When Hiring-Out of Labour Rules Are More Favourable

Under which circumstances are the rules on hiring-out of labour more favourable than taxation under the standard rules for limited tax liability?

The Danish company must withhold 8 % in labour market contribution (AM-bidrag) and 30 % in hiring-out of labour tax from the salary. If the withholding does not take place when settling with the employer (the foreign company), the Danish company must pay the taxes to the Danish Tax Agency (Skattestyrelsen) itself.

Calculation of the hiring-out of labour tax (in DKK):

The gross income forms the basis for calculating the hiring-out of labour tax and consists of salary, bonuses, commissions, allowances, etc., including:

• Salary, etc., during compensatory time off earned in connection with work performed in Denmark
• Holiday pay or holiday allowance earned from work in Denmark
• Travel and transport allowances
• Value of free board and lodging, if the employee is not considered to be travelling under the travel rules
• Other forms of taxable employee benefits

The foreign company/employer must document the employee’s gross income.

If the gross income is unknown, the hiring-out of labour tax must be calculated based on the invoice amount. The tax must be withheld from the payment to the foreign employer.

Labour Market Contribution (AM-bidrag): 8.00%
Bottom bracket Tax (Bundskat): 12.01%
Income Tax (Indkomstskat): 25.10%
Top Bracket Tax (Topskat): 15.00%

Personal allowance: 51,600.00
Employment allowance: 31,950.00
Job allowance: 3,700.00

Note that the calculation is based on an average municipality, etc.
Furthermore, if the tax is calculated in this way under the general rules for limited tax liability, the employee will be entitled to standard deductions for limited tax liable individuals, such as commuting deduction, trade union fees, Danish unemployment insurance fund contributions, etc., which means that the effective tax rate will be even lower.

Due to these deductions, the general rules for limited tax liability will often be most advantageous – even with a higher income than stated above.