Tax Residency in Denmark
Determining tax residency in Denmark is crucial for individuals and entities to fulfill their tax obligations. The Danish tax system classifies individuals and entities as either residents or non-residents, with different tax implications for each category.
Criteria for Tax Residency
According to the Danish Tax Assessment Act, an individual is considered a resident for tax purposes if they meet any of the following criteria:
- Physical Presence: Residing in Denmark for more than 183 days in a calendar year.
- Domicile: Having a permanent home in Denmark, with the intention of residing there indefinitely.
- Significant Economic Ties: Having a spouse or children residing in Denmark, owning a home or business in Denmark, or being employed in Denmark for a significant period.
For entities, tax residency is determined based on their place of management and control. An entity is considered a resident if its management and control are exercised in Denmark.
Impact of International Tax Treaties
Denmark has entered into numerous tax treaties with other countries to avoid double taxation and facilitate cross-border economic activities. These treaties may modify or provide exceptions to the standard criteria for tax residency.
Key Treaty Provisions
The Denmark-US tax treaty, for example, includes the following provisions related to tax residency:
- Tie-Breaker Rule: If an individual is considered a resident of both Denmark and the US under their respective domestic laws, the treaty provides a tie-breaker rule based on factors such as permanent home, center of vital interests, and habitual abode.
- Special Rules for Students and Researchers: The treaty provides special rules for students and researchers who are temporarily present in Denmark or the US for educational or research purposes.
Rationale and Objectives
The criteria for tax residency in Denmark and the modifications introduced by international tax treaties aim to:
- Ensure that individuals and entities with significant ties to Denmark contribute to the country's tax revenues.
- Prevent double taxation by establishing clear rules for determining tax residency in cross-border situations.
- Facilitate cross-border trade and investment by providing certainty and predictability for taxpayers.
If navigating the complexities of Danish tax residency rules seems daunting, consider seeking professional guidance. Heavnn's team of experts can help you understand your tax obligations and optimize your tax planning in Denmark.
