Understanding Payroll in Denmark: What Global Companies Need to Know About Denmark Payroll
May 17, 2017
Denmark has received an enormous amount of international attention in recent years, in no small part for its status as one of the happiest countries in the world. Naturally, that invites a lot of popular attention, but that same fact, along with its favorable corporate tax, has attracted the attention of many global employers.
As the smallest country in the Scandinavian region, Denmark has a population of around 5.7 million people with a GDP of around $290 billion. Its stable economy is supported by the country's open-market policies. Denmark has built its economy on both manufacturing as well as services industries, such as energy, tourism, agriculture and construction. It continues to be welcoming to those sectors. Income inequality in this country is one of the lowest in the world, making the nation a standout on the global stage.
Denmark is welcoming to foreign businesses, and shows its gratitude through a simple tax structure. In fact, the country recently lowered its corporate income tax to 22%. If you're operating a business in Denmark, you'll also need to account for the standard individual income tax, social security tax, VAT, and withholding taxes on funds like dividends and interest. Partnering with a global payroll provider could help your company to stay compliant.
All companies not yet in the EU, Scandinavian area, or EEA (European Economic Area) need to first register online with the Danish Commerce and Companies Agency (DCCA) at least eight days before opening your business. You will also need a Central Business Registration Number (CVR) which will identify your business for any official paperwork (e.g., invoices) to both private and public organizations.
Businesses do not have to register with the tax authorities in Denmark (SKAT) because the information is automatically transferred to them when you register with the DCCA. It not required to open a bank account in Denmark to start the business, but it is highly recommended — especially if you're charged for withdrawing money from your own bank account while in operating in Denmark.
Corporate bank accounts are fairly fast and easy to open, and can be done at any major Danish bank. You will need a recommendation or reference from a major bank in your home country, the articles of association of the company, and a list of authorized people to conduct official business. Owners and partners who own more than 25% of the company will need to provide full identification information (e.g., passports.)
Employee salary is typically determined by the collective bargaining of labor organizations (e.g., unions, etc.) Contracts need to be drawn up in writing, regardless of whether or not the employee is a Danish citizen or not. These contracts will state information about wages, hours, holidays, etc. There are no official laws concerning probationary periods, but the typical custom is 3 months. This cannot be extended, and either party must give at least two weeks notice before termination.
You will need to abide by Danish laws which prohibit discrimination for gender, age, sexual orientation and race. The normal work week and overtime numbers are set by collective agreement, but the custom is 37 hours for a work week. Overtime is between time-and-a-half and double-time, and its stipulations are defined by collective agreement. Any work on a public holiday is always double time, and employees need at least one day off a week.
There is no minimum wage in Denmark, but collective bargaining sets requirements for different types of workers based on both skill and experience. Wage growth is normally determined by employee and employer negotiation, or potentially through collective bargaining. Typically, there is little friction in this area as employers are expected to increase salaries every year, commensurate with the employee's experience.
All employees who work in Denmark must have a tax card (even the temporary workers.) General taxes are automatically withheld from employees. Individual income tax is on a progressive scale, but the social security tax for individuals is about 8%. Workers must also pay state, municipality, and health tax. The corporate income tax is 22%, VAT is 25%, and most withholding taxes are between 22 and 27%. The Danish people are taxed at a higher rate than any other country in Europe, with the rates being offset by higher salaries.
Using a third-party payroll solution who understands Danish law makes it easier to ensure all taxes are paid both in full and on time. Denmark is strict about their taxes, as well as the penalties rendered should they be overlooked or otherwise ignored.
Leave, Maternity, Holidays and Sick Time
Generally, new mothers will take off 4 weeks before giving birth and 14 weeks after, and new fathers will take off 2 weeks before and 14 weeks after. Either the employer or a local authority will pay the full salary for new parents, with the details being worked out in the employee contract.
All employees are entitled to 30 days off a year, accrued at 2.5 days every month. Sick time is to be paid for the first 14 days by the employer, and then by the local authorities after 14 days. Salary for extended sick leave is paid at 90% after the first two weeks, and these benefits cannot last longer than a year.
|Date||Denmark's Public Holiday Schedule|
|January 1st||New Years Day/ Nytårsdag|
|Thursday before Easter Sunday||Maundy Thursday/ Skærtorsdag|
|Friday before Easter Sunday||Good Friday|
|Monday after Easter Sunday||Easter Monday|
|Fourth Friday after Easter||General Prayer Day|
|40 days after Easter||Ascension Day|
|June 5th||Constitution Day/National Day of Denmark|
|Seventh Monday after Easter||Whitmonday/Pentecost Moday|
|December 24th||Christmas Day Eve/Juleaftensdag|
|December 25th||Christmas Day|
|December 26th||Second Day of Christmas|
Denmark may have some stringent taxes and collective bargaining agreements, but it's balanced by the quality of workers and the support of the government. When it comes to payroll regulations, it's recommended that you use a firm who specializes in international payroll.
Denmark may have a simpler tax structure for foreign businesses, but that doesn't mean there isn't a lot to account for when it comes to paying workers. A global payroll firm can make it easier to sort out the country's laws, which ensures employees, the government, and the business always gets their fair share.
This article is for informational purposes only and not intended to convey or constitute legal or any other advice. It is not a substitute for advice from a qualified professional.