Umbrella Company in Denmark
Independent contracting in Denmark isn’t always straightforward. Immigration issues may arise due to the various types of working permits that a contractor may apply for under Denmark’s foreign employment schemes. Also, taxation in Denmark is complicated as it consists of direct taxes (e.g. income tax, labour market contributions and social security contributions), indirect taxes (e.g. VAT and duties on goods and services) and property tax. These various forms of taxes must be accounted for to ensure you’re not paying more taxes than you should be. Missteps during the immigration or taxation processes can cost you serious money, or even land you in legal trouble.
Before you consider taking a contract in Denmark, you should be aware of what you’re getting into – and how you can make it simpler.
Difficulties of Contracting in Denmark
Generally, you need to have an employer sponsor in order to secure the appropriate work permit and work visa for Denmark.
If you’re working independently, it can be difficult to find clients willing to sponsor you. Moreover, even if your client can do this, you’ll need a new sponsor each time you decide to take on a new contract. Of course, every new sponsor will mean more paperwork.
Also, are you familiar with the intricacies of the tax system in Denmark, as well as your own country’s laws on overseas earnings? If so, good on you!
However, if you’re like the rest of us, figuring out (much less reducing) your tax liability in Denmark and your home country can seem like full-time work in itself.
How Umbrella Companies Work
Most freelance workers aren’t superheroes who successfully tackle these issues all on their own. There are companies who specialise in helping workers make the most out of their contracts.
They’re called Umbrella Companies (or, contractor management companies).
Basically, an Umbrella Company acts as your full-time employer, even though you maintain your independence as a contractor. They collect and filter payments from your clients, filtering out the necessary social security and fees. You send them your timesheets, and they send you payments.
Because they act as your “employer,’ they can sponsor you and provide a single work permit for multiple contracts in Denmark. Even better, most are experts in Denmark and expat tax law, meaning they’ll also help you optimise your earnings in Denmark.
Although the Umbrella Company is technically your “employer,” you’re essentially freeing yourself to work even more independently. You still dictate your contracts, your hours, your schedule. The Umbrella Company simply filters out the time-consuming admin and immigration issues, allowing you to focus on your new contract.
Why Use an Umbrella Company in Denmark
Most people want to do their work, earn their money and enjoy their spare time without taking on loads of admin in a new country. That is why an umbrella company can help.
When you’re working through an Umbrella Company, you’ll essentially be outsourcing the admin and tax issues to specialists.
While the umbrella company will charge a fee, you’ll likely end up saving more money in the long run: you’ll be able to focus on your work, expertly reduce your tax liability, and comply with all laws and regulations in Denmark (which means avoiding fees, fines, or even worse penalties).
How We Can Help You
There’s a huge variety of Umbrella Companies with different specialities and advantages in Denmark. How do you find the right one for your circumstances?
We work closely with Umbrella Companies all throughout Denmark and match contractors with the right company for them. If you’ve already secured a contract in Denmark, we can help you find your best match (for free). Or, we can simply give you feedback on your situation (for free).
A Contractor's Guide to Taxes in Denmark
One of the most consistently challenging aspects of contracting in Denmark is complying with the country’s tax system. As well as paying tax in Denmark, you might also still be eligible to pay some tax in your home country, and understanding the legislation behind this can be a challenge.
How do I calculate my taxable income in Denmark
If you’re working in Denmark under a permanent contract, many employers will handle your tax under the PAYE (pay-as-you-earn) system. This means that they calculate and process your taxes in Denmark for you and then send you a net wage. Your income tax, social security, labour market contribution and other deductions will all be covered by this payment. This is the easiest way to handle your income tax in Denmark. However, individuals who become a taxable during the calendar year must first fill out a preliminary tax assessment in order to attain a tax card which specifies the tax rate that your employer will withhold. Without obtaining this card, you will be subject to a flat tax rate of 55% on your income.
Also, many contractors may not be offered this PAYE service because of their short stay with each employer. Anybody who can’t pay their tax in Denmark through PAYE is left with the prospect of doing everything themselves.
Do you know much about Denmark Tax Law? Does Denmark have a tax treaty with your home country? You will need to find out or find someone who can help! Income tax in Denmark varies between different municipalities and can range from 8 to 56 percent (inclusive of the 8% labour market tax rate), and you need to be sure you are placed in the correct tax brackets.
Tax Filing in Denmark
|When Do You Need to Lodge Your Tax Return?||The tax year ends on December 31. A tax return must be filed after receiving a tax assessment notice from the SKAT in early March.|
|Tax Filing Deadline||May 1|
|Can you file it online?||Yes, by logging into e-Tax (TastSelv) on the SKAT website using a NemID. https://www.tastselv.skat.dk/|
How to File Taxes in Denmark
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.
Foreign workers filing taxes in Denmark:
Step 1: When filing the preliminary income assessment, have available the following information:
- Anticipated salary for the following financial year.
- Any pension and early retirement benefits.
- Interest income and expenses
- Documentation of any buying or selling of property
- Any other deductions.
Step 2: Correct the preliminary income assessment if there are any changes in income or deductions and allowances during the year.
Step 3: In mid-March, a tax assessment notice will be made available in E-Tax. See step 5 if this is not available.
