Limited tax liability, etc.

New law on limited tax liability

On 31 May 2005, the Danish Parliament adopted a new law concerning, among other things, limited tax liability. The rules include both an extension of the limited tax liability and a relaxation. In addition, the so-called border crossers rules are extended to recipients of post-salary benefits.

1. Limited tax liability

Reduction of limited tax liability

Until now, it has been the case that taxpayers who are fully taxable in another country should be taxed on interest income from Denmark if they have been fully taxable to Denmark for one or more periods totalling at least 7 years within the last 10 years prior to the cessation of full tax liability.

Under the new rules, taxpayers who are taxable abroad will no longer be subject to limited taxation on interest income from Denmark.

Extension of limited tax liability

In future, the following incomes will also be subject to limited taxation:

• Income from any kind of personal work in employment carried out in Denmark is taxable, regardless of whether it is A-income or B-income. The extension includes, among other things, free housing and free telephone.
• Sickness benefits and the like paid to self-employed persons with permanent establishment in this country.
• Payments from special pension savings (SP payments), certain payments from the Labour Market Supplementary Pension (ATP) and early retirement payments to early retirees who received early retirement before 1 January 2003.

The incomes that will be subject to the limited tax liability in the future are as follows:

1. Wage income, whether A or B income
2. Board fees, etc.
3. Income related to work hire
4. Income from business activities from permanent establishment in this country, including sickness benefits and the like
5. Income from real estate
6. Yields
7. Certain consulting fees
8. Royalty
9. Pension income, including payments from the special pension scheme and ATP
10. Pensions related to previous employment, etc. (typical pension commitment)
11. Social benefits, e.g. national pension
12. Labour market benefits, such as unemployment benefits
13. In addition, a number of scholarships and educational services are listed.

2. Extension of border crossing rules

Persons residing abroad whose income from Denmark amounts to at least 75% of their total income are to a large extent equated to fully taxable persons. It implies that they can get deductions for interest expenses and equational deductions, as well as being able to carry forward a spouse's unused personal allowance and lump sum in the tax calculation.

The rules on border crossers are now extended to include persons receiving severance pay, etc.

The new rules mean that persons who live abroad and receive a pension and transitional allowance can be taxed in the same way as pension recipients under the cross-border rules if the income from Denmark amounts to at least 75% of the total income of the earner calculated in accordance with Danish rules.

Entry into force

The changes will take effect from the 2006 income year.

Our comments

The new rules on limited tax liability will make it easier to advise on whether a resident abroad should be taxed on income from Denmark. This is due to the fact that all the rules are united in one legal provision. It is no longer necessary to examine a series of references to various legal provisions and ordinances.

We draw your attention to the fact that although there is a limited tax liability for the above types of income, there are cases where Denmark has waived the right to tax through a double taxation agreement. This applies, for example, to pension payments when living in France and Spain.

‍

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.

‍

Contact SkatteInform

Get qualified answers to your tax questions.

Whether you have a minor tax issue or want an assessment of a major tax case, our lawyers and chartered accountants are available with qualified advice.

Call us by phone 33 32 10 10

or send an email at info@skatteinform.dk

Tax Inform

Chartered Accountants

Vester Voldgade 9, 2nd

1552 Copenhagen V

Article No 2005-38. 30 November 2005

‍