Types of tax

• A-tax (tax deducted from income at source)
• B-tax (tax not deducted from income at source)
• State tax
• Municipal tax
• Church tax
• Labour market contributions
• ATP contributions
• Property value tax based on the public property assessment
• Property tax (land tax)

More about direct taxes

A-tax

(tax deducted from income at source)
This is tax deducted directly from your income. Income tax is collected during the year by your employer, pension provider, etc. withholding part of your salary or pension before it is disbursed. This also includes property value tax based on the public property assessment. The amount withheld is paid to the Danish Tax Agency (Skattestyrelsen) as provisional tax. At the end of the year, a calculation is made to determine whether the amount paid is more or less than the tax payable for the whole year.

B-tax

(tax not deducted from income at source)
Some people also pay B-tax, which is tax that is not deducted directly from your income, such as tax on interest income and business profits.

State tax

 Part of the tax that you pay out of your income goes to the state. The state tax rates are the same irrespective of where you live in the country, but they depend on your income. The state tax is calculated as a progressive tax and is divided into two categories:

• Bottom-bracket tax
• Top-bracket tax

Municipal tax

All citizens must also pay tax to their municipality. The tax is calculated as a percentage of their income. Each municipality determines the tax percentage that its citizens must pay. Your total tax contribution will therefore depend on the municipality that you live in.

Church tax

Approx. 74% of the Danish population are members of the Danish National Evangelical Lutheran Church (Folkekirken), and the members pay church tax. This tax covers the running and maintenance of the churches in the municipality. The size of the church tax varies from municipality to municipality, and it is collected together with the other direct taxes. If you are a member of another church or religious association and you pay a contribution to this, your contribution may be tax deductible.

Labour market contributions (AM-bidrag)

All working citizens must pay labour market contributions. Your employer will deduct the contributions from your pay. Labour market contributions are used for the Government’s labour market expenses, for example to cover unemployment benefits, supplementary training courses and maternity. It should be noted that the labour market contributions are actually a tax, deducted from employees’ gross pay, or self-employed persons’ income from self-employment.

ATP contributions

 Everyone who works in Denmark must pay contributions to the Danish labour market supplementary pension fund (ATP). The contributions will be deducted from your pay before the calculation of income tax. As a general rule, you pay a third of the amount yourself, and your employer pays the other two-thirds.
For information about what will happen to your ATP contributions if you leave Denmark, please visit www.lifeindenmark.dk.

Property value tax based on the public property assessment

If you own a house or an apartment, you must pay property value tax based on the public property assessment. The property value is assessed by the Danish Tax Agency every other year. People living in Denmark must also pay property value tax on any foreign property that they own, and people living abroad must pay property value tax on any property that they own in Denmark.

Property tax (land tax)

If you own a house, an apartment or a plot, you must also pay property tax to the municipality based on the actual property value. The property tax is assessed and collected directly by each municipality and will differ from municipality to municipality.

Tax rates

• VAT
• Green taxes
• Excise duties
• Customs duties

Indirect taxes are taxes and duties that you pay via the goods and services you buy. You pay indirect taxes to the state every time you buy an article or every time you, for example, open your water tap. The indirect taxes are included in the price that you pay for the goods/services. The seller is responsible for paying, for example, VAT, customs duties and excise duties to the state.

More about indirect taxes

VAT

In Denmark VAT is included in the price of nearly all goods. VAT is also levied on services, for example, having your bicycle or car repaired, a visit to the hairdresser’s etc.

Green taxes

Green taxes are taxes that you pay for spending society’s resources. The more resources you spend, the more green taxes you must pay. The idea is to make citizens try to limit their consumption and thus conserve the natural resources. For example, green taxes are levied on petrol, oil, electricity, water and waste. This means that the price of these resources increase, which is the intention. If the price of petrol increases, people will do less driving which will limit the impact on the environment. Lower green taxes are imposed on environmentally friendly cars that pollute less and are more fuel-efficient.

Excise duties

Excise duties are levied on the import, manufacture and sale of certain goods. When you buy an article at a shop, the excise duty has already been paid, so as an ordinary customer you do not have to worry about this. Goods on which excise duty is imposed include wine and beer, batteries, chocolate, sweets and soft drinks. If you buy a car or a motorcycle, you will have to pay an additional registration tax.

Customs duties

Customs duty is a tax which you pay to the state. If you have travelled to a non-EU country and bought goods that you are bringing back to Denmark, you may have to pay customs duties. This depends on the total value of the goods that you have bought. A special set of rules applies to spirits and tobacco for which you must pay customs duties if you bought a certain volume. You must declare what goods you have bought and pay customs duties upon arrival to Denmark (for example, at the airport or the border crossing).