Step 4: Change the tax assessment notice if any information is incorrect or any deductions have not been included.
Step 5: 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.
Step 6: Once all information is correct, your tax assessment notice will show whether you have overpaid taxes or paid too little taxes and their amounts.
Step 7:Approximately 1 month following the issue of the tax assessment notice, any tax refunds will be paid along with a non-taxable interest of 0.5%.
Tax Figures in Denmark
|Currency||Danish Krone (DKK)|
|Tax-free Threshold in Denmark||No tax-free threshold due to the 8% mandatory labour market tax rate.|
|Income Tax Rates|| |
An 8% mandatory labour market tax is imposed on all salary income. Income taxes are calculated on the income after labour market tax. The table above includes the labour market tax rate.
A special tax regime applies to expatriates employed by a Danish resident employer. Salary is taxed at a flat rate of 31.92%, including the 8% labour market tax for any period up to 5 years.
Tax Residency in Denmark
When do you become a tax resident in Denmark
- Individual has stayed in Denmark for more than 6 consecutive months. When determining this 6 month period, short stays outside Denmark due to holidays are included.
- Individual acquires or rents a home in Denmark and stays in Denmark for other purposes than short stays for a vacation.
Does the 183 day rule apply in Denmark
Yes. An individual who stays in Denmark for a continuous period of 6 months at any time will be considered a tax resident.
Am I taxed on my global income in Denmark
Yes, if you are resident. Non-residents are taxed on Danish-source income.
Can you set up your own Limited Company in Denmark
|How long does it take to set up||4 days|
|How much does it cost||670 DKK|
|Is it easy?||Starting a Business Rank: 34. High ranking means that starting a business in Denmark is easy.|
Tax Calculator in Denmark
If you are a contractor and want a calculation on your tax and net retention in Denmark, we can supply it to you free of charge.
Using an Umbrella Company for Income Tax in Denmark
Contractors in Denmark are faced with masses of paperwork and numerous wasted hours filing a tax return unless they find an alternative option. A Danish umbrella company can act as your employer during your stay in the country whilst still allowing you the freedom of a contractor. The only difference is that you submit your timesheets to them; they’ll calculate and pay your taxes as you earn, and then you receive a net wage (as well as documentation for your records).
The companies are experts in Danish taxation, and they’ll ensure that you keep the largest proportion of your earnings whilst complying with local laws. They can deal with any issues with the Danish tax office or tax department directly including processing your tax refund if you are eligible.
How We Can Help You with Tax in Denmark
We work with numerous umbrella companies in Denmark, many of whom are experts in tax and immigration laws. If you have any questions about tax in Denmark, we’ll get the answers from them directly so you can rest assured you’ll be getting accurate information. We have comprehensive knowledge of the different services they provide, and can help you find the right company to handle your income tax. We help oil and gas workers, software developers, IT project managers, testers, business analysts and telecommunications contractors get tax efficient payments and sponsorship for their Danish work permit.
Our advice is 100 percent free, and comes with no obligations. You will be paying taxes in Denmark but without the overhead of directly dealing with the Danish tax authorities. Get in touch with us today for some reliable advice on tax in Denmark!
A Contractor's Guide to Work Permits in Denmark
Immigration is one of the primary concerns for any contractor hoping to start working in Denmark. Permanent employees will find it easy to get their Danish work permit because they’ll receive “sponsorship” for their entire stay from their prospective employer.
Citizens from the Nordic countries, the EU, the European Economic Area and Switzerland are entitled to live and work in Denmark without a residence and work permit. If you intend to reside in Denmark for more than 3 months, you must apply for a registration certificate at the International Citizen Service or the State Administration (Statsforvaltningen) upon your arrival. However, if you are not a citizen from these countries, you must apply for a residence and work permit before you enter Denmark.
There are a number of schemes that enable foreign individuals working in Denmark to attain a working permit. These include:
- Fast-track scheme: This scheme makes it faster and easier for certified companies to recruit foreign employees with special qualifications to work in Denmark. This gives the job-seeking employee a quick and flexible job start in the certified company.
- Pay limit scheme: For employees who have been offered a job in Denmark with a yearly salary of at least DKK 408,000.
- Positive list scheme: For employees who have been offered a job in Denmark included in the list of professions currently experiencing a shortage of qualified professionals.
The Danish work permit obtained through the pay limit scheme and positive list scheme are dependent on this sponsorship because it confirms that you’ll be earning money during your stay in the country. Contracting in Denmark is more difficult because the work permit is tied to one employer, so you have to change it to suit each new contract. Thankfully, umbrella companies provide a convenient and effective solution to this issue.
How Can Umbrella Companies Help You Get a Work Permit in Denmark ?
As your permanent employer, umbrella companies are able to sponsor you for your Danish work permit provided they’re on the register of approved sponsors. Many different companies offer this service, because it makes contracting in Denmark infinitely simpler and saves you the hassle of continuous paperwork. Instead of changing your work permit every time you get a new contract, you can just work how you ordinarily would under the same permit. They protect you from the bureaucratic “rain” of legal compliance with the Danish immigration authorities. They can even deal with the Danish Embassy directly.