Payroll taxes in Denmark: An employer’s guide

When you hire in Denmark, you — as the employer — are responsible for calculating, withholding, and submitting payroll taxes from your team members’ pay slips. For some taxes, you are also required to make employer contributions.

In this article, we’ll explain clearly which taxes you need to withhold, which taxes you need to contribute to, and how to remit and make payments. So let’s jump straight in.

What is payroll tax?

Payroll taxes are the contributions employees and businesses make to the government to fund public programs, such as retirement, healthcare, and unemployment insurance. They typically include income tax and social contributions, and are set at pre-determined rates.

These rates (and the rules governing them) vary by country, but it’s every employer’s responsibility to ensure they are compliant, and that they are withholding and submitting the correct amounts.

What is the difference between payroll taxes and corporate taxes?

Generally, payroll taxes are tied to your employees’ wages, while corporate taxes are based on your company’s profits. 

Which payroll taxes do you need to withhold from your employee in Denmark?

In Denmark, the taxes you’ll need to withhold are:

Income tax (A-tax)

Denmark employs a progressive tax system, based on an employee’s level of income. The combined marginal tax rate, including municipal and state taxes, can be up to 52.06%.

When to pay: For small and medium-sized businesses, payments are generally due by the 10th of the following month. For larger businesses, payments are due on the last banking day of the month.

AM-bidrag (labor market contribution)

This flat-rate 8% tax on gross income funds Denmark's social security system.

When to pay: Payment guidelines are the same as for A-tax.

ATP (Arbejdsmarkedets Tillægspension)

ATP is a mandatory supplementary pension scheme, and your employees must contribute based on how many hours they work per month. This can be between DKK 0 to DKK 99 per month.

When to pay: ATP contributions are typically paid quarterly to the ATP fund.

Note that you may also be required to withhold additional taxes for certain employees, such as child support payments, student loan repayments, or any other court-ordered garnishments.

Which payroll taxes does your business need to contribute to?

As well as withholding the contributions listed above, you are also required to make your own contributions, as follows:

ATP (Arbejdsmarkedets Tillægspension)

As an employer, you must also contribute to ATP. This can be between DKK 0 to DKK 198 per month.

When to pay: Alongside employee contributions.

Industrial injury insurance

This insurance covers employees in case of work-related injuries, with premiums varying based on your industry and risk level.

When to pay: Premiums are usually paid annually to the insurance provider.

Other minor contributions

You must also make minimal contributions to other social schemes, like maternity leave funds. These vary by scheme.

When to pay: This depends on the specific requirements of the scheme.

To quickly see a full breakdown of payroll taxes and employment costs for your Danish hire(s) based on their salary, use our free Employee Cost Calculator tool.

How do you remit and pay payroll taxes in Denmark?

You must first register with the Danish Business Authority. For each pay period, you must:

1. Calculate the correct amounts for withholding. If you use Remote Payroll or Remote EOR, we will do this for you.

2. Report through the Danish Tax Agency's online system, E-income (eIndkomst).

3. Make payments through bank transfer or the Nets (PBS) system, adhering to the deadlines listed above.

How do you manage payroll taxes as an international employer?

When you hire a Denmark-based team member from abroad, there are several ways you can manage their payroll and payroll taxes.

If you already have your own legal entity in Denmark, you can:

• Handle it in-house. You can hire your own payroll tax specialists and manage everything internally. This can be costly, however.

• Use a local third party. You can hire a local firm to handle payroll, although this can be unreliable, costly, and pose data risks.

• Use a PEO. A professional employment organization (PEO) acts as an outsourced HR provider, and includes payroll.

• Use a global payroll provider. Global payroll providers — like Remote — have local specialists in multiple countries, ensuring that you are fully compliant with all tax requirements in each one. This is especially convenient if you have (or plan to have) employees in different countries, as you can manage all of them through one platform.

If you don’t have your own entity in Denmark and you still want to hire there, you can:

• Set up your own entity. This can be extremely costly and time-consuming, but if you plan on establishing your business long-term in Denmark, it might be a viable approach. To pay your employees, you would then need to choose one of the options above.

• Use an EOR. Employer of record (EOR) providers — like Remote — enable you to quickly and easily hire anywhere in the world, and also handle all the core HR functions (such as compliance and payroll). As well as being generally more cost-effective than opening your own entity, this option is highly scalable and, again, enables you to streamline all your global HR tasks in one place. How does an EOR work?

Global HR —

5 min

EOR, Payroll, or both: What does your business need?

Understand the difference between EOR and payroll services — and clarify which one your business needs to pay your international team members.

What about independent contractors?

In Denmark, independent contractors are classified differently to employees. As a result, they (in most cases) are responsible for calculating, managing, and paying their own taxes.

However, it’s crucial to understand the difference between contractors and employees, as you may inadvertently create misclassification risk. This can result in severe fines and penalties for your business.

How can Remote help?

Knowing which payroll taxes you need to calculate, withhold, and contribute to requires local expertise, especially as these rules can — and do — change. And if you make a mistake or fail to comply, the financial consequences can be significant.

Whether you have your own entity in Denmark or not, Remote ensures that you are withholding and contributing the correct amounts, and that you are fully compliant at all times with local tax and employment laws. We also provide 24/7 support for any guidance you may need.

To see how we can help — and to learn which approach is the most suitable for your business — speak to one of our friendly payroll experts today.

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