Individuals

Individuals who are resident in Denmark are subject to full tax liability in Denmark. Specific income may be exempt from taxation – eg, because such income is taxable in another country under a double taxation treaty.

Income can, for tax purposes, be divided into the following types:

• personal income;
• capital income;
• share income; and
• property value.

Personal income and capital income

The personal income (salary, self-employed income, pensions, etc) and capital income (interest income, interest expenses, net taxable currency gains, etc) are, to some extent, taxed together.

The personal income tax rates are progressive and the top marginal tax rate for taxable income is 52.07% (2023 level) excluding AM tax (labour market tax of 8 %). The marginal tax rate (2023) for taxable income is 55.9% if AM tax is included (this is excluding voluntary church tax). A personal yearly allowance of DKK48,000 (2023) applies, which is not subject to tax, except for the 8% labour market tax. Married couples are taxed separately but any unused personal allowances are transferable between spouses.

Deductions apply to the personal income tax base and include interest expenses, child support payments, pension contributions, trade union fees and expenses related to commuting between work and home. Self-employed taxpayers can deduct most business-related expenses. The tax value of such deductions varies.

Share income tax

The share income (dividends, capital gains on shares) tax rate is 27%, up to a threshold of DKK58,900 (2023) and 42% above this threshold.

Property value tax

Property value tax on worldwide property is paid annually, and amounts to 0.92% of the value of the property (according to the public appraisal) up to an amount of DKK3,040,000 and 3% of the value exceeding this threshold. In addition, a property and land tax is payable to the local municipalities (the rates vary).

Exit Tax

Exit taxation applies to individuals who have been considered as resident and tax treaty resident in Denmark and who are leaving Denmark with assets, including but not limited to shares, options, bonds, certain pension plans, certain property investments, etc.

Specific exit tax rules apply to each type of asset. However, exit tax for individuals leaving with shares, bonds, claims and financial contracts only applies if the individual has been subject to full Danish taxation (resident or resident and tax treaty resident) for at least seven out of the past ten years at the date of departure (date on which resident taxation ceases).

If covered by the exit tax rules, the assets of the individual will be deemed liquidated on the date of departure and the individual will be liable to pay Danish tax due on the gain. It is possible to file for postponement of payment of the exit tax if a number of conditions are met and certain recurring obligations fulfilled.

Tax on the Estate

Probate estates of deceased persons being administered in Denmark are liable to pay tax on their income if the estate’s net worth or assets on the cut-off date exceeds DKK3,160,900 in 2023.

If the estate is taxable, all income earned by the deceased in the year of death, and income earned by the estate after the death up to the cut-off date, are calculated and taxed in the estate inventory together.

The estate tax is 50%, but the tax already paid by the deceased in the estate tax period will be deducted from the estate tax.

Inheritance Tax

Inheritance tax is charged if the decedent was living in Denmark at the time of death or if the deceased had real property or a business (permanent establishment) in Denmark at the time of death.

The inheritance tax rate depends on the relationship between the decedent and the beneficiary. Inheritance between spouses does not trigger inheritance tax. Inheritance received by the decedent’s live-in partner (non-married couples), children, grandchildren and parents is subject to an inheritance tax rate of 15%. Inheritance received by all other beneficiaries is subject to an inheritance tax rate of 36.25%.

Inheritance tax is charged on the part of an estate which exceeds an amount of DKK321,700 (2023).

Danish inheritance tax is not charged on inheritance received by Danish residents from abroad.

Charitable organisations are exempt from paying inheritance tax.

Gift Tax

Gift tax is charged if the donor or donee is resident in Denmark or if the gift consists of assets which are taxable in Denmark (real property or assets related to a permanent establishment in Denmark).

The gift tax rate depends on the relationship between the donor and the recipient. Spouses and charitable organisations are exempt from paying gift tax. The gift tax rate is 15% between immediate family members (children, grandchildren and parents) and 36.25% on gifts to stepparents and grandparents. Gifts to recipients outside the circle of immediate family are taxed as personal income excluding labour market tax.

