The Danish welfare system is financed by taxes
All Danish residents are liable to taxation on their income. Personal income tax is paid to state and municipality.
The Danish tax system is an incremental graduated tax system whereas tax increases marginal too taxable income. However, taxation is limited and cannot exceed 56% . Income tax is paid from salary income, investment/unearned income and employee benefits. Deductions can be given, for instance for transportation costs. Furthermore, there is a special tax rate for dividends and certain income in connection with share trading. If one owns real estate, taxation is based on the value of own residence (public assessment value tax).
Favourable provisos for foreign knowledge workers
The Danish tax system comprises a number of provisos and regulations that favour foreign labour in Denmark:
- The 27% tax scheme (eff. tax rate 32.84%) means that key employees and researchers recruited abroad can obtain a significantly lower tax rate the first seven years of residence in Denmark.
- Denmark has entered into agreements with other countries to avoid double taxation.
- Foreign employees remain covered by the social security of their native country, if certain conditions are met. In this case, the employees must not pay social security contributions in Denmark.