New ruling on the Danish expat tax regime
On 22 December 2021, the Danish High Court made a ruling concerning the minimum salary requirement to qualify for the beneficial Danish expat tax regime. The ruling was published by the Danish Tax Agency on 20 January 2022 and states that it is not a requirement that the salary according to the employee’s employment contract must meet the minimum salary requirement by the beginning of the income year.
The Danish Tax Agency’s practice so far
In recent years, it has been the Danish Tax Agency’s practice that where an employee’s guaranteed employment salary did not meet the minimum salary requirement for the following income year due to an increase in the minimum salary requirement, a contract addendum had to be in place no later than by year-end the year before.
Although the Danish Tax Tribunal in December 2019 ruled that a salary adjustment during the income year was sufficient to meet the minimum salary requirement under section 48E (3) (3) of the Danish Tax at Source Act, the Danish Tax Agency upheld a practice where a contract addendum – or a similar binding addition to the employee’s employment contract – should be in place no later than 31 December the year before.
An exemplification of the practice
As an example, this practice meant that where an employee’s guaranteed monthly salary according to the contract was DKK 66,700 in 2019 (and thus sufficient to meet the minimum salary requirement for that income year, DKK 66,600 after payment of the ATP-contribution), a contract addendum had to be in place no later than 31 December 2019 to ensure that the employee would also meet the minimum salary requirement for 2020, as the minimum salary requirement for 2020 was increased to DKK 68,100 (after ATP).
How to consider salary increases going forward
Following the recent ruling from the Danish High Court, it is no longer necessary for employers to follow the Danish Tax Agency’s practice and prepare year-end contract addendums each year.
Going forward, the minimum salary requirement should be interpreted in accordance with the wording of section 48E (3) (3) and must thus be met on average throughout the calendar year. This means that employers that normally make salary adjustments in the middle of the year no longer need to make extraordinary salary adjustments by year-end the year before to ensure that the minimum salary requirement is met.
Employers may still consider including a provision in the employment contracts whereby the employer "guarantees that the employee will, at all times, receive a salary that allows the employee to meet the minimum salary requirement under section 48E (3) (3) of the Danish Tax at Source Act". This would eliminate the risk of employees disqualifying for expat taxation due to missing salary adjustments based on contract addendums or the like, as employees would then always be entitled to a guaranteed minimum salary corresponding to the minimum salary requirement for the relevant income year.
The monthly minimum salary requirement for the income year 2022 is DKK 70,400 (after ATP). According to the current rules, the Danish special tax scheme can be applied for a maximum of 84 months.
Potential reassessment for prior income years
Where the Danish Tax Agency has rejected expat tax applications with reference to their previous practice and thus denied employees access to be registered for taxation under the Danish expat tax regime, employees could consider requesting reassessment of previous years’ tax assessments. Employees have until 1 May 2022 to request ordinary reassessment of tax years as far back as 2018. The possibility to request ordinary reassessment of tax assessments for 2019 and 2020 remain available after 1 May 2022.
If you have any questions, you are more than welcome to contact us or your personal contact person from KPMG Acor Tax.
