From www.skat.dkPersonal Income Tax
Personal income tax is payable on wages and almost all other forms of income, including profits from personally owned business. The tax revenue is allocated to the state, the counties and the municipalities. The presentation of the tax system is simplified, but it emphasizes the essence of the tax system.
Every citizen (above 18 years of age) has a personal allowance of DKK 36,800 per year, before the personal income tax is calculated. Furthermore, various deductions like pensions contribution, interest payments, transport cost of commuting, and trade union fees have influence on the amount of tax paid. From 2004 there is an earned income tax credit of 2.5 percent but maximum DKK 7.000.
The income tax collected by the state is calculated according to a progressive scale;
The basic tax rate (bundskat) is 5.5 percent, calculated on the basis of the personal income with addition of positive net capital income (e.g. interest income) after deduction of the personal allowance. If the taxpayer's income is below DKK 254,000, the tax payer only pays basic tax. This threshold has been raised from 2004 as an element in the Tax Cut 2004. For further information of the Tax Cut 2004 see here.
The medium tax rate (mellemskat) is 6 percent, calculated on the basis of the personal income with addition of positive net capital income. The tax is calculated only on the part of the said income that exceeds a basic allowance (DKK 254,000). The part of the basic allowance, which cannot be fully used, can be transferred to a spouse (This is also effective for the personal allowance of DKK 36,800).
The higher tax rate (topskat) is 15 percent, calculated on the basis of the personal income with addition of positive net capital income. The tax is calculated only on the part of the said income that exceeds the basic allowance, DKK 304,800. The part of the basic allowance that cannot be used cannot be transferred to a spouse.
County and local tax varies depending on the county and municipality that the taxpayer is a resident of. The tax rate is a flat rate and the difference between counties and municipalities can be several percent, depending on both the county and the local tax rate. In 2004 the total county and local tax rate is between 28.5 percent and 35.6 percent (excl. church tax) with an average at 32.6 percent. The County and local taxes are calculated on the basis of the taxable income (i.e. personal income with addition of capital income and various deductions like transport costs of commuting and trade union fees) after deduction of the personal allowance.
On all personal income, Labour Market Contribution (LMC) is calculated as a percentage of the personal income, before any deduction is made. The LMC is 8 percent.
Besides the above stated taxes, there are other minor taxes and contributions. There is a contribution to the Danish Labour Market Supplementary Pension Scheme (ATP) and a tax that is paid by the members of The Danish Church.
The tax ceiling ensures that the income tax to State, county and local authorities does not exceed 59 percent of any part of the income. Church tax, ATP, and certain capital pension schemes are not included.
For further details and calculation-examples of Personal Income Tax see here.
The income tax is deducted at source, so the employer withholds the tax and ensures that it is paid to ToldSkat. For most citizens, the annual income tax return has now become fully automated. ToldSkat sends a statement containing all the information received from employers, banks, social welfare offices etc. For the majority of taxpayers, no further information has to be added, and the taxpayer does not have to do anything. If additions or amendments are necessary, the taxpayer is obliged to make the corrections by phone, on the Internet or by mailing the corrections to ToldSkat.
Company Tax
Company tax is 30 percent of the taxable profit. Company tax is paid as a provisional tax twice every year. The ordinary taxable income earned by companies during the income year is assessed largely along the same lines as apply to personal income. There are more than 70,000 companies in Denmark. The administration of the company tax is shared between the Central Customs and Tax Administration and the regional customs and tax offices.
Taxes on Capital and Real Property
Real property tax is levied by the municipalities and the counties on all types of immovable property. Land values are taxed at a rate decided annually by the municipalities and counties. In addition, a charge is levied on buildings used for urban business and administration. ToldSkat is responsible for valuation of properties.
Value Added Tax (VAT)
VAT is paid by enterprises at all stages of the production and distribution of goods and services, including agriculture. Enterprises calculate their VAT liability as the difference between VAT paid on purchase and VAT levied on sales. ToldSkat receives VAT from approx. 400,000 VAT-registered businesses. Unlike most other countries, Denmark has only one VAT rate of 25 percent. Education, financial services, insurance, passenger transport and newspapers are not subject to VAT.
Excise Duty
In Denmark excise duty is placed on motor vehicles, energy, alcohol and tobacco products. During the 1990'ties a number of new environmental taxes were introduced. The environmental taxes are levied on consumption on goods that are either polluting or scarce (water, oil, gasoline, electricity etc.) or levied on the emissions of polluting substances (SO2, sewage). The excise duties on mineral oils, tobacco and alcohol are levied in accordance with the EU-legislation in this area.
Customs
The nature of the customs procedures has changed within the last decade, due to the development towards the European Single Market. More than 2/3 of Denmark's foreign trade is with other members of the European Union. Customs clearance is no longer needed on this trade, resulting in significant reduction in customs transactions. This has allowed the redeployment of customs officials and the merging of the customs procedures and the audit functions for VAT and income tax. However, trade between the EU and third countries continue to require customs administration and control.
1. 1 Euro = DKK 7,45
