If you are an international contractor and interested in working in a northern European country with a high standard of living, Denmark may be an attractive choice. Whether you are looking for short-term projects with Danish clients, or want a longer-term contract, you will want to fully understand the requirements for contracting and living in Denmark.
We have put together this guide that covers the essentials of contracting in Denmark. It also covers what to expect from payment methods, taxes, and immigration laws.
Do I need a visa to be a contractor in Denmark?
As with any plan to work in a foreign country, meeting immigration rules is a top priority. Because Denmark is part of the EU, EU citizens do not need a work visa. However, non-EU contractors will have to find a way to secure a visa with a local Danish sponsor that extends a valid job offer.
How do I get paid as a contractor in Denmark?
The next step is to decide how you will structure your contracts and get paid in Denmark. You have a few options depending on your current work model and experience contracting outside of your own country.
Work as a freelancer
You might be used to working as a self-employed freelancer at home or abroad, but unless you are an EU citizen this might be more difficult in Denmark due to visa requirements. EU citizens can operate as sole proprietors in Denmark, as it is a recognized business type. Non-EU citizens would have to ask their clients to sponsor their work visas, which they may be reluctant to do for a freelance contractor.
You will pay the normal tax rates in Denmark on your income. These are much higher (as much as 55%) than the Expat Tax Scheme available under other work options. The only advantage of self-employment is the ability to reduce your tax bill with business expenses if they are high.
Set up your own limited company in Denmark
It is also possible to set up your own limited company in Denmark, as there is no requirement for Danish residency. You would have to register with the commerce department as a foreign business, which can be done online ahead of time.
This is a good option for experienced international contractors. This is because they are comfortable navigating foreign tax and business laws and prefer to administer their own contracting. However, there is a capitalization requirement of 40,000 Danish kroner, and you also need a management board.
Use your UK-based limited company
UK citizens that have their own limited company may want to use their existing business structure to work in Denmark. It is permitted, but you would have to register locally as a foreign business and meet any licensing requirements. You would also need accounting help to handle your Danish taxes, and it is probably only feasible for shorter contracts.
Keep in mind that with Brexit approaching, UK citizens may no longer enjoy the freedom of movement within the EU. Furthermore, they could face increased immigration barriers depending on the treatment of businesses within the trade agreement.
Work with an umbrella company
The simplest method for getting paid is to use an umbrella company in Denmark, which would act as a third-party intermediary between you and your client. The advantage of this is that all payments are facilitated fairly, and you as the contractor would have any local taxes and contributions deducted each month.
You still manage your contracts and work, but the umbrella company handles all the administrative tasks in Denmark, and they can sponsor a work visa as well. With an umbrella company, you can qualify for the lower ex-pat tax rate, and receive benefits as well.
Taxes for Contractors in Denmark
Contractors who are working in Denmark on long contracts might have their clients use a PAYE system, including calculating your tax withholding and other deductions just like an employer would. An umbrella company would do the same thing for you. It also does relieve you of dealing with that monthly on your own or asking your client to handle the task.
If you are working on short contracts, and without an umbrella company, you will need to take care of this yourself, and likely will need a Danish accountant to help with the calculations and filing.
How do I file taxes in Denmark?
The tax year in Denmark ends on December 31, and the filing deadline is May 1.
Note: All individuals working in Denmark must first apply for a tax card at the Danish Customs and Tax Administration (SKAT) by filing a preliminary tax assessment for the remaining part of the year.
Here are the steps for foreign workers filing taxes online in Denmark:
- When filing the preliminary income assessment, have available the following information: anticipated salary for the following financial year, any pension and early retirement benefits. This also includes interest income and expenses, documentation of any buying or selling of property and any other deductions
- Correct the preliminary income assessment if there are any changes in income or deductions and allowances during the year.
- In mid-March, a tax assessment notice will be made available in E-Tax. See step 5 if this is not available.
- Change the tax assessment notice if any information is incorrect. You can also do this if any deductions have not been included.
- If a tax assessment notice is not available, you will need to file a tax return online by filling out information about your income and tax-free deductions and allowances.
- Once all information is correct, your tax assessment notice will show the necessary information. It shows whether you have overpaid taxes or paid too little taxes and their amounts.
- Approximately one month following the issue of the tax assessment notice, any tax refunds will be paid along with a non-taxable interest of 0.5%.
- What are the social security contributions in Denmark?
There is a mandatory social security contribution in Denmark of 1,135 Danish kroner per year. However, if your country has a totalization agreement with Denmark, you may be exempt.
What is the Expat Tax Scheme?
There is a special Expat Tax Scheme (ETS) in Denmark for foreigners employed by Danish companies. The flat tax rate is 31.92% on all income for any period up to 7 years. This may be quite a bit lower than the regular tax rate for some workers.
To qualify, you must have an average monthly salary of 61,500 Danish kroner. You should also not have paid Danish taxes in the past 10 years. ETS contractors receive a national health insurance card and all Danish welfare rights. So it is worth trying to meet the ETS criteria.
This ETS is only available if you are working through a Danish ‘service provider’, such as an umbrella company, or your own Danish limited company. This is because it is primarily a solution for employed workers. Self-employed freelancers and those with a UK limited company cannot use the ETS on their own, and they will pay full tax rates.
What are the tax residency rules in Denmark?
Like many countries, you will become a tax resident in Denmark when you have stayed for more than six consecutive months. This includes any short holidays outside of Denmark. As a tax resident, you will be taxed on global income, while non-residents only pay tax on Danish-sourced income.
Denmark does have double taxation agreements with over 90 countries, which would allow you to avoid double taxation on your income.
How do umbrella companies help contractors in Denmark?
It starts to become clear that unless you have the business acumen to set up and run a Danish limited company, using an umbrella company is an advantageous choice. Here are the benefits:
- Handles all client payments, tax withholding, and any social contributions
- Issues you a payslip each month, to a Danish or foreign account
- Sponsors work permits for non-EU citizens
- Helps set up the Danish contract with the client
- Moderates any disputes with your client
- Allows you to use the Expat Tax Scheme rates and benefits
- Advises on access to totalization and double taxation treaties
UK citizens should especially consider using an umbrella company for contracting. This is because post-Brexit they may need to secure work visas in Denmark with a local sponsor. If you have questions about how umbrella companies work, please contact us. We have experienced and expert umbrella companies in Denmark that can arrange your contracts and payments easily and quickly.