Denmark is known for having one of the world’s highest income tax rates, but how does the system break down and compare to the other Scandinavian nations?
We’ve compared the Danish income tax system and tax rates with those in neighbouring Sweden and Norway.
Although there’s no straightforward answer to which country is more expensive — the overall income tax rate a person pays depends on individual circumstances — the analysis shows some interesting differences, as well as similarities, between the three countries.
Income tax in Denmark is divided into a number of components, of which the most important are the two state taxes, basic and top tax (bundskat and topskat); municipal tax and labour market tax (AM-bidrag).
The simplest of these, the labour market tax, comprises 8 percent of personal income.
The state taxes consist of the basic tax of 12.14 percent (in 2020). Earnings over the topskat threshold of 531,000 Danish kroner (72,300 euros) are taxed at a rate of 15 percent. The maximum overall tax rate for this top margin of income cannot exceed 52.06 percent (in 2020).
Municipal tax is the personal income tax which covers municipal services. The amount paid by individuals is dependent on the municipality in which they live and municipalities generally decide their own rates within limits set by the government. As a result, the municipal tax rate can range between about 22 and 27 percent depending on address. The average municipal tax rate in 2019 was 24.93 percent.
Denmark also has a small church tax, which is applied at a flat rate. The exact rate depends on the municipality, but averages at 0.674 percent. Only members of the Church of Denmark (Folkekirken) pay this tax, so foreigners who have moved to the country in adulthood (as well as people of other religions) generally won’t see it on their tax slips.
Municipal tax is added to the other basic taxes, AM-bidrag and bundskat, as well as topskat for high earners, to calculate an individual’s overall income tax payment.
As well as income from employment, other types of personal income are included in the tax calculation. These can include pension distributions, social security benefits, property earnings, remuneration for advisory assistance and dividends from Danish companies.
A complex list and system of deductions (fradrag) is used by the Danish tax model, with deductions applicable to the various types of income or tax base.
A key deduction is for employment expenses. Up to 10.5 percent of employment income up to a limit of 39,400 kroner (in 2020) can be deducted from the taxable income. Other deductions can be given for charitable contributions, child support maintenance and union and a-kasse membership fees. Losses on debt are not generally deductible.
In Sweden, national tax of 32 percent is only paid on annual income over a certain amount – this was 490,700 Swedish kronor (47,400 euros) in 2019. If you earn less than this, the national tax is not applicable.
In addition to national tax, local or municipal tax must be paid. This consists of two parts: the tax you pay to the municipality (kommun) where you live and the region (landsting). So if you for example live in Malmö, your taxes go to Malmö City Council and are used to fund, for example, schools, and Region Skåne, which is responsible for healthcare.
The average municipal tax rate in Sweden is 32 percent, but it can reach as high as 35 percent depending on where you live.
