Tax matters and what taxes are spent on

The Danish welfare state is, among other things, based on the concept of citizens having equal access to the different services paid for by taxes. Almost all adults living in Denmark pay tax to this country, and everybody receives services in return in some form. In this way, tax is something which affects everyone.

The tax funds are used to pay for expenses such as welfare benefits, state pension, child and youth allowances, public institutions, etc. In Denmark, all citizens can for example get medical help and hospital treatment, and children attend school and have the possibility of completing an education.

All citizens use the public sector in one way or another, and as a general principle all citizens must help pay for it. However, the tax burden is not equal for all as the Danish tax system is progressive, meaning that the higher your income, the higher the amount of taxes you have to pay.

Everybody living in Denmark must pay tax if they have an income. This also applies if you, for example:

• run your own business
• are unemployed and receive benefits from the state or from your unemployment fund
• are a student and receive state education grant (SU)
• are a senior citizen and receive state pension
• work abroad or receive an income from abroad, but live in Denmark.

Danish taxes consist of direct taxes and indirect taxes. The most common types of tax are:

Direct taxes

Taxes deducted directly from your income are called direct taxes. This is, for example, the tax that your employer deducts from your pay (also referred to as A-tax, tax deducted from income at source), and taxes on property and land. Some people also pay B-tax, which is tax that is not deducted from income at source, such as tax on interest income and business profits.

For further information about paying tax in Denmark, read more on the Danish Tax Agency’s (Skattestyrelsen) website:

• Types of tax – The Danish Tax Agency

State tax

Part of the tax that you pay out of your income (direct tax) goes to the state. State tax rates are the same irrespective of where you live in this country, but they depend on your income. The state tax is calculated as a progressive tax and is divided into 2 categories:

• Bottom-bracket tax
• Top-bracket tax

If your annual income is lower than a certain amount, you only have to pay bottom-bracket tax, but if you earn considerably more than a certain amount, you have to pay top-bracket tax in addition to the bottom-bracket.

The principle behind this division is that those who earn most money must also proportionately pay most money to the state. This is called a 'progressive' tax system.

Municipal tax

All citizens must also pay tax to the municipality that they live in. 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

Approximately 74 per cent 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.

Normally, Danish citizens become members of the Danish National Evangelical Lutheran Church when christened. A person who is not christened in Denmark is therefore not a member of the Danish National Evangelical Lutheran Church and does not pay church tax.

If you are a member of another church or religious association and you pay a contribution to this, your contribution may be tax deductible.

Danish taxes consist of direct taxes and indirect taxes. Other common types of tax in Denmark are:

Labour market contributions

All working citizens must pay a labour market contributions. Your employer will deduct this contribution from your monthly pay. Labour market contributions are used for the Government's labour market expenses, for example to cover unemployment benefits, supplementary training courses and maternity leave. Please note that the labour market contribution is 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 1/3 of the amount yourself, and your employer pays the other 2/3.

Property value tax

If you own a house or an apartment, you must pay property value tax based on the public property assessment. 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.

The property value tax is paid via your preliminary income assessment (forskudsopgørelse) and your tax assessment notice (årsopgørelse).

Property tax

You have to pay property tax (land tax), if you own land in Denmark. Land tax is calculated as a percentage of the land value stated in the current public property assessment. It is a local tax, and the rate differs from municipality to municipality.

The property tax (land tax) is paid via your preliminary income assessment (forskudsopgørelse) and your tax assessment notice (årsopgørelse).

Indirect taxes

Indirect taxes are taxes and duties that you pay via the goods and services you buy. Indirect taxes are VAT, customs duties, green taxes and excise duties. You pay indirect taxes to the state every time to buy an article or every time you, for example, open your water tap.

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.

VAT

In Denmark, VAT is included in the price of nearly all goods. VAT is also levied on services, for example, if you have your bicycle or car repaired, if you visit 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 behind this is to make citizens try to limit their consumption and thus conserve natural resources. For example, green taxes are levied on petrol, oil, electricity, water and waste. This means that the price of these resources increases, which is the intention. If the price of petrol increases, people will drive less, 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 purchase 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

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

• Taxation in Denmark