Payroll tax

Content

What is payroll tax?

In Denmark, VAT-registered companies must pay VAT. The VAT typically represents 25% of the price and is paid to the Skattestyrelse. (DanishTax Agency)

However, not all goods or services are subject to VAT. In other cases, a different type of tax is imposed instead – a payroll tax.

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How is the tax paid?

The tax is paid to the state just like VAT. Just as VAT-liable companies report VAT, VAT-exempt companies must keep accounts from which the payroll tax is calculated.

You calculate the amount of tax yourself, which you then declare and pay to the Tax Agency. They must access the accounts to verify that you have paid the correct amount.

Which companies are exempt from VAT?

If your company provides VAT-free services, you are exempt from VAT and therefore obliged to pay payroll tax.

VAT-exempt companies must have a minimum basis of DKK 80,000 per year to calculate payroll tax – otherwise, they are not required to pay the tax.

Examples of VAT-free services

  • Medical services and health services from authorized health professionals
  • Education services from institutions approved by educational authorities
  • Financial services such as bank fees and insurance premiums
  • Cultural and artistic services, including libraries, museums, and theaters

How is the payroll tax calculated?

VAT is tied to the individual goods or services a VAT-registered company sells. With the payroll tax, it’s different. It is instead tied to wages and the profit of the company.

The amount you must pay, therefore, depends on the type of company and the total payroll in the company. This includes your salary and other employee allowances.

Four calculation methods

The tax is calculated based on a percentage. The Tax Agency has four calculation methods that can be used depending on the type of company.

Below are examples of the methods and the applicable rate for each.

Method 1

This is used by, for example, trade unions, employer associations, and caretaker services. Here, the payroll amount is multiplied by the tax rate. In 2022 and 2023, the rate is 6.37%.

Method 2

This is used by financial companies such as banks and savings banks, pension funds, mortgage institutions, and insurance companies. Here, the payroll amount is multiplied by the tax rate. In 2022 and 2023, the rate is 15.3%.

Method 3

This is used by companies that publish and import newspapers/publications or that publish electronic or digital newspapers. Here, the value of the sale of newspapers is multiplied by the tax rate. In 2022 and 2023, the rate is 3.54%.

Method 4

This is used by:

  • Companies in the healthcare sector (doctors, dentists, opticians, physiotherapists, etc.)
  • Companies that provide personal transport in Denmark
  • Undertakers and funeral homes
  • Companies that sell VAT-free education or cultural services

 

Calculated as follows: Payroll amount / – tax loss or profit before financial items) multiplied by the tax rate. In 2022 and 2023, the rate is 4.12%.

You can read more about the methods on the Tax Agency’s website.

Other rules for companies without employees

If you run your business alone, you may still be obliged to pay payroll tax. For example, if you sell goods that are not subject to VAT. If you have no employees, the tax is calculated based on the profit of your business.

Want to know more?

You can read more about the different types of expenses in our Acupedia. You can also contact us to learn how to streamline Expense Management in your company.

FAQ

What is payroll tax?
Payroll tax is a tax companies must pay if they sell goods or services not subject to value-added tax (VAT). This applies to professions such as educators and doctors who provide VAT-exempt services.
You only have to pay payroll tax if your taxable base (the amount on which the tax is calculated) exceeds 80,000 kroner annually. The company is not required to register or pay payroll tax if the taxable base is at most 80,000 kroner per year.
Payroll tax is typically calculated by determining the taxable base and multiplying it by the tax rate, which is determined by the Danish Tax Authority (Skattestyrelsen). However, the calculation method may vary depending on the type of business.

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