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 — 52.07% 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 DKK 8,000 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.
- Global Growth Platform™: Work with G-P to employ individuals on your behalf through our global entity infrastructure, so you don’t have to worry about payroll or compliance.
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 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 length of service with the company. The Salaried Employees 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.
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