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TAXES

Denmark confirms tax cuts in most income brackets

Denmark is to introduce income tax cuts worth an estimated ten billion kroner after a deal was reached confirming an earlier proposal.

Published: 15 December 2023 16:45 CET
Denmark confirms tax cuts in most income brackets
Finance Minister Nicolai Wammen heads a team of Danish lawmakers presenting the country's income tax reforms, which will take effect in 2025. Photo: Thomas Traasdahl/Ritzau Scanpix

The tax reform has been in the pipeline for some time and has now been agreed upon between the government and a number of opposition parties, enabling a final version of it to pass through parliament.

The agreement was presented on Thursday by government ministers as well as representatives from opposition parties the Social Liberals, Conservatives, Denmark Democrats and Nye Borgerlige, all of which back the reforms.

Among other measures, the reform increases the income tax deduction given to people in employment, beskæftigelsesfradraget, and adds a new bracket of tax for the very highest earners, usually referred to in Danish as toptopskat, “top-top-tax”. 

“[The agreement] means that over three million Danes [taxpayers in Denmark, ed.] will get more out of going to work. It also means that if you are a single-parent provider, you will get more from going to work,” Finance Minister Nicolai Wammen said at the briefing, as reported by news wire Ritzau.

“The aim of this is to make it more attractive to make an effort [to work],” he added.

The bulk of the agreement closely resembles the proposal presented by the government in November.

This includes a raise to the income tax deduction given to people in employment, beskæftigelsesfradraget. An additional tax cut will be given to single-parent families.

READ ALSO: Beskæftigelsesfradraget: What is Denmark’s employment allowance?

The highest rate of tax, topskat, will be halved for persons whose annual income is under 750,000 kroner, meaning they will pay a rate of 7.5 percent on income that falls into the topskat bracket, instead of the regular 15 percent.

The government also proposes adding a new bracket of tax for the very highest earners, often referred to in Danish as toptopskat, literally “top-top-tax”. The new bracket will apply to people with annual incomes over 2.5 million kroner.

Other measures not included in the proposal have been added to the final agreement. This includes the reduction of inheritance tax and repeal of a tax related to inheritance from siblings.

The government projects that the tax reform will increase the country’s workforce by at least 5,300 people by 2030.

Bruus said that Denmark’s tax system is neither more nor less complex under the new rules.

“It’s become fairer,” he said.

The reforms will begin to take effect from 2025.

While the cost of the reforms is quoted at 10.75 billion kroner, the government expects their overall cost to the state to be 6.75 billion kroner, because it will increase consumer spending power which will find its way back to the state via VAT (moms).

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TAXES

Denmark and Sweden simplify tax rules for Öresund commuters

A tax arrangement between Denmark and Sweden for people who commute across the Öresund has been revised in a move the countries say will simplify cross-border working.

Published: 10 June 2024 16:14 CEST
Denmark and Sweden simplify tax rules for Öresund commuters

The new rules, which will take effect from 2025, were confirmed in statements released by the Danish tax ministry and Swedish finance ministry on Monday.

Revised taxation of both Danish and Swedish taxpayers who cross the Öresund will “help make the already-well functioning labour market on both sides of the Öresund even better,” the Danish statement said.

The new version of the tax agreement will mean a lower administrative burden for both commuters and employers, it said.

It also “tidies up” and simplifies existing rules, according to Denmark’s tax ministry.

“An integrated labour market spanning the Öresund is unconditionally benefits both Denmark and Sweden. I’m therefore pleased that the Danish and Swedish governments have agreed on an adjustment of the Öresund agreement which means fewer rules for commuters and employers to navigate,” Danish tax minister Jeppe Bruus said.

In the statement from Sweden’s Ministry of Finance, minister Elisabeth Svantesson called the agreement “good for Swedish growth, the tens of thousands of commuters who commute across the Öresund daily, and all Danish and Swedish businesses who want to invest in our country”.

“Now, for example, public employees will be able to work from home like all other workers without the risk of having to pay tax in their home country,” she said.

The Öresund Agreement, first signed in 2003, primarily regulates taxation of persons who live and work on opposite sides of the Öresund strait which separates Denmark and Sweden, notably the Copenhagen and Malmö regions.

Until now, the agreement has limited the extent to which Öresund commuters can work from home while still paying tax in the country to which the work is registered.

Currently, public sector workers who work partially from home must declare how many days they work at home and how many they work on site – in other words, across the Öresund. That is because taxation is divided according to where the work is filed. This does not apply to the private sector, where the entire income is taxed in the country of employment.

The new agreement will allow both private and public sector staff to work from home while paying full tax in their employment country. Additionally, it scraps rules requiring the home working to take place at the commuters home address – meaning they can, for example, work from a summer house or other location on their side of the Öresund.

“Publicly employed commuters should not have hassle with their annual tax statements when we already have rules which work well in the private sector. We are therefore now unifying the rules,” Bruus said.

Additionally, the revised agreement will introduce unified rules on taxation of Denmark’s state student grant, SU, and on dividends from pension schemes. That means rules will be applied equally regardless of whether the country of residence is Denmark or Sweden.

It also includes a provision for Denmark to compensate Swedish municipalities for municipal income tax not paid by commuters employed in the public sector, under the terms of the agreement.

Some 17,000 people travel from Sweden to Denmark for work annually, and 1,400 travel in the opposite direction according to the Danish tax ministry.

Students living in Sweden and studying in Denmark with Danish student grants (SU) will also pay more tax under the new agreement. Under current rules, SU for these students is not currently taxed, as student grants are not taxed in Sweden.

According to the new agreement, Denmark will gain “the opportunity to tax people receiving Danish SU, whether they live in Denmark or Sweden”.

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