This article delves into the key aspects of taxation for American expats in Denmark, covering the rules for determining Danish tax residency, the progressive income tax rates that apply in Denmark, and the structure of the Danish social security system. Understanding these elements is vital for staying compliant with tax laws in both countries while minimizing your overall tax liability.
If you need help with your US expat taxes in Denmark, feel free to contact Universal Tax Professionals. We offer a wide range of US expat tax services and have extensive experience assisting many American expats in Denmark.
Taxes for American Expats Living in Denmark
American expats must file US tax returns annually, reporting worldwide income, and may also need to file Danish tax returns if they meet residency criteria, creating the potential for dual taxation.
Tax residency in Denmark is determined by the duration of stay (six consecutive months) or having a permanent home in Denmark, which subjects residents to taxation on their global income.
Denmark’s progressive tax system includes income tax (12.14% to 55.89%), a healthcare tax (8%), and VAT (25%). Social security is funded primarily through taxes, with benefits like healthcare and pensions.
The Danish tax return deadline is May 1st, and extensions are not automatic. Returns are generally pre-filled by the tax authority.
The tax treaty prevents double taxation by allowing expats to claim a Foreign Tax Credit or exclude income, and a totalization agreement avoids dual social security contributions.
Expats may qualify for the Foreign Earned Income Exclusion (FEIE) or the Foreign Tax Credit to reduce their US tax burden, avoiding double taxation on Danish income.
Denmark offers favorable tax schemes for expats, including a flat tax rate for high earners and reduced rates for researchers and highly paid individuals.
For American expats in Denmark, understanding Danish residency rules is key to determining your tax obligations. Danish tax law distinguishes between residents and non-residents, with residents subject to tax on their worldwide income and non-residents only taxed on their Danish-sourced income. Residency status is determined by meeting one of two main tests: the duration of stay or having a permanent home in Denmark.
If you stay in Denmark for six consecutive months or more, you will generally be considered a resident for tax purposes. This six-month period includes both full and partial days spent in Denmark, including weekends and holidays. The duration of stay rule applies regardless of whether you have formal residency documentation, such as a visa or residence permit. Essentially, the length of your physical presence in Denmark is enough to trigger residency status.
Even if you don’t meet the six-month stay requirement, you can still be classified as a Danish resident if you have a permanent home in Denmark that you regularly occupy. A permanent home refers to a place where you have established a fixed residence, such as a house or an apartment that you own or rent. The key is regular usage; if you use this residence as your primary base, Denmark will consider you a resident for tax purposes. Notably, it doesn’t matter whether you own the home or lease it—what matters is that it serves as your main place of living.
If you qualify as a Danish resident, you will be taxed on your global income, which means all your earnings, whether sourced from Denmark or abroad, are subject to Danish taxation. This can include wages, business income, investment income, pensions, and even property income.
Non-residents, on the other hand, only pay taxes on income sourced within Denmark. This generally includes earnings from Danish employment, rental income from Danish property, and other income generated in Denmark. For American expats who do not meet the residency criteria, this means they can limit their Danish tax exposure to only their local Danish income.
In Denmark, the tax system is structured to include several components that contribute to the overall tax rate for residents. Here’s a breakdown of the key elements:
| Tax Type | Details |
| Income Tax | Danish residents are taxed on their worldwide income. The income tax rate ranges from 12.14% to 55.89%. This includes: • National Taxes: Progressive taxes applied at different income levels. • Labor Market Tax: Contributes to funding labor market initiatives. • Church Tax: Optional, applies to members of the Church of Denmark. • Local Taxes: Vary by municipality, affecting overall tax rates. |
| Health Care Tax | There is a healthcare tax of 8% used to fund the public healthcare system. |
| Value-Added Tax (VAT) | Denmark imposes a 25% VAT on most goods and services, one of the highest VAT rates in the EU. |
These taxes are part of Denmark’s comprehensive welfare system, which provides extensive public services, including healthcare, education, and social security. The high tax rates are balanced by the benefits provided to residents, ensuring a high standard of living and social security.
In Denmark, the tax system operates on a calendar year basis, similar to the US. The deadline for filing your annual tax return is May 1st of the year following the tax year. For instance, the deadline for filing your tax return for the year 2023 is May 1, 2024. This deadline applies to individuals who must submit a tax return, including Danish citizens and expatriates living in Denmark.
The Danish tax authority, Skatteministeriet, generally provides pre-filled tax returns to taxpayers based on information collected throughout the year, such as income reports from employers and financial institutions. This pre-filled return is usually available in March or April, giving you a head start on reviewing and verifying the accuracy of the information before the May 1st deadline.
Unlike the US tax system, Denmark does not offer automatic extensions for filing your tax return. If you require more time, you must request an extension from Skatteministeriet. This request should be made before the May 1st deadline to avoid any potential penalties or issues
Electronic Filing: In Denmark, the primary method for filing tax returns is through the online SKAT platform, now known as “TastSelv” on the Danish Tax Agency’s website. Taxpayers can access this platform using their MitID, which has replaced NemID as the digital identification system in Denmark. The platform provides a user-friendly interface where taxpayers can review their pre-filled tax returns, make any necessary adjustments, and submit them electronically. This method is secure, efficient, and ensures faster processing of tax returns.
