Denmark has one of the highest tax rates in the world for its residents. However, its corporate tax rate is positive. Before you can set up payroll in Denmark on your own, you’ll need to understand each aspect of Denmark employment compliance, from taxes to HR to termination terms.

Taxation rules in Denmark

Denmark operates under a progressive tax system where employees’ income tax gets calculated annually. Every employee must pay national, municipal, health, and social security taxes. Members of the Danish Lutheran church must also pay a church tax. Tax rates in Denmark are relatively high — 57.07% is the maximum combined municipal and state income tax rate, including the 5% top-top tax. Denmark has no separate health tax.

Taxes also primarily fund social security, which includes everything from sickness benefits to disability and child allowance. The labor market contribution (AM-bidrag) is deducted from employees’ gross employment income at 8%. ATP contributions are separate and typically fixed, while your standard ATP pension contribution as an employer can be up to DKK 2,376 per employee per year. Other employer costs may apply, bringing the fixed statutory total to around DKK 7,800 per year.

Denmark payroll options for companies

Remembering everything about tax allowances and how to set up Denmark payroll can take a significant amount of time and money. Sometimes it’s better for your company to choose Denmark payroll outsourcing. The various Denmark payroll options include:

  • Local Denmark payroll outsourcing: Open a subsidiary in Denmark but work with a local payroll processing company in the country to pay your employees. However, with this option, you’ll remain liable for any mistakes.
  • Internal Denmark payroll: Hire an internal HR team and other necessary employees to run your own internal payroll out of your Denmark subsidiary. This option is more expensive.
  • G-P EOR: Work with G-P to employ individuals on your behalf through our global entity infrastructure, including setting up global payroll in as little as a few days to a couple of weeks.

How to establish payroll in Denmark

Setting up Denmark payroll starts with getting information from your new employees such as personal tax number, address, pension details, and bank information. If they don’t have a personal tax number, they’ll need to apply to SKAT using Form 04.063 for a personal tax number and Tax Card. Those with a CPR number normally use their preliminary income assessment instead. Once the application is processed, your employee will receive their card and personal tax number.

Entitlement/termination terms

Terminating an employee in Denmark is easier than employee termination in other European countries. The Salaried Employees Act, collective bargaining agreements, or an employment contract can all outline various notice periods based on the employee’s length of service with the company. The Salaried Employees Act entitles covered salaried employees dismissed by their employer to severance pay. They receive one month’s salary after 12 years of continuous service and three months’ salary after 17 years.

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