Denmark’s new taxation system brings noteworthy changes for residents and expats, aiming to streamline income tax policies and foster economic growth. These reforms aim to create a more equitable tax structure while encouraging economic growth. In this article, we’ll break down the new taxation system, compare it with the previous one, and provide detailed examples to help you understand how these changes might affect your financial situation.
Key Changes in Denmark’s Taxation System
1. Income Tax Reforms
- Employment Deduction Increase: The employment allowance (beskæftigelsesfradraget) has been increased, allowing workers to save more by reducing their taxable income. The cap on this deduction has also been raised.
- Top Tax Rate Reduction: The top tax rate (topskat) has been halved from 15% to 7.5% for individuals earning below 750,000 DKK annually.
- Introduction of the “Top-Top Tax”: A new tax tier of 5% will apply to annual incomes exceeding 2.5 million DKK. This is an additional tax tier introduced to ensure high earners contribute more.
2. Special Expatriate Tax Scheme
Denmark continues to offer a favorable flat tax rate of 27% (+8% labor market contribution) for expatriates and researchers who qualify. This scheme allows eligible individuals to benefit from an effective tax rate of approximately 32.84% for up to 84 months.
3. Marginal Tax Rate Changes
For high-income earners, the marginal tax rate will increase slightly, reaching approximately 60.5% due to the “Top-Top Tax.”
Comparison Table: Previous vs. Current Taxation System
| Tax Component | Previous System | Current System (2025) |
|---|---|---|
| Employment Deduction | Lower deduction (~10.65% of salary, capped) | Higher deduction (raised cap for savings) |
| Top Tax Rate (Topskat) | 15% on income above 589,000 DKK/year | 7.5% on income above 750,000 DKK/year |
| New “Top-Top Tax” | Not applicable | 5% on income exceeding 2.5 million DKK/year |
| Expat Flat Tax Scheme | 27% flat tax (+8% labor market contribution) | Same (effective tax ~32.84%) |
| Marginal Tax Rate | ~55.9% for high earners | ~60.5% with new “Top-Top Tax” |
Example Calculations: Tax and Savings Impact
1. High-Income Earner (Annual Income: 3 million DKK)
| Scenario | Previous Tax System | Current Tax System (2025) |
| Annual Income | 3,000,000 DKK | 3,000,000 DKK |
| Top Tax (Tops kat) | 15% on (3M – 589K) = 362,000 DKK | 7.5% on (3M – 750K) = 168,750 DKK |
| New Top-Top Tax | Not applicable | 5% on (3M – 2.5M) = 25,000 DKK |
| Employment Deduction | ~50,000 DKK | ~60,000 DKK |
| Labor Market Contribution (8%) | 8% of 3M = 240,000 DKK | Same = 240,000 DKK |
| Total Tax Payable | ~1,652,000 DKK | ~1,503,750 DKK |
| Savings Due to Reforms | – | ~148,250 DKK |
2. Expatriate Under Flat Tax Scheme (Annual Income: 1 Million DKK)
| Scenario | Previous Tax System | Current Tax System (2025) |
| Annual Income | 1,000,000 DKK | 1,000,000 DKK |
| Expat Flat Tax Rate | 27% = 270,000 DKK | Same = 270,000 DKK |
| Labor Market Contribution (8%) | 8% = 80,000 DKK | Same = 80,000 DKK |
| Total Tax Payable | 350,000 DKK | 350,000 DKK |
| Savings Due to Reforms | No Change | No Change |
Denmark’s new taxation system reflects a balanced approach to supporting economic growth while ensuring fairness in contributions. High-income earners stand to gain from lower Top Tax rates, though the “Top-Top Tax” slightly offsets these benefits for ultra-high earners. Meanwhile, expatriates can continue to take advantage of the special flat tax scheme, which remains unchanged.
To navigate these changes effectively, it is advisable to consult a tax professional familiar with Danish tax laws. Staying informed and planning ahead will help you optimize your tax obligations and maximize savings.