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How can a non-resident company pay a salary to an employee in Denmark in 2024?

Sometimes a non-resident company wants to hire just a single employee in Denmark. Due to the very low scale of activities, it is sometimes not feasible to incorporate a new resident company or to create a branch office.

How can a non-resident company pay a salary to an employee in Denmark in 2024?

How can a non-resident company pay a salary to an employee in Denmark in 2024?

In this blog, we discuss how can a non-resident company pay a salary to an employee in Denmark in 2024.

Sometimes, a non-resident company wants to hire a single employee in Denmark.

Due to the shallow 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 on whether 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 non-resident company’s profit 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.

You can read more here about what constitutes a permanent establishment

Suppose there are doubts regarding whether the non-resident company becomes a tax resident of Denmark. In that case, we recommend applying for a binding ruling from the Danish tax office:

Link to apply for a binding ruling


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 to see if your company has become a tax resident based on the planned scope of work relating to employing the new Employee.


How can a non-resident company pay a salary to an employee in Denmark in 2024?


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:

Link to Danløn

Even though your non-resident company does not have a separate entity in Denmark, the payroll process will be the same as that of 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 taxes that an employee pays in Denmark are called the “A-tax” and “AM-contribution” and are paid to the Danish Tax Agency 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:


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 on whether you will have an address for the company in Denmark, there are two solutions:


1: 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.


2: 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 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 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.


How can a non-resident company pay a salary to an employee in Denmark in 2024?


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-tax and AM-contribution for his/hers self-assessment for the year.

An estimated tax is then paid in ten instalments distributed over ten months of the calendar year, excluding June and December.

We generally call this estimated tax “B-tax”, – but it includes both B-tax and AM-contribution (a fixed 8% tax).

When the non-resident company registers to pay B-income, it submits 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 and AM-contribution 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 (a mandatory pension in Denmark), the Employee must declare the B-income.

The Employee also pays the B-tax and AM-contribution during the year.

Read more about B-tax here


How can a non-resident company pay a salary to an employee in Denmark in 2024?


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)
Praktikplads-AUB
Arbejdsmarkedets Erhvervssikring (AES)
Barsel.dk
Finansieringsbidrag (FIB)
Arbejdsmarkedets Fond for Udstationerede (AFU)
Lønmodtagernes Feriemidler – administrationsbidrag (LFM)
FerieKonto – administrationsbidrag

So you will be paying both for ATP and “Samlet betaling”.

Link to calculate ATP

Link to calculate “Samlet betaling”


Remember the APV

An APV evaluates the working environment and assesses the risk for the Employee.

It is mandatory to have an APV in Denmark, especially when there is only one Employee.

Link to information about APV


Mandatory insurance for employees

Employers in Denmark must have insurance for their 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.

Link to TRYG

Link to TopDanmark

The illness insurance is part of the contribution paid to “Samlet Betaling” called “AES”.


Can you hire the Employee as a sole proprietor instead?

The Danish Tax Agency generally classifies income from work as either income from employment, freelancing, or sole proprietorship.

The tax is handled differently for these three classifications.

You can read more about this here

If you can hire the Employee as a sole proprietor, it will depend on factual circumstances surrounding the agreement and how the work is performed.


Should you consider setting up a Limited Liability Company?

If you intend to hire more people over time, it often makes sense to incorporate a Limited Liability Company in Denmark.

You can read more about prices for incorporating a Limited Liability Company here


(This blog was updated: 12.3.2024)


FAQ

Can a non-resident company hire just a single employee in Denmark without incorporating a new company or creating a branch office?

Yes, it's often possible for a non-resident company to hire an employee in Denmark without the need to incorporate a new company or establish a branch office due to the low scale of activities.

What determines if a non-resident company becomes a tax resident in Denmark?

Whether the non-resident company becomes a tax resident in Denmark depends on if the hiring of an employee creates a permanent establishment in Denmark, which can result from sales activities, among other factors.

What is a permanent establishment?

A permanent establishment (PE) refers to a fixed place of business through which the business of an enterprise is wholly or partly carried on, affecting the company's tax residency.

What should a company do if it's uncertain about its tax residency status in Denmark?

It's recommended to apply for a binding ruling from the Danish tax office to clarify the company's tax residency status in Denmark.

How does a non-resident company pay employee taxes if considered a tax resident in Denmark?

The company must register as a typical employer, set up a payroll system, and withhold income tax (A-tax and AM-contribution) and other social contributions from the employee's salary.

Is voluntary registration as an employer in Denmark possible for non-resident companies not considered tax residents?

Yes, non-resident companies not considered tax residents can often voluntarily register as employers in Denmark.

What are the options for a non-resident company to pay salaries if it doesn't register as an employer in Denmark?

The company can either register for B-income and ATP, transferring the tax obligation to the employee, or register only for ATP, making the employee responsible for declaring and paying B-tax and AM-contribution.

What is ATP in the context of Danish payroll?

ATP is a mandatory pension scheme that most employers in Denmark are required to contribute to on behalf of their employees.

What is APV, and is it mandatory in Denmark?

APV stands for "ArbejdsPladsVurdering" (Workplace Assessment), a mandatory evaluation of the working environment and risk assessment for employees in Denmark.

Can a non-resident company hire an employee as a sole proprietor in Denmark?

Whether an employee can be hired as a sole proprietor depends on the specifics of the work arrangement and how the work is performed.