How to pay taxes for employees in Denmark in 2024?
As an employer in Denmark, you must withhold tax from the payroll on behalf of your employees. The amount of tax to withhold from the payroll is calculated by the Danish Tax Agency in advance on the basis of a self-assessement made by the employee, and the tax withholding information is sent directly to the payroll system automatically once the employee is registered correctly in the payroll system.
How to pay taxes for employees in Denmark in 2024?
This blog discusses how to pay taxes for employees in Denmark in 2024.
First, you must ensure your business registers as an employer.
An employer registration generally requires a registration to pay A-tax, AM-contribution and ATP.
The employer registration can be done on VIRK.
Employer registration should be done before you start paying salaries.
As an employer in Denmark, you must withhold two types of tax from the payroll on your employees’ behalf.
We call one of these withholding taxes for “A-tax”.
The A-tax rate depends on the employee’s situation and is not a fixed rate.
Also, a special contribution called “AM-contribution”, which has a fixed rate of 8%, must be withheld.
Both of these are considered withholding taxes.
In daily talk, these withholding taxes are often referred to as “employee tax” or “tax” as a whole in the context of payroll.
The Danish Tax Agency calculates the amount of tax to withhold from the payroll in advance based on the employee’s self-assessment.
Once the employee is registered correctly in the payroll system, the tax withholding information is automatically sent directly to the payroll system.
If you are a non-resident company wanting to pay taxes for an employee in Denmark read more here
Calculating salary & taxes withheld
When we receive your payroll information, we calculate the salary for your employees and the amount of tax you need to withhold.
After we have completed these calculations, we will email you the payslips for your approval.
The payslips show the gross salary, the withholding taxes, and the net salary that should be transferred to the employees’ bank accounts.
We also track and calculate ATP, unused holidays, holiday allowances, reimbursements, pensions, and other payroll requirements relevant to your business.
If you have signed a collective agreement with a trade union, be aware that you can have many payroll requirements that are not governed by law but by the collective agreement, including, but not limited to, extra holidays, holiday allowances, pensions, and more.
Collective agreements are not required by law, but some industries, especially the construction industry, have traditions for them.
What payroll information do you need to collect when ordering payslips?
Deadlines for paying salaries and withholding tax
Payment of salaries
In Denmark, most employers pay salaries on the last banking day of the month.
This payment term isn’t required but is the customary pay date.
The net salary is usually transferred automatically from the payroll system to the employees if you have a Danish business bank account.
You manually transfer the net salary to the employees if you have a foreign business bank account (e.g., Revolut or Wise).
Payment of withholding taxes
Generally, withheld taxes are due for payment on the 10th of the following month for smaller businesses and companies, except in January each year, where the payment term is one week longer.
Link to deadlines for payment of taxes in 2024
Larger employers generally need to pay withholding taxes on the last banking day of the month.
In this context, a small employer pays less than 250.000 DKK annually in AM contribution and less than 1.000.000 DKK in A-tax.
In this context, a large employer pays 250.000 DKK or more in AM contribution or 1.000.000 DKK or more in A-tax annually.
If you have a Danish business bank account, the withholding tax is transferred automatically from the payroll system to the Danish Tax Agency.
If you have a foreign business bank account (e.g., Revolut or Wise), you manually transfer tax to the business’s “Skattekonto” (the special tax account the Danish Tax Agency has allocated to your business).
Employee A-tax rates
Denmark’s income tax system is progressive, so no fixed A-tax rate applies to everyone.
Income taxes depend on personal circumstances; some employees pay a higher tax rate, while others pay a lower one.
As an employer, you automatically receive relevant tax information on employees’ tax rates from the Danish Tax Agency in the payroll system.
Employee AM-contribution rates
This rate is 8% for all employees.
Main tax card, secondary tax card and a tax-exempt card
An employee is required to use one of three different “tax cards”.
A “tax card” is just information sent electronically to the payroll system from the Danish Tax Agency, which determines how the employer should calculate the tax for each employee.
Main tax card (“hovedkort”)
This information is passed to the principal employer.
Secondary tax card (“bikort”)
This information is passed to a secondary employer (when relevant).
Tax exempt card (“frikort”)
This information is passed to an employer if the expected annual income is below the threshold that will require the employee to pay income tax.
