Exit tax refers to thetax consequences when a person leaves Denmark and is no longer fully tax liablehere. In a tax context, exit tax can have significant consequences, including arequirement to settle certain taxes and to determine tax positions at the timeof departure. Exit tax can also affect tax obligations in both Denmark and thenew country of residence, which may lead to double taxation and taxation ofworldwide income. You should pay particular attention to the handling ofpension schemes in both the country you leave and the country you move to.
Frequently Asked Questions About Exit Tax and Departure from Denmark
What does exit tax mean in a Danish tax context?
Exit tax refers to the tax consequences when a person leaves Denmark and is no longer fully tax liable here. It includes both the assessment of when full tax liability ceases and the taxation of unrealised gains on certain assets (exit taxation).
Exit tax can affect tax obligations in both Denmark and the new country of residence and may lead to double taxation if the move is not planned correctly.
When am I considered to be subject to exit tax from Denmark?
You are considered to be subject to exit tax from Denmark when your full tax liability to Denmark ceases. Whether your full tax liability ceases depends in particular on two factors:
- Whether you still have a home at your disposal in Denmark
- Whether you continue to stay in Denmark to such an extent that you are still considered resident
In addition, it may be relevant whether you have a significant personal or economic connection to Denmark, for example family, business activities or investments.
Only when home, stay and connection have in reality been given up can you be considered to have departed from Denmark for tax purposes and thus be fully within the exit tax rules.
What is the 3-year rule for a Danish home?
An important detail is the so‑called 3‑year rule: if you rent out your Danish permanent home on a non-terminable lease for at least three years, the home is no longer considered to be at your disposal. This can support that your full tax liability to Denmark ceases.
If you keep a home at your disposal in Denmark, the Danish Tax Agency will often consider that your full tax liability continues, even if you spend most of your time abroad.
What happens when my full tax liability to Denmark ceases?
When your full tax liability ceases, you instead become limited tax liable on certain Danish-source income, for example pensions or rental income from Danish real estate.
You will then only be taxed in Denmark on these specific income types, while your other income is normally taxed in your new country of residence – subject to any double taxation treaty.
What is exit taxation under the exit tax rules?
Exit taxation is a central part of the exit tax rules. When you leave Denmark, you are for tax purposes considered to have disposed of your taxable assets at market value at the time of departure. Any unrealised capital gains are taxed, even though you have not actually sold the assets.
Exit taxation typically covers shares and other securities, certain financial instruments and ownership interests in companies and partnerships.
Can I obtain a deferral of the exit tax?
If you move to an EU/EEA country, you can normally obtain a deferral (postponement) of payment of the exit tax, but security will usually be required.
If you move outside the EU/EEA, the tax must as a rule be paid, unless you can provide full security.
What happens to the exit tax if I move back to Denmark?
If you return to Denmark, part or all of the exit tax can lapse, depending on whether the gain is still unrealised and whether the assets are still owned by you.
Exit taxation can therefore have a major liquidity impact and requires careful planning before you move.
Which formal steps do I need to take when leaving Denmark?
There are a number of formal steps you must take when you leave Denmark. The most important are:
- Deregister your address in Denmark with the National Register (folkeregisteret)
- Register your move abroad and your new address
- Inform the Danish Tax Agency of your departure and your new tax situation
- Ensure correct reporting of pensions, shareholdings and other assets that may be subject to exit taxation
These registrations are crucial for the Danish Tax Agency to be able to end your full tax liability and ensure correct settlement of your Danish tax affairs.
What are the consequences if I do not register my departure correctly?
If you do not register your departure correctly, Denmark will continue to consider you fully tax liable. This means taxation of your worldwide income, obligation to file a Danish tax return and risk of underpaid tax, interest and penalties.
At the same time, the risk of double taxation increases, since your new country of residence will also consider you fully tax resident there.
Which areas are typically affected by exit tax?
Exit tax affects more areas than many people expect. Key points include:
- Tax residence and tax liability (full vs. limited tax liability)
- Exit taxation of shares and other assets
- Treatment of Danish and foreign pension schemes
- Rental or sale of property in Denmark
- Double taxation and the interaction between Danish rules and the rules in the new country
It is therefore a good idea to prepare an overall plan before you move. With the right advice, you can often avoid double taxation and unnecessary tax costs.
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.