The video gives an introduction to the topic of income taxes in Denmark. Here you can see a numerical example of how much income taxes to pay in Denmark compared to the USA. Video link here. In the tax calculator tool, you can calculate the tax payment in different scenarios. The tool can be downloaded here. Tool link her.
The artlcle describes income taxes in Denmark – the system in place with the main taxation elements. Income taxes are compared with those in USA. We also compare salaries before and after tax and access to welfare benefits in the 2 countries.
Income taxes in Denmark – the system in place
The Danish tax system is progressive meaning that higher earners pay a larger proportion of their income in taxes. It reflects a social contract based on the principle of solidarity between rich and poor citizens. Thus the tax system reduces income inequality measured at income after tax payment.
The tax system funds the country’s well developed welfare state. It provides services such as universal healthcare, education, and social security. Income taxes in Denmark has a relative high level compared to other western countries. Income taxes in Denmark account for about 25% of total tax revenues.
Taxable income also called the tax base consists of personal income of all kinds and capital income with reduction from allowed deductions.
Personal income can be salary, benefits in kind, self-employment income, pension income, etc. Capital income is net income from returns on different financial assets.
Key taxation elements for income taxes in Denmark
Valid for year 2024.
Income tax to the state
Bottom bracket: Applies to lower to middle incomes. The rate is 12%.
Top bracket: Applies to higher incomes. The rate is 15%. It applies to incomes over the threshold of DKK 600.000 or $88.000.
Municipal Taxes
The average municipal tax rate is 25%.
Labour market contribution
It is a social security contribution at the tax rate of 8% on gross income and calculated before deductions such as personal allowances. (Called “AM-bidrag” in Danish). It is a part of income taxes in Denmark for everyone.
Church tax
The rate is 0,65 %. Municipalities imposes the church tax and it only charges members of the Danish State Church.
Deductions. Most important ones
- Personal allowance: The basic personal allowance is 50.000 DKK or 7.300 $. It applies to all tax payers.
- Pension contributions: If you have more than 15 years to state pension age you can get a deduction at 12% of your pension contribution payment up till 80.600 DKK. If there is less than 15 years till your pension age the deduction rate is increased to 32%. The pension age is 69 years for individuals born after 1967. For people born after 1971 the pension age is 70 years.
- Employment deductions: Work-related expenses such as transport and union fees can be deducted. Further all employed workers get an employment deduction of 10,65% of income from work with a maximum of 45.000 DKK. The purpose is to favor income from work over income from welfare benefits.
The tax ceiling rule and the effective income tax rate
The progressive tax system means that the marginal tax rate for an individual paying the top tax of 15% is around 56% as of 2024. Moreover a rule about tax ceiling means that if your overall tax rate exceeds 52%, then your top tax payment is reduced until the overall tax rate is below 52%.
Taxes to be paid after deductions are calculated on the monthly paycheck. The company gets the indivdídual tax information from the tax authorities and calculates the net payment to be paid to the employee after taxes.
To assess the burden from income tax compared to other countries (or between individual workers), it is not sufficient to only look at the tax rates. You also have to consider the level of deductions and specified tax limits (tax brackets). The effective tax rate takes this into account. Regarding labor income, the average effective tax rate in Denmark is 36% as of 2023 according to OECD. (See also the table below in the section comparing Danish and US income taxes).
Tax on capital income
Capital income is part of taxable income and can be earned interest income from bonds and savings accounts or income from returns on shares or investment funds. Taxation of capital income is based on the resulting net income from all flows of capital income on a yearly basis. Net income from return on shares separately are taxed at 27% up to 61.000 DKK and 42% for net income in excess of this amount.
Favorable tax schemes for foreigners working in Denmark in a limited period
The Danish taxation rules distinguish between limited and full tax liability. Full tax liability applies to Danish residents and persons staying in Denmark for more than six months consecutively. In this case all your earned income – also from outside Denmark – is subject to taxation in Denmark. Limited tax liability implies that you are taxable on your Danish income but that you remain fully tax-liable in another country. The schemes described below are designed to give special favorable tax conditions for employees working in Denmark for a limited period.
