Denmark – Expatriate regime in Denmark extended from 5 to 7 years
An extension of the inbound expat regime’s (“forskerordningen”) time frame from 5 to 7 years is good news for Danish companies in need of high-paid / specialized labor.
This extension should, however, be followed by a “Note (!)” to potential candidates or already employed individuals on the scheme considering the extension of their stay.
Often, the candidate takes up residence in Denmark corresponding to the period during which the low tax applies. Subsequently, the candidate leaves Denmark once the period of low tax is exhausted.
Thus, the discussion about exit-taxation becomes highly relevant due to the new 7-year stay, specifically within two primary elements:
- The general exit-tax (without 7/10 rule)
- The specific exit-taxes (with 7/10 rule)
Since March 2015 Denmark has had a general exit-tax on assets with a latent gain. In short, if you have assets (real estate, shares, speculative assets, etc.), where there is a latent gain upon relocation, you will be taxed by this gain. Prior to the general rules on exit-tax, there were already special rules regarding share gains and gains. Contrary to the special rules on share gains (see below), a 7/10 rule was not introduced when the general exit-tax on was introduced. The rule was introduced along with easing the requirements for the inbound expat regime by DKK 10,000 in an effort to attract foreign labor. The starting point for the exit-tax is that the tax is payable immediately, but there is the possibility of seeking extension. This may be subject to putting up sufficient collateral depending on where you are moving. To determine if tax is payable on the individual asset requires a separate assessment. This includes, for example, an assessment of the Property Advanced Tax Act’s provisions on exemption from taxation of private housing / summer cottage – rules that focus primarily on Danish conditions. In addition, it is not abnormal that highly paid specialists have a rental housing / property or parental purchase, thus focusing on a potential tax on profits on relocation.
The rules on share gains taxation and capital gains tax includes rules in which the exit-tax will only be applied if you have been taxable to Denmark for 7 of the last 10 years. If you are fully taxable to Denmark for less than 7 years in the last 10 years, for these assets you are generally exempt from exit-tax. The expansion from 5 to 7 years must therefore be carefully managed in relation to reaching the point where the exception cannot be brought into play and thus exposed to Danish exit tax, since the full utilization of the scheme is in the same time frame as the exception to exit-tax. Therefore, you should carefully align your stay in Denmark with this in mind, meaning that a stay beyond 7 years causes this exposure.
Other elements to take into account in the administration of the scheme:
- From January 2018, the tax rate has risen from 26% to 27%
- If you are fully taxable and resident in Denmark, you can only carry out work abroad to a maximum of 30 days when taxed in another state as a result of a DBO – it is essential to coordinate with TP in regards to shared service and cost allocation (eg. for work in other units or for foreign permanent establishment)
- Ensuring that the minimum salary requirement is fulfilled on a regular basis and not just in the contract (eg. holiday, maternity leave or inflation adjustment of the salary requirement)
- Handling of wage elements and employee benefits that cannot be taxed under the scheme
- Payment of bonus after, or in connection with, relocation
- Corrections and verification of the “tax return” and the preparation of the annual report as expat income is not possible to submit as a tax return. Furthermore to make align processes to 2018 as the employer from this point is responsible for the content of the annual annual statement of the employee (Legal Security Package III “Retssikkerhedspakke III”)