Taxation of foreign pension in Denmark

‍Taxation of Foreign Pension Plans or Life Insurance Policies in Denmark

Are you aware of how your foreign pension plans or life insurance policies are taxable in Denmark and 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. It is therefore 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 Authority (SKAT)
Foreign pensions or life insurance policies must be reported to the Danish Tax Authority via an L-declaration, 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 significant 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 contribution.
Foreign pensions or life insurance are generally taxed in the year of 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, while 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 Denmark.
Therefore, 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 what relief options are available.

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

Documentation Requirements
As a taxpayer, you must be able to document:

• The country you resided in 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.
  The tax authorities are very strict regarding documentation requirements.

Contact Us Today
Let us help you optimize your pension taxation and avoid costly mistakes. With the right advice, you can ensure that you get the most out of your foreign pension—without unnecessary tax expenses.
Contact us today and ensure the proper taxation of your foreign pension.

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