The special expatriate scheme
This scheme – also known as the 27% tax rule – gives expatriates employed in Denmark the ability to apply for a favorable flat tax rate of 27% on their gross salary for up to 84 months. The guaranteed monthly salary before deduction of employee pension contributions, must be at least DKK 75.000 (in 2024) on average in the calendar year. Furthermore employees must not have been liable to tax in Denmark within the past 10 years.
The 27% tax rate is calculated on cash salary, employer-provided telephone, internet and company cars plus employer-paid health insurance. Labor market tax of 8% also applies. No deductions are allowed against the flat rate taxed income. If the employee stays after the 84-month period, the employee’s income is taxed at ordinary rates.
The workforce hire scheme
Workforce hire implies that the employee continues to be formally employed by the employer in the home country but is hired out to a company in Denmark. Employees under this scheme are taxed in Denmark at a favorable flat rate of 30% of the gross remuneration. No deductions are allowed. Labor market tax should be paid as well. If the stay in Denmark is expected to exceed six consecutive months within any 12-month period, it is not possible to use the workforce hire rules.
Other taxes
Consumption taxes
The Danish value-added tax (VAT) rate is 25%.
Luxury and excise taxes
On goods such as light balls, sugar, liquor and tobacco. A number of these taxes are expected to be reduced or abolished in the coming years.
Wealth taxes
No wealth tax since 1997.
Property taxes
Owners of property are liable to pay two types of property tax: property value tax and land tax. Property value taxes are calculated as a percentage of the latest public property assessment. Property value tax annually amounts to 0.51% of the value of a property up to 9.200.000 DKK and 1.4% of the value exceeding 9.200.000 DKK. From 2024, the land tax will be paid through your preliminary income assessment and included in the tax payment on your paycheck. From 2024, the rate for land taxes will be reduced in all municipalities. On average, it is reduced from 2.7% to 0.74%.
Car taxes
The rates for registration duty in 2024 for passenger cars are 25% of the value up to 70.200 DKK, 85% of the value from 67.800 DKK up to 210.600 DKK, and 150% of the value in excess of 210.600 DKK. In addition, the green vehicle tax applies which is a quarterly fixed tax to be paid on all cars based on the car’s fuel consumption.
Income taxes in Denmark compared to the US
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Income taxes in the USA
The income tax in the USA consists of federal income tax and income tax paid to the single state and municipality. The federal income tax is progressive with a rate of 10% for incomes up to 11.600 $ and 12% rate for income levels between 11.600 $ and 47.150 $. The rate for highest incomes over 609.350 $ is 37%. The income tax paid to states range from 0-15% with a few states not collecting any income tax at all. Besides, employees pay for the Social security scheme and Medicare.
The current rate for Social Security is 6.2% of wages and 1,45% for Medicare. The employers pay the same rate as well. As in Denmark there are some allowed deductions to be made when calculating tax payment.
Income taxes in Denmark are higher than in the US
The average single worker in the US faced a net average tax rate from labor income of 24% in 2023, compared with the OECD average of 25 %. For Denmark the average rate is 36% as the table below shows. This is the 4th highest average rate among the 38 OECD member countries.
So the average income tax is higher for employees in Denmark than in the US. The tax burden measured as all revenues from taxes and charges as a share of GDP expresses the overall importance of taxes in society. The tax burden is 42% in Denmark which is the 7th highest among OECD-countries. In the USA it is 28% as of 2022. Some years ago the tax burden in Denmark was among the highest in OECD at around 45%, but have fallen in recent years.
Tabel: Average effective tax rates on labor income in selected countries
| Country | Average effective tax rate on labor income in 2023. (Pct-points). |
| Belgium | 39,9 |
| Germany | 37,4 |
| Denmark | 36,0 |
| OECD average | 24,9 |
| USA | 24,2 |
| United Kingdom | 23,7 |
| Spain | 22,1 |
Source: OECD-report on average tax rates on labor income for 2023.