Tax Succession

Family companies are often used when administering private family wealth. As a starting point, a capital gains taxation rate of 27% or 42%, as described above, is payable when shares in the family company are transferred to the next generation. This will also be the case if the shares are transferred by way of a gift. If the relevant company is an active company (and not a passive investment company), the next generation will be able to succeed in the taxable acquisition price of the transferor of the shares and thereby capital gains taxation can be avoided.

Each year, a person can give gifts free of gift tax with a total aggregate value of DKK71,500 (2023) to children, grandchildren, parents, stepparents and grandparents and DKK25,000 (2023) to children-in-law.

There are generally no opportunities for income tax planning in this jurisdiction.

Non-residents owning real estate in Denmark will be subject to the limited property value tax as described in 1.1 Tax Regimes. They will also have to pay tax on rental income and/or capital gains when selling the real estate in Denmark. This also applies to Danish real estate owned by foreign companies.

If the non-resident owns the real estate through a Danish or foreign company, no Danish taxation will be triggered when selling the shares in the property company.

The new government in Denmark (formed on 15 December 2022) intends to reduce the inheritance and gift tax which applies to transfer of ownership in connection with active business succession from 15% to 10%. Further, the new government has announced that a new marginal tax rate of approximately 61%, including AM tax, will be introduced for income exceeding approximately DKK2,500,000.

Besides the above, the estate and transfer tax law in Denmark is quite stable and no other major changes have been announced.

Denmark has implemented EU DAC 6, and since July 2020 there has been a reporting obligation for cross-border tax arrangements in Denmark.

Since 2015, Denmark has had a public register of owners where information about the legal owners of legal entities has to be registered. Since May 2017, companies have also had to register their beneficial owners in the public register of owners.

It is common for ownership change involving businesses to occur over a long period of time, with control of the business eventually passing to the younger generation. Often, the older generation will (at least initially) retain controlling voting rights in the business, especially if minors are involved. The older generation will also typically retain managerial positions such as directorships and/or chief executive positions. However, it is common for the younger generation to receive dividend rights to the family business.

Shareholders’ agreements that distribute control and rights will also be entered into in connection with an ownership transfer.

International ownership transfers are becoming increasingly relevant as more and more international families are being established; eg, where the heirs of a wealthy person or a large family business settle abroad. This leads to some very specific tax law issues. 

First and foremost, problems may arise as to which country’s inheritance law should be applied as the basis for the distribution of the inheritance. Under Danish law, the inheritance law of the country in which the testator was domiciled at the time of death is to be applied as the basis for the distribution of the inheritance. According to Danish private international law, the inheritance law of the country of domicile also applies to assets located outside the country of domicile at the time of death.

One of the other major challenges in Denmark in connection with international ownership transfers concerns exit tax planning, where a person’s relocation from Denmark may result in taxation of the person’s assets in Denmark.

One fourth (25%) of a relative’s share of an estate is mandatory. A decedent’s closest relatives are the decedent’s children. The children will inherit the estate in equal portions. If a child is deceased, its children will take its place and inherit the relevant part of the estate in equal portions.

The decedent can, by way of a provision in a will, limit each child’s mandatory share to an amount of DKK1,410,000 (2023). If a child is deceased, its children’s or other descendants’ share of the estate will be limited to their proportionate share of the mandatory share.

One fourth (25%) of a spouse’s share of an estate is mandatory.

Thus, an individual may freely dispose of 75% of the individual’s estate upon death. This share can be increased if an heir elects to waive its mandatory share of the estate.

Community Property

Upon entering into marriage, spouses obtain community of property (in Danish, Formuefællesskab) unless otherwise agreed (see below regarding prenuptial or post-nuptial agreement). Community property means that spouses must divide their property equally between them in the event of separation or divorce. The spouses’ net assets will be divided equally in the event of separation, divorce or death.

A spouse cannot transfer marital property without the consent of the other spouse if the property is determined as the marital year-round residence.

In the event of a spouse’s death, the net assets of both spouses will be divided equally between the surviving spouse and the decedent’s estate.

A third party may decide, by way of a will or gift, that a specific asset shall not be included in the community property.

Prenuptial or Post-nuptial Agreements

Spouses may enter into a prenuptial or post-nuptial agreement providing for separation of property.

