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New Bill Broadens Taxation for Foreign Labour
On 13 September 2012, the Danish Parliament passed a new bill, with the explicit aim of limiting the number of foreign workers in Denmark. One of the provisions included is a new definition of the term "hiring-out of labour". The consequence of this will be that foreign labour in Denmark will, to a much larger extent, be considered "hiring-out of labour" and therefore subject to Danish income tax. Taxand Denmark discovers the impact this will have on multinationals operating in the country.
The new definition changes the previous distinction between "hiring-out of labour" and contractual work, ensuring that a larger number of foreign employees will be included under the "hiring-out of labour" definition and consequently be subject to Danish income tax. The flat rate of 30% must be withheld by the Danish enterprise before paying the foreign company under the work agreement.
According to the new definition, the key element in determining if a foreign employee will be considered "hiring-out of labour" is whether or not the services provided by the foreign employee constitute an integral part of the business activities of a Danish enterprise.
The 30% flat rate tax is calculated on the amount of the agreed price of the work contract, which is considered to be the foreign employee's salary. The foreign employer must therefore provide the Danish enterprise with this information.
By changing the definition of "hiring-out of labour" the Danish government may discourage future foreign business investment, which could be seen as a risk in the current economic climate. The bill will may also disgruntle current investors, as they will have added contract work with non-Danish employees.
Poul Erik Lytken
T. +45 72 27 35 31