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Understanding the progressive tax system in Denmark
Denmark operates a progressive tax system, which is essential to understand if you intend to relocate to Denmark for employment. This article highlights all the basics of the progressive tax system both in 2025 as well as the upcoming changes in 2026 due to the tax-reform. However, it does not cover the taxation of capital income and share income, e.g. returns on securities, deductions for interest expenses, or taxation of dividend income, etc.
Rules applying to all taxpayers
Labour market contributions (AM-bidrag) are officially classified as a tax in Denmark. The contribution amounts to 8% of your gross income and is deducted before other income taxes are calculated. Unlike the progressive income tax, the AM-bidrag is proportional: the same percentage applies regardless of your total income.
All taxpayers are entitled to a personal allowance, which ensures that a portion of income is tax-free. The allowance is adjusted annually and amounts to DKK 51,600 in 2025. It can either be applied in full or spread evenly across the year in monthly instalments.
When calculating the taxable income, which is the base of the tax-calculation the labour market contribution is deducted from the gross income first, and thereafter the personal allowance is applied. The remaining income is then taxed progressively.
Calculation of progressive income taxes
Once your income exceeds the personal allowance, you become liable to pay income tax. For individuals not subject to top taxation, the general taxation framework applies. In 2025, this includes the following taxes (2025 rates):
Bottom state tax – is set at 12,01% of the personal income.
Municipal tax – the rate of municipal tax depends on the municipality of residence. The average municipal rate in 2025 is 25.1%, applied to taxable income.
Members of the Evangelical Lutheran Church (the Danish church) - are subject to a church tax. This averages around 0.7%, though the exact rate varies between municipalities.
Taken together, these elements result in a marginal tax rate of approximately 37–39%, depending on the municipality.
Employment-related deductions
Individuals in employment are also entitled to special deductions, which reduce the taxable base before income tax is calculated. These deductions do not reduce tax liability one-to-one, but instead provide a tax saving equal to roughly 25% of the deduction amount, since they mainly affect the bottom state tax and municipal tax.
Employment deduction - employees are automatically eligible to receive this deduction of 12.30% of the earned income, subject to a maximum of DKK 55,600 (2025). The actual tax benefit from this deduction corresponds to approx. 25% of the amount, or up to about DKK 13,900.
Job deduction - In addition, employees are granted a deduction of 4.5% of earned income exceeding DKK 224,500, up to a maximum of DKK 2,900. The real tax benefit is therefore approx. DKK 725.
Worked example – general taxation in 2025 and 2026 (no top tax applicable).
Subject to top taxation in 2025
In addition to the bottom state tax and municipal tax, Denmark levies a top tax on higher incomes. This additional state tax is designed to make the system more progressive by applying an extra rate once income exceeds a specific threshold.
For 2025, the threshold for top tax is set at DKK 611,800 of personal income (after deduction of the 8% labour market contribution). Only the portion of income exceeding this threshold is subject to the top tax, at a rate of 15%. The tax is therefore not applied to the entire income, but only to the amount above the threshold.
The Danish tax ceiling in 2025
A key element of the Danish system is the tax ceiling, known in Danish as skatteloftet. Its purpose is to ensure that taxpayers are not subject to an unlimited marginal tax burden when combining multiple layers of taxation. The ceiling specifically limits the combined rate of bottom state tax, municipal tax and top tax.
In 2025, the ceiling is set at 52.07%. This means that if the combined rate of bottom state tax, municipal tax, and top tax would otherwise exceed this level, the top tax is automatically reduced to ensure the marginal tax rate never rises above 52.07% (before AM contribution).
It is important to note that the ceiling does not apply to the 8% labour market contribution or to church tax. As a result, the maximum marginal tax rate on labour income in 2025 is approximately 55.9%, and slightly higher for members of the Danish Church.
Worked example - Taxation with top-tax 2025.
Changes to top taxation in 2026
From 2026, Denmark introduces a restructured system for high-income taxation. The former single top tax of 15% will be replaced by a three-layered cumulative framework, designed to apply progressively higher taxation as income rises, the 3 layers of taxation is the following:
When these layers are combined with bottom state tax, municipal tax, and the mandatory 8% labour market contribution, the marginal tax rate on the highest salaries rises to approximately 60.5%.
The Danish tax ceiling in 2026
A distinctive feature of the Danish tax system is the tax ceiling (skatteloftet), which ensures that the combined marginal tax rate from certain layers of taxation cannot exceed a legislated maximum. This mechanism prevents excessive marginal rates for most taxpayers.
From 2026, the ceiling applies differently depending on which income brackets a taxpayer falls into:
Intermediate taxpayers: The ceiling limits the combined marginal rate of bottom state tax, municipal tax, and middle tax to a maximum of 44.57%.
Top taxpayers: For individuals whose income also exceeds the top tax threshold, the ceiling is higher, capping the combined rate at 52.07%.
Top-top taxpayers: At the highest income levels, where the new top-top tax applies, the ceiling is further adjusted to 57.07%.
It is important to note that the ceiling does not apply to the mandatory 8% labour market contribution (AM-bidrag) or to church tax for members of the Danish Church. These elements are added on top of the ceiling rates.
Practical example of Danish general taxation with top-tax 2026.
To illustrate the effects of the 2026 tax reform, the following example uses the same annual employment income as in the 2025 calculation – DKK 1,000,000. This makes it possible to directly compare the differences in taxation before and after the reform.
Why the results defer from 2025 to 2026
The difference lies in how the top tax is structured:
2025 - A flat 15% top tax applies to all personal income above DKK 611,800. This means that every krone earned beyond that threshold is taxed at 15% in addition to bottom state and municipal taxes.
2026 - The single top tax is split into two brackets.
From DKK 641,200 to 777,900, income is subject to the new intermediate tax of 7.5%.
From DKK 777,900 and above, income is subject to both intermediate tax (7.5%) and top tax (7.5%), effectively a combined 15%.
In practice, this means that a person earning DKK 1,000,000 pays less in additional state tax under the 2026 system, because part of their income (the band between 641,200 and 777,900) is only taxed at 7.5% instead of 15%.
At higher income levels, however, this advantage disappears. Once income rises significantly above DKK 777,900, the total additional state tax rate aligns with the former 15%. And for very high incomes above DKK 2.6 million, the new top-top tax (5%) pushes the marginal rate even higher — up to about 60.5% including the labour market contribution.
Avoid double taxation
Please note that tax relief may be available in Denmark if your income has already been taxed in the source country. This is often the case under double taxation agreements. You can read more about this here
Contact Us
If you have questions regarding a potential tax matter, or are in need of tailored tax advice on how Danish taxation rules applies to your specific situation. Please do not hesitate to contact us. Our team of tax specialists is ready to help.
You are also welcome to fill out our contact form at the bottom of the page, and we will get back to you as soon as possible.
Phone: +45 33 32 10 10
Email: info@skatteinform.dk
SkatteInform – State-Authorized Public Accountants
Frederiksborggade 54, 1st floor, left
1360 Copenhagen K
Disclaimer
We accept no liability for any actions taken based on this article without prior individual advice. Furthermore, we disclaim any responsibility for errors or omissions.
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