Salaries on a monthly or yearly basis are higher in the US than in Denmark
To compare how much you can consume of goods and services of your salary in the 2 countries you must adjust for differences in price levels in the two countries. The gross domestic product (GDP) per capita adjusted with purchasing power parity is 76.300 $ in the US as of 2022 and 71.300 $ in Denmark. statistics about GDP per capita. Average annual wages in 2022 in Denmark was 65.300 $ and 77.000 $ in the US. The OECD average is 55.500 $.
OECD statistic about average annual wages.
But Danes work fewer hours than US citizens – so the earned wage per hour after tax is about the same
A main reason for the higher annual wages in the US than in Denmark is that employees in the US on average work considerably more hours per month or per year. The Working Week in Denmark and Facts You Need to Know. When workers consider the trade-off between work and income (which are taxed) on one hand and leisure (not taxed) on the other hand, the tax system in Denmark creates incentives to choose more leisure on behalf of work compared to the US.
This explains partly why the working week is generally shorter in Denmark and the spread of work-life balance initiatives such as the 4-day working week and part-time jobs. This is described further in the article about work-life balance. Work-Life Balance in Denmark: Why It’s One of the Best
Average monthly salary after tax is 4.500 $ in the US and 3.700 $ in Denmark. Statistic about monthly salary after tax across countries. Taking into account that US employees on average work 25% more hours per month than Danish employees, the average wage after tax per hour is the same – namely 27 $ in US and 27 $ in Denmark. The hourly wage before tax is calculated to an average of 43 $ in the US and 47 $ in Denmark.
A high level of productivity in a well-educated workforce is an important reason for the high hourly wages in Denmark. Furthermore high tax levels will spill over to wages and prices and impact the wage negotiations between employers and employees.
Access to welfare benefits in USA and Denmark
Access to welfare benefits in USA
In the US many welfare benefits are not made available to the citizens by the public sector on a free and universal basis. So US citizens have to pay for these services in the private market. This is the case for college tuition fees, child care, some health care services and more. Further the income transfers available in the US are considerably less generous economically and with lower coverage. Such factors are part of the full picture and should be considered, when assessing how attractive the 2 countries are to work and live in.
Access to welfare benefits in Denmark
As mentioned the income taxes in Denmark is significantly higher than in the US. The other side of that coin is a well-developed welfare state – financed by these taxes and charges – giving free access to welfare benefits in the form of income transfers and services.
Important income transfers include insurance benefits paid at unemployment, sickness or maternity leave, state education grant (called “SU” in danish), early retirement pension, housing benefit, and child benefit. So many of these income transfers are income-dependent and reduced by higher personal income. Also each transfer has rules and criteria that must be fulfilled to be eligible for the transfer.
Services cover all citizens and are free. It gives access to child care, education and health care. For kindergarten and nursery as an exemption, the parents are required to pay up to 25% of the costs. Education is free and consists of primary school, high school and higher education. Health care services give right to treatment in hospitals and general practitioners, home care and nursing homes. Services are at least as important as income transfers in the Danish welfare state and more citizens meet the welfare state by the services than by the income transfers.
Conclusion – income taxes in Denmark
The income taxes in Denmark are relatively high compared to other western countries. Among OECD-countries the tax burden is the 7 highest and the average effective tax rate on labor income is the 4th highest. And income taxes are significantly lower in USA. Also salaries on a monthly or yearly basis is higher in US. But when also considering the work-life balance in place in the two countries and the average hours worked per month or year the resulting comparison changes a lot. With a shorter working week and more paid holiday weeks in Denmark ( 5 weeks and for some groups even 6 weeks) the average wage after tax per hour worked is about the same in the 2 countries.
The higher income taxes in Denmark is accompanied by a much larger welfare state – financed by these taxes. This includes universal and free access to welfare services such as health care and education at all levels. Also the benefits in form of income transfers are significantly higher in Denmark and covers more indviduals. This includes insurance benefits paid at unemployment, sickness or maternity leave, state education grant (called “SU” in danish), early retirement pension, housing benefit, and child benefit.
In the US, citizens have to pay for many of these services in the private market as they are not provided by the public sector. Such as college tuition fees, child care, some health care services and more. Also the income transfers avaiable in USA are less generiously in economical terms and covers less individuals. Such factors are part of the full picture when assessing how attractive the 2 countries are to work and live in.
