High, High and Higher. With a top tax rate on earnings of over 60%, and "normal" rates of over 40% you'll wonder why you bothered in the first place.
Personal Taxation
Personal Tax in Denmark is levied at 4 levels. First there is the AM-Bidrag, same as British National Insurance, followed by State Tax, Regional Tax and Local government tax. At the year end you get a tax return to fill in with some amounts such as salary and bank interest already filled in, remember to claim for such things as pension contributions and mileage for travelling to and from work as these items are tax deductible.
These taxes are
levied on all earnings, including share dividends, bank
savings, and when
you buy or sell
shares there is a tax of 40% or more on the
profit. Unlike most countries there is no Capital
Gains Tax allowance or investment incentives like
British ISAs. This share-dealing taxation is also
levied separately, so you can't offset losses against
income tax, which would be really useful and seems
logical to me. Now for a MAJOR
point...
When you leave
Denmark, you will be deemed to have sold all Stocks and
shares you own and be liable for Capital Gains Tax on
the profit, whether or not you actually do sell
them.
Sounds
unbelievable doesn't it? I cashed in everything I
owned well before moving here and put it into our house
because I couldn't see the point in bothering to ride
out the risks of owning shares only to have the Danish
government take 40% of the profit, and depending on your
personal circumstances, if the stock market rose nicely
for a few years it could easily wipe out your entire
earnings from being here in the first place. I
want the freedom to move abroad again when the time is
right without that kind of worry.
It's certainly
another factor to consider in deciding whether moving
here is for you, and I suspect it is a major killer in
stopping IT Contractors, or any other high net worth
individuals from ever moving here in the first
place.
As a result of all this, tax avoidance is one of the national hobbies, and cash-in hand work, or "sort arbejde" as it's known here is unbelievably common. Unsurprisingly enough this doesn't make it onto any official picture of the success story of modern Danish socialism. Seems everyone loves the welfare state as long as everyone else is paying for it.
I think many Danes, especially younger ones are very much in favour of lower taxes, more independence and having more of an opportunity to earn money for themselves, but at the moment the country is stuck with a tax system based on the worst aspects of 1970s socialism. As an outsider, you soon start to wonder whether dropping the tax rates to acceptable levels would actually HELP with things like fairness, transparency and even increase the tax-take, but I'll let you come to your own conclusions about that one.
Now for the irony, Denmark may be a
high tax country, but that is mainly for individuals and
you will probably be surprised to learn that in the past
few years Denmark has tried to establish itself as a new
tax-haven for offshore holding companies! It seems
that with the correct corporate structure, large Danish
companies such as Carlsberg and Møller-Mærsk can avoid
paying much tax and a lot of foreign companies based
here such as Nestle and McDonalds are often accused by
the media of using accounting methods to repatriate
excess profits abroad rather than pay taxes here.
If you are still shaking your head with disbelief I
suggest you read here
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A Final Thought...
Amazingly, a story I read in the paper a while ago bemoaned the lack of foreign skilled workers coming to Denmark despite the jobs that are available. Could it be the weather that was putting people off they wondered, or perhaps the Danish language was too difficult for foreigners to understand, or maybe, just maybe, it was the high taxes? Hmmm, I wonder what it could be? Switzerland isn't warm in the winter either, has a variety of local dialects which even the Germans and the French struggle to understand but they don't seem to have a problem attracting talent. I was left wondering how much this little study had cost. In the meantime, official blurb here tells us how Denmark is a progressive taxation state and that the burden to pay for society must fall on those with the broadest shoulders, ie those who earn the most. I think these people could all do with reading a copy of the classic book Atlas Shrugged.
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