Paper Filing: While electronic filing is highly recommended due to its convenience and speed, taxpayers still have the option to submit paper tax returns if needed. However, it is important to note that paper returns typically have a longer processing time. To ensure timely submission and processing, it is advisable to utilize the online system whenever possible.
Denmark’s social security system is integral to its welfare state, offering residents comprehensive benefits like healthcare, pensions, unemployment aid, and more. For American expats in Denmark, understanding the system and how it’s funded is crucial for managing contributions and benefits.
Denmark’s social security system, known as social sikring, is primarily funded through taxes, not payroll deductions, which differs from the US model. Key benefits include:
Universal Healthcare: Danish residents enjoy healthcare funded by taxes, covering everything from doctor visits to hospital care at no additional cost.
Public Pensions: The state pension (Folkepension) is available to residents based on years of residency, while the supplementary pension (ATP) is funded by both employers and employees.
Unemployment and Family Benefits: Denmark offers unemployment insurance and generous family benefits, such as paid parental leave and child allowances.
Read More: Are Social Security Benefits Taxable While Living Abroad?
Denmark’s system is mainly supported by high-income taxes. However, there are specific contributions to the ATP pension scheme, where employers contribute DKK180 monthly, and employees contribute DKK90. These mandatory payments ensure supplementary retirement savings for workers.
American expats employed in Denmark are subject to the same contributions as Danish residents. If working for a Danish company, employers and employees must contribute to ATP and other funds. However, social security obligations may vary for self-employed expats or those who work for a US company.
American expats contributing to Denmark’s social system can access both the Danish state pension and ATP upon retirement. Full state pension benefits are available after 40 years of residency, while the ATP provides additional retirement income based on contributions.
The tax treaty between the United States and Denmark, initially established in 1948 and updated on January 1, 2001, plays a crucial role for US expatriates living in Denmark. This treaty is designed to clarify and simplify tax obligations for citizens and residents of both countries, addressing key issues such as tax rates, dual taxation, and information exchange.
One of the treaty’s most significant features is its provision for protecting citizens of both countries from being taxed twice on the same income. This is achieved through a mechanism known as the Foreign Tax Credit or exemption methods, where taxpayers can either claim a credit for taxes paid to the other country or exclude certain income from taxation to avoid double taxation. This provision is particularly beneficial for US expatriates in Denmark, as it allows them to offset the tax paid in one country against their tax liability in the other.
The treaty also facilitates the exchange of tax information between the US and Denmark. This cooperation helps both countries ensure compliance with their tax laws and prevent tax evasion. By sharing financial information, the tax authorities can more effectively track income and enforce tax obligations.
In addition to the tax treaty, the totalization agreement between the US and Denmark addresses social security contributions. This agreement determines which country’s social security system an expatriate should contribute to, avoiding dual contributions. The main factors influencing this decision are the nature of the employment and the location of the employer:
Danish Employment: If you are employed by a Danish company, you are generally required to contribute to Denmark’s social security system. The totalization agreement ensures that you are exempt from paying US social security taxes in this case.
US Employment in Denmark: Conversely, if you are working for a US employer while residing in Denmark, you will typically continue to contribute to the US social security system. Under the agreement, you may be exempt from Danish social security contributions.
For detailed information and guidance, including specific rules and exceptions, the US Social Security Administration provides resources on their website.
While you may be eligible for benefits from both the US and Danish social security systems, the amount of benefits you receive from each country will be prorated based on the duration of your work history in each country. This means that each country will pay benefits according to the number of years you contributed to its system.
As a US citizen, you must file a US tax return each year, reporting your worldwide income, including earnings from Denmark. The US tax year aligns with the calendar year, and returns are due by April 15th, with automatic extensions available until June 15th and further extension to October 15th upon request.
Foreign Earned Income Exclusion (FEIE): Under the FEIE, you can exclude up to $120,000 of foreign earned income from US taxation for the 2023 tax year. This exclusion helps avoid double taxation on income earned while working in Denmark. To qualify, you must meet either the Bona Fide Residence Test or the Physical Presence Test.
Foreign Tax Credit (FTC): You can claim a credit for taxes paid to Denmark on your US tax return. This credit reduces your US tax liability by the amount of tax paid to Denmark, helping to offset the potential for double taxation.
Denmark offers specific tax schemes for expatriates that can also impact your overall tax situation:
Expatriate Scheme: Expatriates earning a monthly salary of $9,000 (approximately DKK 60,000) can benefit from a flat tax rate of 32.84% on their income. This preferential rate applies for up to seven years, providing significant tax relief for high earners.
Researcher and Highly Paid Expatriate Scheme: If you qualify as a researcher or have a highly paid position, you may be eligible for a reduced tax rate of 26% on your salary for the first five years of residence in Denmark. To qualify, specific criteria related to your job and salary must be met.
