Expanding your business to Denmark presents a great opportunity, offering access to a highly educated workforce, a strong economy, and a business-friendly environment. For companies looking to hire employees in Denmark without establishing a local legal entity, there are specific considerations to keep in mind. We will provide you with an overview of the process for registering as a foreign employer in Denmark, highlighting the requirements and responsibilities involved. If you’re unsure whether registering as a foreign employer is the right choice for your company, take a look at our previous blog post where we compare setting up as a foreign employer versus establishing a legal entity.
Understanding Foreign Employer Status in Denmark
In Denmark, it is possible for foreign companies to employ local staff without creating a subsidiary or branch. This arrangement allows businesses to test the Danish market, manage specific projects, or hire local expertise without setting up a Danish company. However, foreign employers must comply with Danish employment laws, tax regulations, and social security obligations.
Registering as a Foreign Employer in Denmark
Before hiring employees in Denmark, foreign companies must complete the following registration steps:
1. Register with the Danish Tax Agency (SKAT):
Foreign employers must register with SKAT to obtain a CVR number (Danish business registration number) for tax and VAT purposes. This number identifies your company in Denmark and is required for payroll processing.
2. E-income System Registration:
Employers in Denmark are required to register with the E-income system, which handles payroll tax and reporting. All employee income, taxes withheld, and social security contributions must be reported to SKAT monthly via this system.
3. Social Security and ATP Registration:
Foreign employers must contribute to the Danish social security system and register for ATP (Arbejdsmarkedets Tillægspension), Denmark’s labor market pension scheme.
Employment Law and Obligations in Denmark
Denmark is known for its high labor standards and employee protections. As a foreign employer, it is essential to adhere to the following regulations:
1. Employment Contracts:
Written employment contracts are mandatory in Denmark for all employees working more than eight hours a week. Contracts should include job responsibilities, salary, working hours, holiday entitlements, notice periods, and any other terms in line with Danish labor laws.
2. Holiday and Leave Entitlements:
Employees in Denmark are entitled to five weeks of paid holiday each year. Additionally, parental leave and sick leave policies must be followed in compliance with Danish regulations.
3. Working Hours and Overtime:
Standard working hours in Denmark are 37 hours per week. Overtime pay, if applicable, is typically outlined in collective agreements or employment contracts.
4. Collective Agreements:
Many industries in Denmark operate under collective bargaining agreements (CBAs). Foreign employers must check whether their employees fall under a CBA and comply with its terms.
Payroll Requirements for Foreign Employers
Payroll management in Denmark requires precision and compliance with local regulations. Key considerations include:
1. Income Tax Withholding:
Employers must deduct income tax (A-skat) from employee salaries and remit these amounts to SKAT. Employees are assigned a tax card that determines their withholding rate, based on personal tax allowances and income levels.
2. Social Security Contributions:
Employers are responsible for contributing to social security and other labor market funds, such as ATP, maternity leave funds, and industrial injury insurance.
3. Reporting Requirements:
Monthly payroll reports must be submitted to SKAT through the E-income system. These reports include details of employee salaries, taxes withheld, and social contributions.
4. Holiday Pay:
In Denmark, holiday pay is accrued at 12.5% of the employee’s salary. Foreign employers must ensure compliance with the Danish Holiday Act, which governs the accrual and payment of holiday entitlements.
Benefits of Hiring in Denmark as a Foreign Employer
Operating as a foreign employer in Denmark offers several advantages:
- Flexibility: You can hire employees without the administrative burden of establishing a full legal entity.
- Market Entry: This arrangement allows you to test the Danish market before committing to long-term operations.
- Access to Talent: Denmark’s workforce is highly skilled, with strong expertise in sectors like technology, engineering, and life sciences.
Staying Compliant and Seeking Assistance
Compliance with Danish employment, tax, and reporting regulations is crucial to avoid penalties and maintain good standing. Since the process can be complex, especially for non-Danish speakers, consider the following support options:
- Payroll Providers: Experienced international payroll providers can simplify the process by managing tax calculations, reporting, and compliance. Outsourcing your payroll can save you time and reduce risk. It’s important to choose the right payroll partner, and at Internago, we have extensive experience with international payroll. We’re here to be your trusted partner in handling all your payroll needs!
- Legal Advisors: Labor law experts can help you draft compliant employment contracts and navigate collective agreements.
- Tax Representatives: A local tax representative can manage communication with SKAT and assist with registration and reporting requirements.
Final Thoughts
Setting up as a foreign employer in Denmark is a strategic way to explore new opportunities while maintaining flexibility. By following the registration process, adhering to employment laws, and managing payroll correctly, your business can successfully establish a presence in Denmark. While the administrative requirements may seem challenging, partnering with local experts and compliance professionals can ensure a smooth and compliant setup.
At Internago, we specialize in helping companies expand into new markets, including Denmark. From managing payroll to ensuring compliance, we offer the tools and expertise your business needs to succeed. If you’re also interested in learning about registering as a foreign employer in other markets, check out these helpful links: Sweden, Italy, Norway, Spain, the Netherlands, Germany, and Finland.
For more information, visit our website or contact us at info@internago.com. Let us help you take the next step in your international expansion journey!