There are three types of separate property in Denmark: fully separate property (fuldstændigt særeje), separate property not subject to division in case of separation or divorce but only in case of the owner’s death (skilsmissesæreje) and separate property not subject to division in case of separation or divorce nor in respect of the estate of the surviving spouse (kombinationssæreje).

Assets covered by fuldstændigt særeje are not divided in the event of separation, divorce or death, but are instead retained in the spouse’s estate.

Assets covered by skilsmissesæreje are not subject to division in case of separation or divorce, but only in case of the owner’s death.

Assets covered by kombinationssæreje will be fully separate property for the surviving spouse, while the assets of the predeceased will be divided upon death.

The prenuptial agreement has to be registered in the property register to become valid.

Properties must be transferred at market value both during life and upon death. The buyer will be able to depreciate for tax purposes on the uplifted values.

According to the so-called valuation circular from the Danish Ministry of Taxation, properties held privately can be transferred at the market value, which is the property value determined by the most recently published property valuation +/- 15%. The current public property valuations are typically significantly lower than the market value in the larger ones, as no new property valuations generally have been made since 2011.

A new property valuation system has been established in Denmark, and now properties held privately can be transferred at +/- 20% of the most recently published property value. The Danish Property Assessment Agency is expected to issue new property valuations during 2023 and 2024, and these valuations are likely to be higher than the last public valuation in the cities where property values have increased the most. This means that there will be a larger amount to be taxed if the property is transferred by gift or inheritance.

The Danish Tax Authorities have accepted that individuals may grant children (or other individuals) interest-free loans, as long as the loan may be terminated by the lender with immediate effect (anfordringslån). Shares in an active family business are often transferred to the next generation by tax-free loans. The younger generation will then pay out the loan with dividends from the shares.

The parent may also release up to DKK71,500 of a loan per year in accordance with the annual tax-free gift amount (see 1.2 Exemptions). However, this must be a result of spontaneous generosity as it will otherwise be considered tax avoidance.

There is no specific legislation on digital inheritance in Denmark. Digital inheritance, including cryptocurrency, is therefore in principle covered by the general rules of the Danish Inheritance Act (Arveloven). However, this is complicated by the fact that digital material is often stored on severs located abroad subject to other rules than Danish (inheritance) law and therefore it may be difficult to gain access to the digital material.

Individuals are increasingly making use of so-called e-wills, where a contact is appointed to handle the deceased’s digital legacy, such as unsubscribing from social media.

An individual may create a private foundation for the purpose of administering private family wealth (also named a “family foundation”). Family foundations are not, unlike private foundations with a charitable purpose, treated favourably for tax purposes.

When family foundations are established, a tax of 20% of the capital injected will have to be paid. Additionally, the foundation must pay corporate income tax on its income. When the family foundation subsequently awards a grant to a member of the founder’s family, the recipient will be taxed on 80% of the grant as salary income. Due to these tax rules, family foundations are rarely created in Denmark.

The common law trust; ie, the division of legal and beneficial ownership, is not a generally recognised legal concept in Danish law. Therefore, foreign trusts will be treated according to domestic tax rules and subject to Danish criteria.

In order for a foreign trust to be accepted under Danish tax law, the capital must be both definitively and effectively separated from the founder’s/depositor’s sphere of assets.

Definitive means that the founder must not have the opportunity to “revoke” the trust so that the separated capital once again becomes part of the founder’s assets. Effective means that the founder must not continue to have access to the separated capital.

Denmark is not a member of the Hague Trust Convention and has therefore not ratified the provisions of this agreement. 

In order to assess how the income must be taxed when one or more persons who are taxable in Denmark receive proceeds from a foreign trust, it must be determined whether the foreign trust, for Danish tax law purposes, is to be treated in the same way as a Danish foundation, or whether it is to be treated as a restricted capital/interest payment right.

If the trust is comparable to a Danish foundation, distributions from the trust are taxed as personal income.

If the trust is equated with tied-up capital/interest in the income accruing from settled property, distributions from the foundation must be taxed as interest income (tax rate up to 42%) or share income (tax rate up to 42%).

Danish private foundations are characterised by the fact that their assets are irrevocably separated from the founder’s assets, and that no natural or legal person outside the foundation owns the foundation’s assets.

