Danish tax reform agreement on taxation of individuals

On 14 December 2023, the Danish Government and the majority of the political parties in the Danish Parliament agreed on a new tax reform for individuals.

The main purpose of the agreement is to ensure an incentive for individuals to work more.

The agreement increases the ordinary employment deduction (Da. “beskæftigelsesfradrag“) in the personal income for employed individuals and also increases the extra employment deduction for single parents resulting in yearly tax reductions for an individual for up to respectively DKK 3,000 and DKK 5,100.

Furthermore, a new additional employment deduction for seniors will be introduced. The employment deduction will be effective from two years before the state pension age and lapses at the state pension age.

The tax-exempt senior premium that can be obtained in the first and second year after the state pension age when still working will be increased both years.

Furthermore, funds are set aside for an employment bonus for vulnerable young people aged 25 to 29 who do not have an education, are not studying and have been unemployed for an extended period. The bonus is intended to encourage them to become part of the working community.

The top tax rate will be reduced by raising the threshold for paying top tax and introducing a new middle tax. This means that the current 15% top tax rate will be substituted with a middle tax rate of 7.5% for income above DKK 618,400 and a top tax of 7.5% for income above DKK 750,000 (both thresholds before AM-contributions).

In addition, a new top-top tax of 5% is introduced for individuals who earn more than DKK 2.5 million (before AM-contributions).

The basic deduction before the calculation of inheritance tax will be raised. Inheritance is generally taxed at 15%. However, any heir not being a close relative pays an additional tax resulting in a total inheritance tax of 36.25%. This also includes siblings. Going forward the additional inheritance tax for siblings will be abolished leaving them with a 15% inheritance tax.

The reform will be phased in gradually after being implemented by law. The increase in the general employment deduction and the extra employment deduction for single parents will be phased in from 2025 and from 2026 for seniors. The reduction of the top tax rate and the introduction of a top-top tax, as well as the increase in the basic deduction regarding inheritance tax will be implemented from 2026 and the lowered inheritance tax for siblings will be implemented in 2027.