Denmark – Tax Reform Proposals Impact Individuals
“Denmark at Work” is the title of the long-awaited proposed tax reform that the Danish government has now made public. As the title suggests, initiatives to increase employment are at the core of the proposals in order to fuel growth and prepare for the future when there will be large numbers of pensioners with few younger workers to take over the jobs they leave upon retiring.
The tax reform proposals were announced at a press meeting in the Prime Minister’s office.1 There is not yet a majority to carry the proposals through to a successful legislative enactment, but negotiations with the political parties represented in Parliament (Folketinget) are underway. Therefore, it is quite possible that there will be some changes before the reform is finally adopted.
The KPMG International member firm in Demark has published a summary of the proposals which may be accessed at: http://www.kpmg.com/DK/da/nyheder-og-indsigt/nyheder/tax/Documents/Tax-Reform-2012.pdf .
Some of the key proposals affecting individuals are as follows:
• Top tax threshold to be increased gradually by a total of DKK 77,100 from the current DKK 389,900 after labour market contributions in 2012/13 to DKK 467,000 in 2022.
• The employment allowance is to be gradually increased from the current 4.4/4.5 percent in 2012/13 to 10.65 percent in 2022. The maximum employment allowance will be increased from the current DKK 14,100/14,400 in 2012/13 to DKK 34,100 in 2022. The maximum allowance will be granted every year if an individual has a salary of approx. DKK 320,000 (2013 level).
• With effect from 2013, taxation of hiring out of labor is to be tightened with a view to preventing foreign workers from avoiding Danish tax when working in Denmark for Danish enterprises under certain sub-contractor arrangements, where the responsibility and risk, etc. for the work lies with the person’s foreign employer. The government will also tighten the provisions whereby such individuals can avoid liability to Danish tax by breaking their stay in Denmark to visit their home countries.
• The section of the Danish Tax Assessment Act that provides total or partial relief for employment income earned during a stay abroad of at least six months (42 days would be allowed for necessary work and holidays, etc. in Denmark every six months) is to be eliminated. This change would mean that in future a credit will only be granted for tax actually paid abroad or relief granted according to a double taxation treaty; Danish double tax treaties very rarely allow exemption relief, i.e., relief which is higher than the tax actually paid abroad.
• With effect from 2013, the cap on deductible travel expenses for employees who – because of the distance between their homes and their temporary work-places – are unable to sleep in their homes is to be reduced from the current DKK 50,000 per income year to DKK 25,000 per income year.