However, it is still possible for the founder to retain some control over the foundation by, for example, including a right in the foundation’s by-laws to appoint one or more management members. However, the foundation’s board of trustees must always be independent of the founder, which means, among other things, that the founder and the founder’s relatives may not constitute the majority of the board of trustees.

Spouses may transfer assets from one spouse to the other without taxes, thereby removing assets from creditors’ reach. However, the Danish Bankruptcy Act allows for the avoidance of such gifts if they were given two years before the bankruptcy reference date, unless it is proved that the debtor was neither insolvent nor became insolvent at the time of enforcement and undoubtedly had sufficient funds to cover his obligations.

Another popular method for asset protection is private foundations, since assets successfully transferred to private foundations are exempt from being accessed by any creditors of the founder.

One of the more popular ownership transfer models in Denmark is ownership transfer with tax succession. This means that the next generation in the family succeeds the owner for tax purposes if they receive the owner’s personally owned shares. The model is only interesting for the next generation if a discount is granted on the price of the business to compensate for the deferred tax burden that is assumed. The tax rules also allow for this to a certain extent. 

In addition, it is also common to make an ownership transfer by an ordinary transfer of shares or business either against payment, as a gift or a loan (see also 2.6 Transfer of Assets: Vehicle and Planning Mechanisms on transfer of shares against the issuance of a debt instrument).

It is the market value of the shares that should be applied as the basis for a transfer during life or upon death. However, it is possible to use different methods for valuing a business, which may result in a lower or higher value of the business. 

The probate court makes decisions on certain matters such as the administration of the estate and disputes regarding the right to inherit. The decisions of the probate court may, to a large extent, be appealed to a higher court.

Legal proceedings concerning claims made by an estate of a deceased person are brought before the ordinary courts, unless the case concerns a dispute which, according to the Danish Act on the Administration of Estates of Deceased Persons, belongs under the competence of the probate court or a special court.

It is not common to include a provision on arbitration of any disputes in a will, but such clauses must presumably be equated with an agreement on arbitration under the Danish Arbitration Act. However, such clauses are not likely to be binding on the estate’s creditors and perhaps not even with regard to indefeasible shares.

There are no special mechanisms for compensation in wealth disputes or disputes involving trusts, foundations or similar entities.

The use of corporate fiduciaries is not prevalent in Danish law.

Professional advisers or managers are held to a higher standard of care than non-professionals.

See 6.1 Prevalence of Corporate Fiduciaries.

See 6.1 Prevalence of Corporate Fiduciaries.

See 6.1 Prevalence of Corporate Fiduciaries.

Citizenship

An applicant for Danish citizenship must, as a main rule, meet the following conditions:

• declare allegiance and loyalty;
• have a permanent residence permit for two years and a place of permanent residence in Denmark; 
• have residence in Denmark for nine uninterrupted years;
• not have committed specific types of crime;
• not have overdue debt to the public sector;
• be financially self-supporting (no financial aid from public entities);
• have had a full-time job for at least three years and six months within the last four years;
• have passed a Danish language level three test or completed a Danish primary school education; and
• have passed the citizenship test (Indfødsretsprøven). 

For most applicants, it is also a condition to have participated in a municipal constitution ceremony.

Domicile

With regards to temporary domicile in Denmark, different rules apply depending on whether one is an EU or non-EU citizen.

EU citizens may stay in Denmark for up to three months, and if the citizen is looking for work, they may stay in the country for up to six months without a residence document. If the stay exceeds three months, a residence document must be applied for.

Under certain conditions, citizens from visa-free countries also have the right to stay in Denmark for up to 90 days within a 180-day period without having to apply for a visa. Other citizens may only stay in Denmark by obtaining a visa.

Residency

An applicant for a permanent residence permit in Denmark must, as a main rule, meet the following conditions:

• be over 18 years old;
• fulfil the conditions for the current residence permit;
• have lived in Denmark for at least eight years;
• not have committed specific types of crime;
• not have overdue debt to the public sector;
• not have received certain types of public assistance;
• have accepted a residence and self-supporting declaration;
• remain in employment;
• not have actively worked against clarifying their identity;
• have passed the Danish language level two test; and
• have had full-time employment for at least three years and six months within the last four years.

