As a general rule, individuals with full tax liability to Denmark must pay tax on all income, including salary earned abroad. However, the extent of Danish taxation depends on whether there is a double taxation treaty between Denmark and the country where you work, as well as how long and how often you stay in Denmark.

Section 33 A of the Tax Assessment Act provides the possibility of reduction or exemption from Danish tax on salary earned through personal work in an employment relationship performed abroad. The rule can be applied when the following conditions are met:

• Minimum 6 months' stay abroad
• Maximum 42 days in Denmark during the same continuous period
• The work must be performed for the employer's benefit

Denmark has concluded double taxation treaties with many countries to ensure that you are not fully taxed in two places on the same income. The treaties determine which country has the right to tax different types of income. If both countries have the right to tax, Denmark normally provides relief by offsetting the tax you have already paid abroad. As treaties vary, it is necessary to examine the specific treaty for the country where you work.

The length of stay and your days in Denmark are crucial for whether you can obtain tax relief. According to Section 33 A, at least 6 months' stay abroad and a maximum of 42 days in Denmark in the same continuous period are required. In the assessment, all days when you are physically present in the work country count, including working days, days off, and travel days to and from.

Tax residence is determined based on where you have your permanent home, family, and other personal connections. If you have connections to several countries, the rules in the double taxation treaties are used to determine where you are considered tax resident.

Whether the employer is Danish or foreign, and whether there is a permanent establishment in Denmark, has significance for which country has the right to tax the salary income.

The burden of proof that the conditions in Section 33 A are met rests with the taxpayer. The foreign stay must be documented by, for example, employment contract, posting agreement, pay slips, travel receipts, and bank statements. The documentation must show that the 6-month and 42-day rules have been complied with, and that the foreign stay stems from the employer's circumstances.

Labor hire occurs when an employee is employed by a foreign company (the hirer), but performs work in Denmark for a Danish company (the principal), which has responsibility for the work and the result. Although the employee is formally employed abroad, he or she is considered tax-wise as hired labor because the Danish company in reality has the authority to give instructions and bears the risk for the result. This triggers special Danish taxation rules that ensure tax is paid in Denmark on the salary for work performed here in the country.

The rules apply when a foreign employer makes employees available to a Danish company that has jurisdiction or a permanent establishment in Denmark. They also apply even if the foreign company is VAT registered in Denmark. The decisive factor is that the work is performed in this country and that it is in substance the Danish company that has control over the work.

The Danish company using the hired employee has an obligation to withhold labor market contribution (AM-bidrag) and labor hire tax on the salary. The principal must both withhold and pay the amount to the Danish Tax Agency and is liable if this is not done correctly. Thus, the principal is treated tax-wise in the same way as a Danish employer, even though the employee is employed abroad.

Income is taxed with 8% labor market contribution and then 30% labor hire tax on the remaining amount. The tax is calculated on the entire gross income including the value of any fringe benefits. This form of taxation is final unless the employee actively chooses a different form of taxation.

The hired employee can choose to be taxed as an ordinary limited taxpayer employee. This provides access to the usual employee deductions, such as commuting deductions. If you choose this model, there is an obligation to submit an information form. The choice must be made no later than May 1 of the year after the income year, and it can be reversed no later than June 30 of the second calendar year after the end of the income year.

Labor hire tax cannot be used if the stay in Denmark exceeds 183 days in a period of 12 months, or if the employee becomes fully taxable in this country, for example by having a residence. If a tax card is not available, 8% AM-contribution and 55% tax must be deducted. If 183 days are exceeded and only labor hire tax has been deducted, the company is liable for the missing tax.

Free board and lodging can in certain cases be kept outside the taxable income if the expenses are covered directly by the foreign employer, and if the travel rules (maintains residence in home country and is in Denmark temporarily) are met. Other fringe benefits are generally taxed on par with ordinary salary.

If the Danish company fails to withhold AM-contribution and labor hire tax, it may become liable for back payment of the tax, including interest. Therefore, it is important that companies using foreign labor know and comply with the rules for labor hire.