Double taxation occurs when the same income is taxed twice by different jurisdictions. This can happen if a person or business has income in a country other than their country of residence and both countries demand tax on the same income.
Frequently Asked Questions About Double Taxation
What is double taxation?
Double taxation occurs when the same income is taxed twice or more, and it can happen in different ways. Legal double taxation occurs when two or more countries tax the same person on the same income. Economic double taxation occurs when the same income is taxed at two different taxable entities.
How can double taxation occur for salary income?
If you work and receive salary from another country and are resident in Denmark, both countries can demand tax on the same income.
How can double taxation occur with foreign pension contributions?
Contributions to a foreign pension scheme that is not approved under Danish rules are considered salary and taxed as personal income. Payments from the scheme may later be taxed again.
What about contributions to social security schemes?
Contributions to social security schemes in both countries can lead to double taxation.
How does double taxation affect companies?
Double taxation can occur when two countries simultaneously tax the same income that a company earns – economic double taxation. This is typically seen if a Danish company operates a business abroad and is considered to have a permanent establishment there. In that case, the source country can tax the portion of the profit related to the establishment, while Denmark as the home country taxes the company's entire total income. Without special rules, the company can thus end up paying tax twice on the same profit.
What documentation is required to apply for relief or refund?
If you want to apply for relief or refund, you must document that tax has been paid in both countries. Relevant documentation can be:
- Tax assessment notices from both countries
- Proof of tax paid abroad
- Employment contracts or income statements
- Documentation of the type of income and its source
Why does Denmark have double taxation treaties?
Denmark has entered into agreements with many countries to avoid double taxation. These agreements protect against being taxed on the same income in multiple countries. Without such rules, each country can demand tax on income that has a connection to it, even if another country has already taxed it. This can lead to an unreasonably high total tax burden and make it less attractive to work, invest, or operate a business across borders.
What are Denmark's internal relief rules?
Denmark also has internal relief rules (deduction/credit), which can reduce the Danish tax by the tax paid abroad, within the established framework.
Disclaimer
As the above is for guidance purposes only, we accept no liability for decisions that may be made based on the above without prior individual advice. We accept no liability for errors and omissions.