Successful international expansion depends on making the right moves from day one. This is vital for foreign companies establishing a presence and operating payroll in Denmark – a European Union (EU) member with one of the strongest economies on the continent.
At Bradford Jacobs, our Employer of Records (EOR) platform provides reliable solutions for companies wishing to establish their presence in the Danish economy. From the first steps of setting up operations to ensuring compliance with the local payroll laws and regulations, we offer dedicated Denmark Payroll solutions that can be personalized to your requirements.
We aim to make business expansion easy. At Bradford Jacobs, we navigate the administration of the Danish payroll system for you, and we also make the returns and associated payments for income tax and social security contributions directly from our payroll system to the local tax authorities. We do the work, so you do not have to.
When expanding into a new country, you may encounter some challenges regarding payroll, but allow us to take the reins and answer any of your questions and concerns with our trusty guide on payroll for Denmark.
What Denmark Payroll Options are available for Companies?
- Remote payroll - This option allows businesses to operate under a single payroll system, by adding employees in Denmark to your parent company’s payroll. However, these employees must operate under different regulations, which is likely to cause problems.
- Internal payroll - You may operate payroll for your subsidiary, especially if you are committed to growing your company’s presence in Denmark. However, this does require hiring dedicated HR staff who understand Danish employment and compliance laws.
- Denmark payroll processing company - If you are considering outsourcing, then working with a Danish payroll company will help in processing your payroll – but not when it comes to compliance.
- Denmark payroll outsourcing - However, there is another option available that solves both concerns – by working with Bradford Jacobs. We can handle payroll and compliance for all your employees in Denmark. We take the administrative stress off your shoulders so you can focus on what you do best.
Denmark Payroll Services
Companies expanding their operations into Denmark open up a wealth of opportunities for expansion throughout the European Union and further afield – but challenges come alongside the potential benefits. Payroll management is among those challenges, whether your company is considering moving employees abroad or hiring fresh staff in-country. Employment laws, payroll regulations and income tax regulations are areas where you cannot afford mistakes.
Bradford Jacobs’ Employer of Record (EOR) payroll solutions will navigate around these potential pitfalls effectively and efficiently by putting into action our comprehensive knowledge of tax and payroll regulations.
Running payroll in Denmark requires an in-depth knowledge of employment, payroll, and taxation laws – and keeping up to date with changes. As part of our service, we file returns and associated payments for wages tax and social security contributions directly from our payroll system to the relevant authorities.
Outsourcing your payroll in Denmark will streamline your operations by dealing with the following:
- Obtaining a Central Business Registration (CVR) number from the Danish Business Authority (DBA) for dealing with the authorities
- Registering with the Danish Customs and Tax Administration (SKAT) for withholding tax from employees’ salaries and remitting to the authorities
- All employers must take out mandatory industrial insurance, along with the withheld Danish Labor Market Supplementary Fund (ATP) contribution
- Creating contracts (All Danish employers must provide a contract if the employee has worked for at least one month and more than eight hours a week. The contract covers specific conditions of the employment and can be requested in language of choice, though this is not a legal requirement.)
Additional payroll support includes:
- Negotiating tax incentives for skilled expats under the Special Expatriate Tax Scheme
- Reconciling federal, and any provincial, territorial, and local taxes to assess for refunds or extra payments
- Calculating employees’ monthly salary and sending their pay slips
- Submitting employees’ and employers’ wage tax returns
- Creating and submitting your company’s annual accounts and year-end statements
- Creating payment schedules for salaries and any insurance contributions (if applicable)
- Ensuring accurate personal income tax returns are filed for you and your employees, where required
The above checklist highlights why the vast percentage of foreign companies expanding into Denmark’s strictly regulated business environment hand their payroll to EOR providers such as Bradford Jacobs.
By outsourcing payroll, your company complies with tax and employment regulations without risking sanctions or financial penalties for late or incomplete filing. You focus on your goals and expansion, free of any concerns over payroll. Questions? We have the answers. Contact Bradford Jacobs now.
What is required to set up Payroll in Denmark?
Companies expanding into Denmark must satisfy strict legal requirements with running payroll, in addition to complying with minimum wage, overtime pay and employee benefits in addition to any directives from the European Union (EU).
