How can a non-resident company pay a salary to an employee in Denmark in 2023?
Sometimes a non-resident company wants to hire just a single employee in Denmark.
Due to the very low scale of activities, it is often not feasible to incorporate a new resident company or to create a branch office in Denmark.
How you should approach this situation mainly depends if the non-resident company becomes a tax resident of Denmark due to hiring the new employee and, as a result, must pay company income tax in Denmark or not.
If your company is considered a tax resident of Denmark
If the new employee you want to hire will work in sales, your non-resident company will most likely have to register as a tax resident of Denmark.
As a tax resident of Denmark, your company must allocate parts of the profit of the non-resident company as taxable income in Denmark.
It is a direct result of hiring a new employee in Denmark.
This is because hiring an employee in Denmark can be considered as getting a permanent establishment in Denmark.
A permanent establishment is also called “PE” in short in tax terms.
If there are any doubts regarding whether the non-resident company becomes a tax resident of Denmark or not, we recommend applying for a binding ruling from the Danish tax office:
If your company is not considered a tax resident of Denmark
If the new employee works as a programmer, your non-resident company will probably not be considered a tax resident of Denmark.
We always recommend checking with the Danish tax office if your company becomes a tax resident or not based on the planned scope of work relating to employing the new employee.
If your non-resident company will be considered a tax-resident of Denmark
If your non-resident company is considered a tax resident of Denmark, you must register the non-resident company as a typical employer in Denmark.
Once the company is registered as an employer, we can set up a standard payroll system and provide a monthly payslip for the employee.
For smaller companies and smaller payroll setups, we recommend using Danløn as a payroll system:
Even though your non-resident company do not have a separate entity in Denmark, the payroll process will be the same as a resident company.
The employee will receive a payslip which provides details about the salary.
The salary is called “A-income” in Denmark.
The company will be required to withhold income tax and pay the income tax to the tax office.
The tax that an employee pay in Denmark is called the “A-tax” and is paid to the tax office monthly by the employer.
Registration as an employer in Denmark includes obligations to report and pay A-tax, AM-contribution, ATP (a mandatory pension), holiday allowances and other social costs.
If your non-resident company will not be considered a tax-resident of Denmark – Voluntary registration as an employer is still possible
If your non-resident company is not considered a tax resident of Denmark, you have a few options to choose from:
Option 1: The non-resident company can voluntarily register as an employer in Denmark
If your non-resident company is not considered a tax resident of Denmark, you can voluntarily register as an employer in Denmark anyway.
Depending if you will have an address or not for the company in Denmark, there are two solutions:
If you get an address for the non-resident company in Denmark
Should you get an address for the non-resident company in Denmark, we will register the company using this address.
If you do not want an address for the company in Denmark
If you do not want an address for the company in Denmark, the company must have an agent in Denmark.
The agent can be the employee.
Suppose the non-resident company and/or its owners are located in the EU. In that case, the agent in Denmark is generally not liable for taxes on behalf of the non-resident company but serves as a point of contact for the tax office and the business authority.
Suppose the non-resident company and/or its owners are located outside the EU, in a country that does not have similar agreements with Denmark as we have with the EU concerning assistance in tax matters.
In that case, the agent will sometimes become jointly liable with the non-resident company for taxes in Denmark on behalf of the non-resident company.
So this potential tax liability issue should be clarified with the employee before becoming an agent.
If your non-resident company will not be considered a tax-resident of Denmark – and if you do not want a voluntary registration as an employer
If your non-resident company will not be considered a tax-resident of Denmark, and if you do not want a voluntary registration as an employer, you have two options:
Option 1: The company can decide to register for both B-income and ATP
When the company is not registered as an employer, it can transfer a gross amount to the employee as a salary.
The obligation to pay the tax is then transferred to the employee.
In this case, we call the income for “B-income”.
The employee must then register to pay B-income on his/hers self-assessment for the year.
An estimated tax is then paid over ten instalments distributed over ten months of the calendar year.
We call this estimated tax “B-tax”.
When the non-resident company register to pay B-income, it will submit monthly income declarations to the tax office.
This method is often preferred since it is considered more convenient for the employee.
The employee only needs to settle the B-tax each month.
Option 2: The company can decide to register only for ATP
This version is effortless for non-resident companies but gives employees more work.
When the non-resident company decides only to register for ATP (this is a mandatory pension in Denmark), then the B-income must be declared by the employee.
The employee also pays the B-tax during the year.
What is ATP?
ATP is a mandatory pension that most employers need to pay.
Included in the registration for ATP comes a variety of smaller contributions which are collected as a lump sum payment called “Samlet Betaling” which covers the following social costs:
Arbejdsgivernes Uddannelsesbidrag (AUB)
Arbejdsmarkedets Erhvervssikring (AES)
Arbejdsmarkedets Fond for Udstationerede (AFU)
Lønmodtagernes Feriemidler – administrationsbidrag (LFM)
FerieKonto – administrationsbidrag
So you will be paying both for ATP and “Samlet betaling”.
Remember the APV
An APV evaluates the working environment and risk assessment for the employee.
It is mandatory to have an APV in Denmark.
Also, when there is only one employee.
Mandatory insurance for employees
It is mandatory in Denmark to have insurance for employees.
The insurance should cover both accidents and illnesses that can be caused by the work performed.
Typically the accident insurance is provided by a private insurance company like TRYG or TopDanmark.
The illness insurance is part of the contribution paid to “Samlet Betaling” called “AES”.
(This blog was updated: 20.1.2023)