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. Instead, you can work with Globalization Partners for Denmark payroll outsourcing to get your business started sooner without worrying about compliance.
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 also must pay a church tax. Tax rates in Denmark are relatively high — 51.95% is the maximum for local tax, health tax, and state tax.
Taxes also primarily fund social security, which includes everything from sickness benefits to disability and child allowance. These contributions are all deducted from your employees’ salaries at 8%, while your contribution as an employer can go up to 8,000 DKK 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:
- Foreign payroll: Add your employees in Denmark to your company’s payroll, whether you’re located in the US or another country.
- Local Denmark payroll outsourcing: Open a subsidiary in Denmark but work with a local payroll processing company in the country to payroll your employees. However, 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.
- Global PEO: Work with Globalization Partners to outsource your payroll and liability. We’ll hire employees on your behalf, so you don’t have to worry about payroll or compliance.
How to Set Up a Payroll in Denmark
Setting up Denmark payroll starts with getting information from your new employees such as their personal tax number, address, pension details, and bank information. If they don’t have a personal tax number, they’ll need to apply for a Tax Card from SKAT by completing Form 04.063. Once the application is processed, your employee will receive their card and personal tax number.
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 amount of service. The act also guarantees severance pay as an entitlement for terminated employees. The amount of severance pay depends on how long the employee has worked for the same employer.
Payroll Processing Company in Denmark
Instead of setting up your Denmark payroll alone, work with Globalization Partners. We will hire your employees, put them on our payroll, and help you get started working faster. Contact us today to learn more.