes allow us to have access to free medical care, free education and lots of other social benefits.
In this article we will talk about some of the basic things you need to know about taxes and taxation, but if you want more elaborate, hard-core explanations, then watch the video series on our youtube page.
If you need more information and help with taxes, get in touch with Daniel at Yourtax.dk.
Otherwise, let’s dig right into it...with patience!
Why do we pay taxes in Denmark and what do we get in return?
Denmark is a welfare state, so part of the money we are paying in taxes is to cover for social security. While the taxes in Denmark can be considered quite high, there are also benefits. As residents we have access to free health care, free education, financial support (e.g. SU grant, unemployment benefits) and all kinds of subsidies and deductions.
When do you become tax liable when moving to Denmark?
When you move here and start your life in Denmark, you are considered tax liable. No matter from which country your income comes from, you are still considered tax liable in Denmark. Of course, whether you become fully tax liable or not depends on your specific situation, which is assessed by the authorities. For example, if you just come here for an Erasmus exchange for a semester, then you are not fully tax liable.
How do you pay taxes in Denmark?
The tax year follows the calendar year and every month the taxes are taken from your income. You can say that taxes are prepaid. That is because at the end of each year you must inform the tax authorities (SKAT) about how much you expect to earn the following year.
Thus, when the new year comes, the amount you will pay in tax is based on that expectation you have declared. The amount of taxes you have to pay is stated in your tax cards.
What is the average tax percentage?
How much you pay in tax depends very much on your reported earnings. As taxes are incremental, the more you earn the more tax you will pay. For most of the people, though, the tax percentage is below 40% (usually around 37-38%).
However, a portion of your income is tax-free, so you only pay taxes for the rest of your income.
Where do you deal with your taxes?
Everything tax related can be done online via SKAT’s self-service system (in Danish). You can simply log in to your account, using NemID (MitID).
What do you need to do when you come to Denmark?
You have to get your CPR number, NemID and NemKonto. As these are a different topic to elaborate on, we explained them in one of our articles: Just Arrived In Denmark To Study? 4 Essentials You Need.
What are the tax cards in Denmark?
Tax cards are issued by the tax authorities based on the information you provide. Tax cards are a way of showing you and your employer how much tax you should pay.
There are 2 types of tax cards: A-kort and B-kort.
A-kort contains the amount of your income you are not taxed for (called personal allowance or Fradrag), while B-kort contains the amount of your income on which you have to pay tax. You can choose what income you put on each tax card, if you have income from multiple sources.
For students who have part-time jobs and receive SU, then it’s better to have the SU on your A-kort and salary on the B-kort.
What is the preliminary income assessment?
As a taxpayer, you need to inform SKAT how much you expect to earn the following year. Your tax cards are generated based on this. If any changes occur in your income amount, you can update your preliminary assessment.
If it turns out that you earn more than reported, then you end up paying too little tax and thus have to pay back the extra amount.
If you earn less than expected, you might pay too much tax and thus you will be entitled to be refunded the extra-tax amount you paid. The refund will be paid out to your NemKonto.
Of course, to make sure your taxes are as correct as possible, go into the tax system and update your preliminary assessment.
What are the allowances and deductions in Denmark?
Allowances are automatically included in your tax calculations, such as the personal allowance, which is roughly 40.000 DKK (the tax free amount).
Depending on your situation, you are entitled to certain deductions. For example, if your commute to work and back is more than 24 km per day, you are allowed to get a certain amount back in deductions.
What else you can deduct: payment for membership to unemployment funds (A-kasse) and labor unions, deductions on certain donations etc.
Deductions shouldn’t be confused with getting cash back straight to your pocket. What it means is that when you add a deduction in your preliminary assessment, the amount of your earnings you pay tax on will be lower.
How do you read your Danish pay-check?
Even though payslips look quite differently depending on where you work, there are some similar points. Here is an example of what you can find on a payslip:
- Arbejdstimer=amount of hours you have worked in that month
- Ferieberrettiget løn=the base salary corresponding to the working hours
- Pens. bidrag= shows how much is taken from your salary and paid to your pension scheme; not all employers offer this possibility, so sometimes you might have to pay it yourself.
- ATP-bidrag=a small amount for social security contribution during your pension
- AM-bidrag (labor market contribution)= 8% paid from your salary
- Benyttet skattefradrag=states the amount from your salary that is tax free (usually this rubric appears for the income you have on your A-kort)
After these (pension, labor market contribution and personal allowance) are deducted from your base salary, you have to pay tax (A-SKAT) on the remaining amount, usually around 37%. After this, you can see how much you will actually earn after tax (net amount).
What is the Danish tax return and what should I be aware of?
Every year in spring (March-May) you find out whether the taxes you have paid the previous year are correct, ie. if you paid too much or too little tax.
What you should do is compare your preliminary income assessment and the final assessment you get from SKAT, in order to see the differences between what you stated and the actual amounts, and above all see if your income is reported correctly.
If you haven’t added any deductions in your preliminary assessment, then now is the time to do it. There is a deadline for making corrections and submitting any new information, so pay attention to that.
After all the corrections have been made you will be able to see your tax return. If you have to pay money back to SKAT, it means you underpaid tax during the previous year, while if you are supposed to receive back some money, it means you paid too much tax.
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