Running Payroll in Denmark

Processing payroll in Denmark can be complex, particularly for foreign companies unfamiliar with the country’s detailed tax and compliance requirements. Employers must navigate a multi-layered tax system that includes national income tax, municipal tax, the mandatory Labour Market Contribution (AM-bidrag), and, for some employees, the optional Church Tax (kirkeskat).

Employers are further required to register with several government platforms before processing payroll, including the Danish Tax Agency (Skattestyrelsen), E-income (eIndkomst), and NemKonto for salary payments. Digital reporting and integration with government systems are mandatory and central to payroll operations, since Denmark’s payroll system is highly digitized.

It is not necessary to establish a local legal entity in order to hire employees and process payroll in Denmark, as foreign companies can handle all payroll-related employer obligations without permanent establishment in Denmark. However, there are several registration processes both resident and non-resident employers have to complete before they can start processing payroll.

To set up payroll in Denmark, a foreign company must first determine whether its activities create a permanent establishment. If so, it must register a branch, comply with corporate tax and VAT obligations, and meet additional regulatory requirements. Otherwise, a company can process payroll without establishing a legal entity.

All employers must obtain a CVR number from the Danish Business Authority via the Virk portal. This serves as the business's official identification and is required for tax and payroll processing. The company must then register with the Danish Tax Agency as an employer for payroll tax purposes and, if applicable, for VAT. All employee income, withheld taxes, and social contributions must be reported monthly through the E-income system.

Employers must also register with ATP, Denmark’s statutory labor market pension scheme, and secure mandatory accident and illness insurance. A workplace risk assessment (APV) must be prepared and maintained. Registration may also include optional elements, depending on the employment setup.

Access to government portals requires a MitID Erhverv, and all companies must register for Digital Post to receive official correspondence. A NemKonto must be designated for payments to and from Danish authorities.

Foreign service providers operating in Denmark must also register with the Register of Foreign Service Providers before beginning work. This registration includes company details and results in the issuance of a RUT.

The Danish tax system imposes four main levies on employment income: state tax, municipal tax, labor market contribution (AM-bidrag), and an optional church tax. Social security contributions for employees and employers are relatively low compared to other European countries.

Tax Considerations

Income taxation in Denmark operates on both state and municipal levels. In addition to a progressive state income tax, individuals pay municipal income tax, which constitutes the larger portion of the total tax burden. Municipal tax rates vary by municipality and currently range from 22.5% to 27.0%. State income tax is levied in two brackets: a lower rate of 12.10% and a top rate of 15%, which applies to income exceeding DKK 611,800 annually after the mandatory labor market contribution is deducted.

All employees are subject to an 8% labor market contribution (AM-bidrag), which is deducted from gross income before the calculation of state and municipal taxes. Members of the Danish National Church also pay church tax, which averages approximately 0.64%. Combined, these taxes can result in a marginal tax rate exceeding 50% for high-income earners.

Employers are legally required to retrieve tax card information (skattekort) for each employee from the Danish Tax Agency to ensure proper withholding. This includes data on tax rates, deductions, and applicable allowances.

All individuals are entitled to a personal allowance, which for the 2025 income year is DKK 51,600. An employment allowance (beskæftigelsesfradrag) equal to 12.30% of the employee’s income is also available, capped at DKK 55,600. Additional deductions are available for single parents, union contributions, and commuting expenses.

Tax residency is determined based on the individual’s ties to Denmark. A person is considered a tax resident if they maintain a permanent home in Denmark or reside in the country for more than six consecutive months, excluding short stays for holiday purposes. Residents are taxed on their worldwide income, while non-residents are taxed solely on income sourced in Denmark.

Tax Withholding and Reporting

Employers in Denmark are legally required to withhold income tax at source (A-tax) and the mandatory Danish Labour Market Contribution from employee salaries each month. The withheld amounts must be reported and remitted to the Danish Tax Agency (Skattestyrelsen) via the E-income system.

The company’s size determines the monthly deadline for both reporting and payment. Employers that pay more than DKK 1 million in A-tax annually are classified as large companies and must report and pay the tax by the last banking day of the current month. Smaller employers, whose annual A-tax liability is below this threshold, must submit the report and make payments by the 10th day of the following month.

All payroll tax reporting in Denmark is monthly. There is no requirement for employers to file a separate annual payroll tax declaration. Employees, however, must file an individual income tax return, typically by 1 May of the following year, with the possibility of an extension until 1 July in certain cases. The tax year in Denmark follows the calendar year.

Social Security Contributions

The Danish social security system is primarily financed through general tax revenue rather than broad-based social security contributions calculated as a percentage of wages, making employer and employee social security contributions relatively low compared to many other European countries. Most social benefits, such as healthcare, unemployment, and state pensions, are funded directly through taxation.

Both employers and employees are required to make fixed-amount contributions to specific funds, which are invoiced quarterly via the e-Boks system. The employee's annual contribution is DKK 1,188, covering the mandatory ATP (Arbejdsmarkedets Tillægspension) pension scheme. This amount is fixed and does not vary with salary. The employer’s share of the ATP contributions is DKK 2,376 per employee, per year.

Other social security-related costs for employers include mandatory contributions to various funds such as the Maternity Leave Fund, the Fund for Vocational Training, and the Fund for Work-Related Diseases. The invoicing authority sends notices to registered employers who must settle these amounts separately from payroll tax.

Employers are also obligated to maintain compulsory occupational accident insurance, the cost of which varies based on the industry sector and the risk profile of the employee's role. Rates differ significantly, so annual employer contributions to social security-related funds and insurance typically range from DKK 10,000 to DKK 15,000 per employee.

Employees in Denmark are entitled to various benefits. These include:

• Annual leave and public holidays: 5 weeks of paid annual leave accrued at a rate of 2.08 days per month of employment, which are paid either through Standard Holiday Pay or through a Holiday Allowance calculated as 12.5% of the employee's gross annual salary; plus 9 public holidays

• Maternity leave: 18 weeks paid at 50% of normal wages

• Paternity leave: 2 weeks

• Parental leave: 32 weeks, can be extended by 8 or 14 weeks

• Sick leave: Salaried employees are typically entitled to full pay during illness. Under CBAs, pay is often 90%. Employees who are not entitled to salary payments during sick leave receive statutory sickness benefits.

For more information on employee benefits and other employment requirements in Denmark (including severance pay and termination procedures), check out our Global Hiring Guide.

Danish labor law does not set a statutory minimum wage. Instead, wages are determined through collective bargaining agreements, which vary by sector. While there is no official minimum, the average agreed minimum wage is approximately DKK 110.00 per hour.

Overtime is regulated by employment contracts or collective agreements. Hours worked beyond the standard 37-hour workweek must be compensated, typically at 150% to 200% of the regular pay rate, depending on the applicable CBA. The legal maximum is 48 working hours per week. A 13th month salary is not mandatory but common best practice, typically paid out in December.

Although Danish law does not mandate a specific payroll frequency, most employers pay employees monthly, with salaries disbursed in Danish Krone (DKK). Salaries must be deposited into Danish bank accounts.

After each payroll run, employees must receive a payslip—either paper or digital—via a system such as e-Boks or another secure channel. Payslips must include:

• Pay period, working hours, and pay date

• Gross and net salary

• Deducted A-tax and AM-bidrag

• Total pension contributions (including ATP)

• Withholding rate and tax-card information

• Holiday pay and other benefits

• Employee details (name, address, CPR number)

• Employer details (name, address, CVR number)

Employers are required to retain payroll records for at least five years, in compliance with Danish tax and labor legislation.