The use of the tax exempt card is relevant mainly to younger employees with a part-time job and low incomes next to their studies.
What is the minimum salary in Denmark?
In Denmark, we do not have a minimum salary requirement set by legislation.
However, some companies have “collective agreements” with trade unions.
These collective agreements are not mandatory but are expected in some industries, especially in the construction industry.
Collective agreements can include a minimum salary.
Without a collective agreement, you and the employee can decide the salary.
How much is the social security contribution for employees in Denmark?
As an employer, you do not need to pay additional social security contributions in Denmark.
This is included in the withholding tax.
You do have to pay some smaller mandatory insurance fees and social costs, which you can read more about here.
Do you need to pay pensions to employees in Denmark?
There is a small mandatory pension called ATP.
Besides the ATP, there is no requirement to pay additional pensions.
For high-salaried employees, pensions are often offered as part of the remuneration package.
Do you need to pay holiday allowance?
Your employees generally have the right to use five weeks of holiday per year or what equals 25 days (2,08 days per month of employment).
Employees are entitled to a full salary during their holiday plus 1% of their annual salary as a holiday allowance, or they are entitled to 12,5% of their annual salary as a holiday allowance if they do not get a salary during their holiday.
You pay the 1% holiday allowance when they use their holiday or in 2 instalments in May (for a holiday earned from September to May) and August (for a holiday earned from June to August).
You pay the 12,5% holiday allowance when the employee is using holiday.
The type of holiday allowance they earn is based on their work and how they are employed.
You should consult with an accountant or lawyer to determine what type of employees you have.
What payroll system to use?
Smaller businesses and companies
For smaller businesses and companies we recommend using Danløn.
Danløn is a solid choice if you have typical payslips.
Larger businesses and companies
For larger businesses and companies that require more customised payslips, we recommend DataLøn.
How to setup the payroll system
We can assist you in setting up the payroll system as part of our payroll service.
Remember employment contracts
It is mandatory to have employment contracts for your employees.
Non-compliance can result in hefty fines.
You can order employment contracts here
How much does it cost for Dania Accounting to handle the payroll?
Payroll services are invoiced according to elapsed time.
An invoice is sent every month with a timesheet documenting our work.
We offer the following hourly rates for payroll services
375 DKK + VAT for customers with at least 20 hours of payroll services per month
450 DKK + VAT for customers with 3-19 hours of payroll services per month
550 DKK + VAT for customers with 1-2 hours of payroll services per month
A minimum of 0,5 hours per month (275 DKK + VAT) is invoiced.
We may request a retainer.
(Last update of this blog: 12.3.2024)
FAQ
What is the first step for employers in Denmark regarding employee taxes in 2024?
Employers must register as an employer at virk.dk, covering A-tax, AM-contribution, and ATP before paying salaries.
What types of taxes must Danish employers withhold from employee payrolls?
Employers need to withhold A-tax (which varies by the employee's situation) and a fixed-rate AM-contribution of 8%.
How are salary and taxes calculated for employees in Denmark when Dania Accounting process payroll?
Upon receiving payroll information, the gross salary, withholding taxes, and net salary are calculated by Dania Accounting and presented on the payslip for your approval.
When are salaries typically paid out by employers in Denmark?
Salaries are customarily paid on the last banking day of each month.
What are the payment deadlines for withholding taxes in the context of payroll in Denmark?
Withheld taxes from payrolls are generally due on the 10th of the following month, with variations for larger employers and specific periods.
How is the A-tax rate determined for employees in Denmark?
The A-tax rate is progressive, depending on personal circumstances, and the exact rate is provided to employers by the Danish Tax Agency.
What are the main types of tax cards in Denmark, and what do they signify?
There are three types: the main tax card for the principal employer, the secondary tax card for additional employers, and the tax-exempt card for those earning below the tax threshold.
Is there a minimum salary requirement in Denmark?
No, Denmark does not have a legislated minimum salary, though some industries may have collective agreements that set minimum wages.
What are the social security contributions required from employers in Denmark?
Employers do not need to pay additional social security contributions outside of mandatory insurance fees and social costs.
What type of pension contributions are required from employers in Denmark?
Employers must contribute to a small mandatory pension called ATP, with additional pensions often offered to high-salaried employees as part of their compensation package.