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TAXES

Four ways to (legally) lower your tax bill in Denmark

Denmark has a reputation for having higher taxes than most other countries. These deduction rules can help you to reduce your annual bill.

Four ways to (legally) lower your tax bill in Denmark
Knowing which deductions you might be entitled to claim can help ensure you don't overpay on your tax bill. Photo: Thomas Lekfeldt/Ritzau Scanpix

Denmark recently overtook France to become the highest tax country in the European Union, according a new comparison of tax rates across the bloc.

The 2020 edition of Taxation Trends in the European Union found that Denmark’s government in 2019 raised 46.1 percent of GDP in tax revenues.

While that fits in with the country’s long-established model providing a high social security net, there are a number of deduction rules to be aware of if you want to ensure you’re not paying more than you need to.

Self-employed and employed people alike can adjust their tax returns by logging in to the skat.dk website and entering the deductions on their forskudsopgørelse (preliminary tax return, prior to March) or årsopgørelse (annual return, calculated and displayed on the SKAT website at the beginning of March). The deadline for the latter falls in May each year.

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Travel deduction (kørselsfradrag) 

If you travel a long distance to get to and from work, you may be entitled to deduct some of your travel expenses from your taxable income.

The travel deduction, or kørselsfradrag, is designed to cover the cost of travelling to and from work over a set minimum distance. It applies to rail and car journeys alike (for cars, the cost of fuel used for commuting comprises the deductible amount).

You can claim the deduction if you travel at total of 24 kilometres to get to and from work (12 kilometres each way, in other words). This only applies on days when you actually travelled from your home to a place of work, and not, for example, for days you spent working from home.

As such, many people claimed a much lower travel deduction in 2020 compared to preceding years, with home working mandatory for many during the Covid-19 pandemic.

The value of the deduction is 26 percent. As such, if you spent 1,000 kroner on travel in a year, your tax bill can be reduced by 260 kroner.

Food and accommodation (kost og logi) 

Like with transport, you can get a deduction for the cost of food and accommodation (such as hotel stays) from your tax bill, if these are incurred when you stay away from home for work. In this case, by applying a daily rate for deduction.

Deductions are also granted for so-called “double householding” (dobbelt husførelse) if you have a temporary work place far from your home, which, due to the distance, requires you to take accommodation rather than travel from home each day.

The maximum amount for which you can be given a deduction is 29,300 (for the 2021 tax year).

Work clothes, textbooks, courses (and more) 

With a few exceptions, the cost of things that you need to buy to be able to do your job – clothing, textbooks or equipment – can be applied as a tax deduction.

It should be noted that such items must only be bought for work use, so if, for example, you purchase a laptop and use it for both work and personal matters, it won’t be tax deductible.

If you have a home office or workshop, you can deduct costs for the room in a narrow set of circumstances only: the type or extent of the work you do in the room must prevent it from any other (private) home use. A laboratory would qualify, for example, but a desk in the corner of your bedroom won’t.

However, you can apply a deduction to at least 6,500 kroner of your income if you are eligible for this deduction.

Likewise, clothes and textbooks must be impossible to conduct your work without for them to qualify for deductions. Think uniforms, not suits; and academic journals in your specific field, not National Geographic.

Unemployment insurance and union membership (A-kasse og fagforening) 

If you are member of an unemployment insurance provider (A-kasse) or a union – which the majority of people on the Danish labour market are – then you can claim a deduction for your membership fees.

EXPLAINED: Should I sign up with a Danish union and get unemployment insurance?

There are rules for the maximum costs you can claim a deduction for – around 6,000 kroner per year for unions, for example, which may be a little less than you actually pay.

As with the other deductions listed above, you include these costs in your tax return by logging on to the website of the Danish Tax Authority, SKAT, and entering them in the appropriated boxes on your preliminary or annual return.

Sources: SKAT (1), (2), (3)

READ ALSO: What do Denmark’s proposed welfare reforms mean for foreign residents?

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PROPERTY

EXPLAINED: Denmark’s new property tax rules from 2024

New property tax rules (boligskatteregler) take effect in Denmark in 2024. How will they affect homeowners and first-time buyers?

EXPLAINED: Denmark’s new property tax rules from 2024

The new tax rules, which will impact property value tax rates (ejendomsværdiskattesatser) and land value tax (grundskyld), were originally ratified by the previous government in a 2017 bill. In general, they mean the rates for both of the above property taxes will fall in most municipalities, according to the Danish tax ministry.

A public real estate appraisal (ejendomsvurdering) forms the basis for taxation of your property. According to the tax ministry, many homeowners will find that new appraisals issued from September 2021 are higher than preceding valuations from 2011 and 2012. That is partly due to increasing house prices in recent years.

In order to avoid much higher property taxes as a result of higher valuations in the public real estate appraisals, the 2017 political agreement secured a reduction of the two forms of property tax, effective from 2024.

Homeowners who appear to be facing higher property taxes due to the new appraisals – even though tax rates will be reduced – can be eligible for a tax subsidy. This can occur in cases where a property has seen a large increase in its valuation.

In short, the new tax rules will not result in taxes for existing homeowners in 2024 that are higher than they would have been if the current rules (still in effect in 2022 and 2023) were to remain in place.

However, the tax subsidy mentioned above does not apply to new homeowners from January 1st 2024. This is because first-time buyers will be expected to “plan their finances in accordance with the new tax rules,” the ministry states.

This could have a knock-on effect on the housing market, according to financial media Finans, which wrote in November 2021 that people buying apartments would be likely to demand reduced prices as 2024 approaches, to offset the higher taxes they are likely to pay.

READ ALSO: Danish apartment sales cool to eight-year low

An analysis by Finans and Nykredit showed that apartment prices in major cities, particularly in and around Copenhagen as well as in Aarhus and Odense, will typically have to fall by around 5-10 percent for total costs for now buyers – mortgage plus tax – to be unchanged compared to the outgoing rules.

The new rules and subsequent increased taxes will hit first-time (in 2024) buyers of apartments hardest, according to Finans. That is because many buyers will not be able to afford the same mortgage they previously could, due to the higher property taxes.

One reason apartments are more likely to get tax increases under the new rules is that the valuation appraisal system left them subject to lower property tax relative to houses.

“Apartments have been too lightly taxed for many years because the land under them is massively undervalued compared to appraisals of detached house land,” Mira Lie Nielsen, housing economist at Nykredit, one of Denmark’s major banks and the country’s largest mortgage lender, told Finans last November.

People buying apartments before 2024 could also push prices down knowing they risk making a loss if they sell shortly after the tax reform takes effect.

From 2024 onwards, the two property taxes – ejendomsværdiskattesatser and grundskyld – will be pegged to appraisals of the property and land value such that if these fall in valuation, so will the property tax.

If the valuation of the property, and thereby the property tax, increases after 2024, homeowners can fix the rate of (indefryse) their taxes by postponing payment of a part of the property tax. The frozen tax payment becomes due (and is calculated) when the property is sold. Alternatively, the increased taxes can be paid in instalments.

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