Foreign companies looking to set up a legal entity in Denmark to run their own payroll must take the following steps:
- Select unique company name and type of entity, typically a limited liability company called an Anpartsselskab (ApS)
- Register for a Central Business Register (CVR) number via the Danish Business Authority (DBA) website at a cost of DKK 670 (€90, US$104)
- The DBA requires a ‘NemID’ digital signature to access internet services; this needs Danish residency and a work permit
- Transfer share capital of DKK 40,000 (€5,374, US$6,230) for operational costs
- Provide full details, passports, ID of all board members, who need not reside in Denmark
- Register with Customs and Tax Administration (SKAT) for tax and VAT
- Company must further be registered for VAT, if revenue is above DKK 50,000 (€6,717), US$7,790), payroll tax, import / export licenses (for business outside European Union), tax, which is deducted at source from employees’ salaries
- Take out mandatory industrial injury insurance
What Entitlement and Termination Terms apply to Denmark Payroll?
Denmark’s Employment Certificates Act stipulates that all employees must receive written confirmation of all entitlements when under employment, covering such as maternity allowances and any paid holidays. However, some statutory entitlements typical of other nations do not apply in Denmark, where employment terms are largely covered by Collective Bargaining Agreements (CBAs).
(* Although a member of the European Union, Denmark is not in the European Monetary Union ‘Eurozone’ and has the Krone, DKK, as its currency).
National Minimum Wage: Denmark does not have a mandatory national minimum wage, with rates negotiated between employer associations, trade unions and CBAs. The monthly average minimum for 2021 was around DKK 40,600 (€5,456 or US$6,350).
Sick Leave: The employment contract should detail what entitlement an employee is due when ill. If not, the employers typically pay full salary for 30 days from the first day of illness but will require a doctor’s certificate. Subsequently, benefit is paid by the relevant municipality subject to certain restrictions.
- Must have worked minimum 240 hours in previous six months and at least 40 hours per month for five of the months
- Would have qualified for unemployment benefit if not taking sick leave
- Benefits are generally restricted to a total of 22 weeks
The sick leave benefit is calculated on weekly hours worked and average hourly pay over previous three months. The maximum benefit is DKK 4,460 (€600, US$696) divided by 37 (hours) for a maximum of DKK 120 (€16, US$18) per hour.
Working Hours and Breaks: Typically, a working week should be 37 hours over five days, which can be covered in collective or contractual agreements and may include a daily 30-minute rest period.
The EU’s Working Time Directive which is covered in Denmark by the Working Environment Act decrees that the average working week cannot exceed 48 hours (including overtime) averaged over four weeks.
The Act also stipulates that:
- A minimum 11 hours’ daily rest away from work, with a break for a shift exceeding six hours
- No more than six workdays between two days off
- Night workers must not average more than eight hours each 24-hour period
There are exceptions and some industries may apply different working hours and breaks for example, agricultural workers and those caring for people, animals, or plants.
Overtime: There is no specific legislation governing extra working hours, outside of the European Union (EU) Working Time Directive that sets an absolute maximum of 48 hours.
Employers contractually agreeing to overtime generally pay 1.5 times the normal hourly rate for the first three hours, then twice the rate for extra hours or working on weekends or public holidays.
Paid Vacations: Since September 2020 employees receive 25 working days paid vacation, although some employers add another five.
These can be carried over to the following year or worked for pay in lieu. Vacation days accrued in the ‘holiday year,’ which runs from September 1 until 31 August, can be taken up to December 31 of the following year.
Employees have 2.08 days of paid vacation for each employment month in the holiday year. Non-qualifying workers receive a holiday allowance of 12.5% of their pay.
Maternity Benefit: This is administered by the Public Benefits Administration (Udbetaling Danmark) and is calculated on hourly wage and hours worked over the three months before starting leave.
The maximum allowance is DKK 4,460 (€600, US$696) divided by 37 (hours) for a maximum of DKK 120 (€16, US$18) per hour. Those earning less than DKK 120 receive their usual hourly wage.
Maternity / Paternity / Parental Leave: This provides for four weeks pre-natal and 14 post-natal for the mother; two weeks “paternity leave” for father or co-parent immediately following birth or within the 14 weeks as agreed with employer; 32 weeks’ parental leave can be shared.
Termination and Severance: There is no statutory law on severance pay. Those covered by the Act on Salaried Employees (Funktionærloven) who have been in continuous employment for between 12 to 17 years are entitled to a severance payment of between one to three months' salary if dismissed by the employer. Some Collective Bargaining Agreements (CBAs) provide for improved terms.
Notice Periods: These apply to both employer and employee as agreed in the employment contract or collective agreements. The amount of notice is also governed by years of service from one month in the first year up to six months for over nine years’ service.
Individuals not covered by the Salaried Employees Act or a CBA are still entitled to receive a reasonable period of notice, depending on type of work and their length of service. Employees who resign must give at least one month’s notice.
