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ADVICE #62

Peculiarities of the tax system in Denmark

Despite the fact that almost all European countries are committed to the unity of laws and integration in the areas of economic and social policies, tax systems of European countries do not differ with unity.

Russian analysts of the consulting company “TexArt Group” researched the tax system 38 European countries with developed market economies, and weak, still “wobbly” after the collapse of the socialist states.

Some of the investigated countries are already EU members, others are candidates for membership in the single currency area, but in the meantime, in most states, United Europe, you may encounter drastic differences in tax systems and the principles of taxation.

If you are going to live abroad and operate your business, you should carefully review the tax code of the country: what size of income tax in this country; the amount of tax “at the source”; VAT; what are the taxes levied on the income of individuals and their property, and more.

We offer to your attention an analytical report with detailed information about the economy, the characteristics of the market, as well as tax rates and the criteria for levying taxes in each country of Europe.

The territory of the Kingdom of Denmark comprises Denmark, the Faroe Islands and Greenland. Faroe Islands and Greenland are essentially separate jurisdictions in which the provisions of the legislation of Denmark concerning taxes not applicable. Between Denmark and the Faroe Islands and Greenland, signed the agreement on avoidance of double taxation.

The Kingdom of Denmark is a member of the EU but not part of the Eurozone.

The income tax

The tax is levied on resident companies in respect of any profits regardless of their geographic origin. Tax charged by non-residents only on income obtained in the territory of Denmark (excluding Faroe Islands and Greenland).

A resident is considered to be registered in accordance with the laws of Denmark and having its place of effective management of the company.

The tax rate on profits in 2014 is 24.5%. From 2014 to 2016, applies a gradual decrease in the interest rate: in 2013 it was 25%, in 2015 will amount to 23.5% and in 2016 – 22 %.

In Denmark there are rules on transfer pricing: the dependent entity should follow the principle of “the rule of the long arm”, and since 2013 in respect of some activities, the tax authorities can require companies the independent auditors' judgments about the application of the company transfer prices. Legislation on transfer pricing Denmark correlated with OECD norms.

The rules on taxation of profits of controlled foreign company a resident operate primarily in relation to residents of Denmark, directly or indirectly, controls more than 50% of the shares of a foreign organization, or receiving more than 50% of the profits of such a company.

Withholding tax

Dividends paid by resident companies are taxed at source at the rate of 27%. Interest and royalties paid to residents are not taxed at source, but royalties may be subject to VAT.

If the recipient of the dividend owns less than 10% of the shares in the company paying the dividend, and such a company is the jurisdiction with which Denmark has concluded SODNOM or agreement on the exchange of information, the withholding tax rate is 15%, unless otherwise provided SODNOM.

In this case, if the recipient of the dividends is a resident of the EU, the additional condition for payment of tax at the rate of 15% is the criterion of ownership together with other Group companies not more than 10% of the shares of the company paying the dividends.

VAT

The VAT rate in Denmark is 25%, except for the number of goods subject to a zero rate (for example, delivery of goods within the EU). VAT insurance, education and medical services, rental properties, etc.

Taxation of incomes of physical persons

The individual's income for tax purposes are divided into four categories: personal income (wages, income from business, pension), income from capital gains (for example, from the sale of bonds), income from participation in the organization (mainly dividends) and income from foreign sources. The tax to incomes of physical persons is calculated on a progressive scale and will be charged separately for each of the parameters.

If personal income and capital income do not exceed 40 800 Danish kroner (DKK, 5 800 €), the tax rate on individual income is 6.83%. If personal income exceeds 449 100 DKK (~60 400 €), and the income from capital gain exceeds 40 800 DKK, the rate is 15%. If the income from dividends do not exceed 49 DKK 200, the rate is 27%, if the income is above this threshold – 42%. Together with the municipal taxes, the tax rate on the income of natural persons may not exceed 51.7 per cent.

Income from foreign sources is taxed at 25%.

Withholding tax on dividends paid to individuals will be charged at the rate of 27% regardless of the resident status of an individual (if the dividend amount does not exceed the above threshold in 49 DKK 200). Withholding tax is not payable in respect of interest payments and royalties.

The real estate tax of individuals

Immovable property owned by individuals is taxed in accordance with the provisions of Danish legislation (Rea Estate Tax Law). According to the law, there are two types of taxes: the municipal real estate tax and municipal tax on buildings used as offices, hotels or other needs for entrepreneurial activity. In the first case, the tax base is the value of land (but not buildings). In the second case, the basis is the cost of the building. The system of taxation of real estate includes municipal and Federal taxes. Council tax rate may not exceed 1%, while the Federal tax is paid by homeowners if the value of the property does not exceed 3 040 000 DKK at the rate of 1%, and in case of exceeding the 3% of the excess amount.

The text prepared by the Russian consulting company TaxArt Group LLC specifically for Banki.ru

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