Taxation of foreign pension in Denmark

‍Taxation of foreign pension plans or life insurance policies in Denmark

Do you know how your foreign pension plans or life insurance policies are taxable in Denmark and how they must be reported?

The rules for the taxation of foreign pensions or life insurance can be complex, as they depend on both Danish tax regulations and any double taxation treaties between Denmark and the relevant country. Therefore, it is important to understand how these rules work in order to avoid double taxation or unexpected tax liabilities.

You should be aware of the following pitfalls:

Reporting to the Danish Tax Agency (SKAT)

Foreign pensions or life insurance policies must be reported to the Danish Tax Agency via Declaration L, after which the tax authorities will make a decision on the taxation. If information about a foreign pension is not reported to the Danish tax authorities, you may face a large back-tax bill of up to 10 years, with added interest and penalties.

Taxation of returns or payouts

The annual return is taxable unless it can be documented that there was a deduction or exemption right in the foreign country, at the time of payment.

Foreign pensions or life insurance are generally taxed in the year of the payout, as it is assumed that there was a deduction or exemption right in the foreign country at the time of contribution. Payouts can be tax-free if it can be documented, that there was no deduction or exemption right in the foreign country at the time of contribution to the pension plan. The annual return will still be taxable. There is also a risk that both the return and the payout may be taxed if you cannot document whether there was a deduction or exemption right in both the foreign country and in Denmark.

For this reason, it is essential for anyone with foreign pension plans or life insurance policies to clarify whether there was a deduction or exemption right at the time of contribution.

Double Taxation

Foreign pensions are generally taxable in Denmark. However, there may be situations where the same pension is taxed both in Denmark and in the country from which the pension is paid.

Denmark has entered into double taxation treaties with many countries to avoid double taxation of income. It is important to investigate, who has the right to tax and which relief options are available.

Currency Fluctuations

Foreign pensions are typically paid in another currency. Currency fluctuations can affect the taxable income when converted to Danish kroner.

Documentation Requirements

As a taxpayer, you must be able to document:

• Your country of residence at the time the plan was established.
• How you contributed to the pension plan, e.g. directly from your employer or through a private plan.
• Whether you received a deduction for the contribution in the country you were taxable in at the time of contribution.
  Additionally, you must be able to document that all contributions correspond to the amount for which you received a deduction or exemption in the foreign country.
  Please note, the tax authorities are very strict regarding documentation requirements.

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Disclaimer

The above information is for guidance purposes only, and we accept no responsibility for decisions made based on this information without prior individual advice. We accept no responsibility for errors or omissions.

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