- New Year’s Day - January 1
- Palm Sunday - March / April
- Maundy Thursday - March / April
- Good Friday - March / April
- Easter Sunday - March / April
- Easter Monday - March / April
- Prayer Day - April / May
- Constitution Day - June 5 (not official – usually half day off)
- Ascension Day - 40 days after Easter Sunday
- Whit Sunday - 50 days after Easter
- Whit Monday - 51 days after Easter
- Christmas Day - 25 December
- 2nd Day of Christmas - 26 December
Health and Social Insurance: Denmark differs from most European countries as the bulk of funding for social security programs comes from taxes and state finances, rather than significant monthly contributions from employers and employees as percentages of salary.
Employees contribute DKK 1,135.80 (€152, US$177) each year towards the social security fund (ATP); employers contribute around DKK 13,000 (€1,748, US$2,026) per employee each year to the ATP social security fund, maternity, and industrial injury funds plus other schemes.
Denmark 13th Month Salary
Salaries are paid by calendar month and there is no legal requirement for a ‘13th month salary’ to be offered by employers, though some may do so as an incentive.
What Taxation Rules exist for Denmark Payroll?
- The tax year runs from January 1 until December 31 and individual returns should be filed by May 1 but can be extended to July 1, in which case the Customs and Tax Administration (SKAT) must be informed
- All Danish residents or those earning Danish income are liable for tax. Residents are taxed on worldwide income
- Outstanding tax is added to the following year’s income with a 4% surcharge
- Individuals becoming liable for taxation file a ‘pre-assessment’ to receive a tax card from the Customs and Tax Administration (SKAT)
- Individuals are considered tax residents if they stay in Denmark for six months
Income Tax: Tax liability is based on residency rules and individuals can be either resident or a non-resident for tax purposes.
Individuals who stay in Denmark for six consecutive months, including short breaks out of the county for holidays or trips, are tax residents. They are taxed on worldwide income. Non-residents are taxed on Danish-sourced income. Payments received from entities outside Denmark are taxable if the recipient stays in-country for more than 183 days in a 12-month period.
Employment income is classed as personal income, with interest payments classified as investment income.
Special Expatriate Income Tax Scheme: A flat rate of 27% of salary applies for up to 84 months. In 2021 the minimum monthly salary for such highly qualified expats had to be DKK 69,600 (€9,354, US$10,850).
After 84 months the individual is taxed at usual rates.
Social Insurance Tax: Employees contribute DKK 1,135.80 (€152, US$177) each year towards the social security fund (ATP); employers contribute around DKK 13,000 (€1,748, US$2,026) per employee each year to the ATP social security fund, maternity, and industrial injury funds plus other schemes.
Rules on other taxes:
Corporate Income Tax (CIT): The rate is 22%, below the average for members of the Organization for Economic Cooperation and Development (OECD). Danish companies are taxed on worldwide profits, excluding any from Permanent Establishments (PEs) based abroad or foreign property. Foreign companies based in Denmark are taxed on their locally sourced profits.
Returns should be filed no later than six months after the end of the fiscal year and by September 1 at the latest. Where their tax year ends between January 1 and March 31, returns must be filed that same year.
Withholding Tax (WHT): Dividends paid to non-resident companies are subject to 27% withholding tax, though this is reduced to 15% by any applicable tax treaties. Non-Danish companies subject to the Parent-Subsidiary Directive can be exempt.
Capital Gains Tax: Generally included in corporate taxable income at 22%.
Indirect Taxes: Value Added Tax (VAT) is set at 25% on goods and services. Zero-rated categories include such as newspapers, medical treatments, and insurance.
Customs and Excise Duties: These are applied at various rates for goods imported from outside the European Union (EU). Excise duty also applies to a wide range of products, including tobacco, alcohol, chocolate, and coffee.
Other Taxes: Municipal Tax at an average of 25% depending on the municipality; Labor Market Tax of 8% on personal income; Share Tax up to DKK 56,500 (€7,593, US$8,800) taxed at 27%, balance in excess at 42%; Church Tax, applied by municipality at an average of 0.67% for members of the Danish State Church (Lutheran).
Stress Free Global Expansion
Bradford Jacobs’ Employer of Record (EOR) solutions smooth your route into Denmark and every unfamiliar territory targeted for worldwide expansion. Registration procedures, tax laws and dealing with relevant authorities are potentially hazardous barriers to your expansion, risking severe fines for non-compliance or late returns.
Bradford Jacobs is on call every step of the way to ensure your company clears all the hurdles to establishing a successful presence in Denmark. Contact us today to learn more!