Aside from the above at least two of the below four conditions must be fulfilled:

• have passed the Danish language level three test;
• have had full-time employment for at least four years;
• have passed the citizenship test or demonstrated active citizenship; and
• have an average annual income of more than DKK309,824.37.

An individual can get an exemption from the above conditions and obtain expedited citizenship if their case is presented at the request of the Danish Parliament’s Immigration Committee. The Committee can grant expedited citizenship.

The Danish Social Services Act (Serviceloven) contains mechanisms for both minors and adults with disabilities. These mechanisms include, but are not limited to, coverage of necessary additional expenses for parents of a child with severe disabilities. Adults with severe disabilities can equally receive coverage of additional costs directly related to a disability.

Further, the Social Services Act includes planning mechanisms such as home visits, protected employment and assistive devices for people with disabilities.

It is the Danish family courthouse that settles cases regarding legal guardianship.

An application for legal guardianship can be submitted by the individual concerned, a spouse, a child, a parent, the municipality, the police, etc.

If it is not the individual concerned that applies for a legal guardian, the family courthouse will obtain a medical statement from the individual’s doctor and from the individual’s residential care facility, if applicable. Typically, the case can be settled once the statements are obtained, unless the individual concerned opposes the guardianship. In such cases, the question of legal guardianship will be settled in court.

The state pension age is increasing. State pension (Folkepension) is a transfer income given to Danish citizens above a certain age (currently 76 years). The eligible age increases continuously, which means that people are forced to work additional years. No particular programmes are established to help families and individuals to prepare financially for longer lives. 

Children born out of wedlock and adopted children are treated in the same way as children born in marriage. 

Cases of surrogates often raise the question of who the child’s biological, legal and social parents are. In Denmark, an agreement regarding a woman who gives birth to a child must hand over the child to someone else after the birth, is invalid. This entails that the woman who gives birth to the child has no obligation to give away the child and the receiving parents have no obligation to take the child.

Since 1989 it has been possible to register same-sex partnerships in Denmark and since the adoption of the Danish Marriage Act on 15 August 2012, same-sex marriages have been recognised under the same rules that apply to marriages between individuals of opposite sexes.

The Act from 2012 repeals the Danish Act on domestic partnership, and therefore it is no longer possible to form domestic partnerships in Denmark. The Marriage Act still applies to domestic partnerships formed before the Marriage Act became effective.

The Danish Tax Agency grants a deduction for gifts, contributions and donations to charitable organisations, associations, funds, foundations, institutions and religious communities, approved by the Danish Tax Agency. The deduction value is 26% on both small and large donations and the maximum deduction is DKK17,700 in 2023.

The deduction is automatically granted if the donor’s social security number is given to the organisation.

It is the Danish Tax Agency that decides whether the donor is entitled to be granted a deduction.

The most common structure for charitable planning is a private, non-commercial foundation.

A private, non-commercial foundation is considered a separate legal entity which has no owner and no beneficial owners. Private foundations must be governed by a set of by-laws, the content of which is determined by the founder(s), subject to applicable statutory requirements.

Private, non-commercial foundations are managed by the board of trustees which have to be independent of the founder and must comply with the by-laws, including the objects of the foundation.

The advantages of a private, non-commercial foundation are that the foundation may reduce its tax liability based on the grants it awards. In addition to deducting the amount of the grants, the foundation may take advantage of special provisions for consolidation purposes of 4% if the grants are awarded for charitable purposes.

Further, the establishment process for a non-commercial foundation is simple and merely requires the founder to draft a set of by-laws, including the (charitable) object(s) of the foundation, appoint a minimum of three board members and an auditor. The founder may keep some management rights, such as a right to appoint one or more of the board members.

The disadvantage of a private, non-commercial foundation is that it must have a minimum capital of DKK1 million, which must be held by an approved bank in accordance with the requirements in the applicable executive order issued by the Danish Ministry of Justice. Further, the foundation must be independent of the founder and therefore the founder will lose control of their assets when transferring them to the foundation. 

It is very difficult – if not impossible – to change the object of the foundation. This can be considered an advantage for the founder whose wishes for the foundation it will be difficult to set aside. However, it is also considered a disadvantage if the object over time turns difficult to fulfil or if it is too narrowly scoped.