The general rule is that a foreign employee must pay tax in Denmark on the salary earned in Denmark in connection with work performed in Denmark as an employee of SDU.
There may be exceptions to this rule if, for example, the provisions in a double taxation agreement prevent Denmark from taxing the salary.
Full or partial tax liability to Denmark must exist for a researcher to be covered by the researcher taxation scheme.
Full tax liability to Denmark takes effect upon the purchase of a residence in Denmark or a stay in Denmark of a minimum of 6 consecutive months. (Full tax liability will then apply from the first day of the stay).
A one month stay prior to employment is permitted.
The tax liability must commence on the first day of employment.
The main conditions for the right to apply for the special researcher taxation rules are as follows:
- A researcher must not have been fully or partially liable for tax on salary or other income to Denmark during the ten years prior to the employment. This does not apply, however, if the employee was taxed during his/her previous employment in accordance with the researcher taxation rule, and the tax liability ceased upon termination of the previous employment.
- The researcher must not have been employed at SDU for a period of three years before and one year after the Danish tax liability ceased. This does not apply, however, if the employee was taxed in accordance with the researcher taxation rule during his/her previous employment.
- Visiting lecturers and similar employees who have had limited liability to pay tax to Denmark on the guest lecturer salary for one or more periods of a maximum total duration of twelve months during the last ten years can use the special researcher taxation scheme during subsequent employment.
- Visiting lecturers and similar employees who have had full tax liability to Denmark as a result of a stay in Denmark of more than six months´ duration during the last ten years, and whose employment at a Danish university is entirely financed by foreign funds, do not have to meet the requirement of not having had full tax liability in Denmark within the last ten years. The period with full tax liability must not have exceeded twelve months altogether.
- Within the last three years prior to employment, the researcher must not have been posted abroad as a PhD student with public funding from Denmark.
- The researcher must not have or have had – within the last five years prior to employment – considerable influence or a direct or indirect role in the management or control of the university.
- The tax liability to Denmark must commence on the first day of employment. (A one month stay prior to employment is permitted).
- The researcher must be employed in accordance with the position structure in a position at a minimum level of assistant professor at the time of employment.
To have his/her qualifications as a researcher approved, as set out in the Executive Order on the Approval of Researchers, (available in Danish only) a person must be able to document qualifications corresponding to the level required for employment as an assistant professor or higher, or as a researcher/project researcher or higher. The approval as a researcher pursuant to the rules on researcher taxation requires academic qualifications at PhD level or similar, cf. the circular on the position structure of academic staff at universities.
The researcher taxation rule means that the salary is subject to a gross tax rate of 26 % for up to 60 months instead of the normal income tax rate. In turn, the staff member cannot deduct any expenses in connection with the salary and is not entitled to the standard personal allowance in the calculation of the tax owed. The gross tax amounts to approximately 32 % (60 months) including contributions to Danish social security (labour market contributions).
Upon termination of the researcher taxation period, the employee becomes subject to taxation in accordance with the standard rules.
Assistance by PWC
SDU has entered into an agreement with PWC (firm of auditors) about assistance concerning issues about personal tax associated with the potential employment of an international researcher. PWC can only be contacted following approval by the head of department, who must obtain permission from the dean. The department pays for the assistance of the firm of auditors in accordance with the agreement entered between the university and PWC. Information about the agreement can be found on SDUNET.
Important issues in connection with the option for taxation pursuant to Section 48 E – F of the Danish Withholding Tax Act
(The following list is not exhaustive).
The employee loses the right to be covered by the researcher taxation scheme if the employee carries out work abroad and the right to impose tax passes to another country. As an example, the employee will no longer be covered by the scheme if he/she stays abroad for an extended period of time, in general more than 183 days within a 12-months period, as set out in most double taxation agreements.
It is a condition for use of the researcher taxation agreement that the employee´s qualifications are at least equivalent to the level of assistant professor, and that the employee is engaged in research development work.
It is a condition for use of the researcher taxation agreement that the tax liability to Denmark begins on the first day of employment. If, for instance, an Indian researcher is employed at the university with effect from 1 October 2013, but during the first two months of the employment carries out work for the university in India and only takes up residence in Denmark on 1 December 2013, the researcher does not qualify under the researcher taxation scheme. The tax liability to Denmark only commences on 1 December 2013 when the researcher takes up residence in Denmark and not on 1 October 2013 when the employment commences (during the first two months of employment, the researcher is liable for tax in India).
The conditions for using the researcher taxation scheme must be met during the entire period. Once the conditions are no longer met, the researcher taxation scheme can no longer be used.
Foreign PhD students visiting SDU (not employed at the university) and financed entirely with foreign funds cannot use the researcher taxation scheme in connection with subsequent employment as a researcher if they have taken up residence in Denmark during their stay or have spent more than six months in Denmark.
An accompanying spouse, who is employed as a researcher after having taken up residence in Denmark cannot use the researcher taxation scheme if the employment commences more than one month after the person took up residence in Denmark.
Periods with maternity or parental leave are included in the 60 months during which the researcher is taxed in accordance with Section 48 E-F, as the individual remains employed at the university during the period of leave. Salary paid during maternity leave is taxed according to Section 48 E-F, whereas benefits are taxed as normal income.
If a researcher is not employed at SDU during the period of leave, the period of researcher taxation ends when the individual leaves his/her employment. If the researcher has income during the maternity leave period, for example from the municipality, the researcher is liable for normal income tax on the amount. The researcher can therefore only rejoin the researcher taxation scheme after ten years, provided he/she has not had any normal taxable income during the ten years.
If the researcher has previously used/been granted tax exemption, the researcher taxation scheme cannot subsequently be applied.
According to standard practice, it is permitted that a researcher takes up residence in Denmark for up to one month before employment begins.
Interruptions in employment periods
If the researcher terminates employment under the special researcher taxation scheme, the researcher can continue under the scheme in a new position, provided the researcher starts working in the new position no later than one month after termination of his/her previous employment. All other conditions for use of the scheme must be met, but the researcher does not have to take up residence elsewhere during the interim period.
If a foreign researcher enters into an agreement with SDU for several employment periods over a number of years, the researcher has to apply for taxation under the researcher taxation scheme for each individual employment period.
Alternatives to the researcher taxation scheme
Certain foreign researchers qualify for tax exemption in accordance with double taxation agreements, which can be a better option than the researcher taxation scheme.
A researcher who has been granted tax exemption does not pay labour market contributions, but still has to pay contributions to the Labour Market Supplementary Pension Scheme (ATP).
In some cases, taxation in accordance with the standard rules with the option of deducting expenses and the right to the standard personal allowance may be a valid alternative.
Application procedure – new employment
To ensure quick processing, applications for researcher taxation should be submitted to the salary office as soon as possible.
The salary office submits the application to SKAT and they begin processing on the basis of the documents submitted.
No tax card is needed in these cases.
Extensions for employees currently covered by researcher taxation
If the employment has been extended, an application for researcher taxation covering the extended employment period must be submitted to the salary office. The salary office submits the application to SKAT.
Version 22 January 2014.