Tax liable refers to an individual or a business that is obliged to pay tax on their income, gains or wealth in accordance with the applicable tax rules. Tax liable persons can be subject to limited tax liability or full tax liability.
Frequently Asked Questions About tax liability
What does it mean to be tax liable?
To be tax liable means that an individual or a business, under the legislation, is obliged to pay tax to the state on their income or wealth.
Tax liability can be full or limited, depending on the tax liable person’s connection to Denmark.
What is the difference between full (unlimited) tax liability and limited tax liability?
The difference between full (unlimited) tax liability and limited tax liability concerns how much of your income is taxable in Denmark, and when you are covered by tax liability here at all.
Full tax liability means that you are taxable on all of your worldwide income. This applies to individuals and companies that have their place of residence or registered office in Denmark. For individuals, this means that both income from Denmark and from abroad must be included when tax is calculated. For companies, it means that they must pay tax on all of their profits, regardless of where in the world they are earned. Full tax liability therefore involves a comprehensive tax responsibility, but also the possibility of deductions and relief for foreign tax where there is double taxation.
Limited tax liability means that you are only taxable on income from Danish sources. This applies to individuals and companies that do not have their place of residence or registered office in Denmark, but still have activities, property or income that originates from Denmark. Examples can be salary income from work in Denmark, rental income from Danish property or gains on the sale of Danish assets. Under limited tax liability, only the part of the income that is connected to Denmark is taxed.
When are you fully tax liable in Denmark?
In Denmark, you are fully tax liable if you have your place of residence or registered office in Denmark.
For individuals, this means that if you live in Denmark permanently, or stay in the country for longer periods, you are considered fully tax liable. Place of residence is assessed based on the actual circumstances, including where you have your permanent home, family, economic interests and ties.
For companies, full tax liability means that the company has its registered office in Denmark, which is typically determined based on where the company’s management is actually exercised and where decisions are made. A Danish registered office means that the company must pay tax on all of its profits, regardless of whether they are earned in Denmark or abroad.
When are you subject to limited tax liability in Denmark?
You are subject to limited tax liability in Denmark if you do not have your place of residence or registered office here, but still have income that originates from Danish sources.
For individuals, this can, for example, be if you live abroad but work temporarily in Denmark, own property here or receive income from Danish sources. Examples include salary for work performed in Denmark, rental income from Danish property or capital income from Danish investments.
For companies, limited tax liability means that the company does not have its registered office in Denmark, but still has income from Danish activities. This can be profit from a branch in Denmark, sale of goods or services to Danish customers, or ownership of Danish real estate. The company is taxed only on the part of the income that originates from Denmark.
Is it possible to lose your tax liability in Denmark?
It is possible to lose your tax liability in Denmark.
For individuals with full tax liability, tax liability typically ceases if you move permanently out of Denmark and establish your place of residence abroad without maintaining significant ties to the country, for example housing, family or economic interests.
For companies, full tax liability ceases if the company no longer has its registered office in Denmark. This typically happens if the seat of management is permanently moved abroad, and the company no longer has operations here.
For limited tax liability, tax liability ceases if you no longer have income from Danish sources. For example, if a foreign individual stops working in Denmark or sells their Danish property.
How is foreign income taxed if you are tax liable in Denmark?
If you are fully tax liable in Denmark, you must include all of your worldwide income, including foreign income. This means that salary, profits, dividends, interest, property values and other income from abroad must be reported and taxed in Denmark.
To avoid double taxation, you can often obtain relief, either through deduction for foreign tax or under the rules in a relevant double taxation treaty.
If you are subject to limited tax liability, you are only taxed on income that originates from Danish sources. Foreign income is normally not included in Danish taxation, unless it has a direct connection to Denmark, for example if a foreign income is linked to activity in Denmark or Danish real estate.
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.