Tightening of the eligibility of the tax scheme for researchers and highly paid employees

The tax scheme for researchers and highly paid employees (the “Special Tax Scheme”) is an attractive option for individuals becoming employed in Denmark. The Special Tax Scheme allows the mentioned employees to be taxed at a low rate of 32.84% (8% labour market contribution plus 27% tax on the remaining amount) on earned cash salary and certain employee benefits for up to 7 years. The Special Tax scheme was introduced in 1992 to attract highly specialised labour from abroad to Denmark by offering a lower taxation in return. The tax scheme applies to all industries and both to Danes and foreigners if certain conditions are met. In the end of this article, the conditions are described

The Danish Supreme Court has with two decisions from 2 February 2024 tightened the application of the Special Tax Scheme as the condition of not having been taxable in Denmark for the last 10 years must now be interpreted narrowly.

The two cases, which are similar, concern two individuals who moved from Denmark in 2005 and 2007, respectively, after having been fully tax liable in Denmark for a couple of years. They notified the Danish Central Office of Civil Registration (“CPR”) about the move but did not notify the local tax administration (this was before the establishment of the Danish Tax Agency (Da. Skattestyrelsen), (“DTA”). Consequently, their registration did not change with the Danish tax authorities, which means that they continued to be registered as fully tax liable in Denmark, and thus, annual tax assessments were issued from the year they moved until year 2011. In both cases, the tax assessment for 2011 showed "No tax liability, removed from census" due to an automatic change made by the DTA.

In 2016 and 2017, respectively, they moved back to Denmark, and requested taxation under the Special Tax Scheme, which DTA denied on the grounds that they did not meet the 10-year condition as they had been fully liable to tax in Denmark within the last 10 years.

In both cases, The Danish Supreme Court found that they did not meet the 10-year condition, because of their continuous registration as fully tax liable in Denmark, despite the fact that they had actually been living in other countries for 10 years. Therefore, The Danish Supreme Court found that they did not meet the requirements for applying the Tax Special Tax Scheme. In one of the cases, the Danish Supreme Court also decided whether the taxpayer was entitled to an extraordinary reopening of old income years to adjust the tax assessments for 2005 to 2010. Case law on extraordinary reopening is very strict and it was denied by the Supreme Court. One of the possibilities to have an extraordinary reopening is if the DTA has made a mistake. But the Danish Supreme Court did not find this to be the case.

It can be deduced from the rulings that it is crucial how the registration is made even though it might be documented that the tax liability in fact has ended previously and that as a main rule it is the responsibility of the taxpayer that the registration is correct.

Thus, in conclusion it is most important to ensure that you are registered correctly when moving out of Denmark. This means that you have to be both deregistered from CPR and contact DTA separately to inform them about the move to avoid being registered wrongfully. We also recommend checking up on the registration to make sure that DTA in fact has made the registration correctly. We recommend you seek advice, if you have moved out of Denmark previously and are in doubt if you deregistered correctly and that you seek advice when planning leaving Denmark.

In order to be eligible for the Special Tax Scheme certain conditions must be met (this is not an exhaustive list):

Researchers:
- The researcher must document to have scientific qualifications equivalent to PhD level.

Highly paid employees:
- The employee must receive a minimum monthly salary of DKK 75,100 in 2024 after deduction of labour market supplementary pension fund (Da. “ATP”) contributions. The required salary must be a guaranteed average monthly salary within a calendar year. The minimum salary amount is adjusted annually, and the latest minimum salary should be met each year.

General conditions:
- The employee/researcher must be hired by a Danish employer or a foreign company's permanent establishment in Denmark.

- The employee/researcher must not have been subject to full or limited tax liability in Denmark on earned salary, business income, board member fees, pension, social benefits etc. within the past 10 years prior to using the scheme. However, there are a few exceptions to this condition for researchers.

- It is only possible to be covered by the tax scheme once. However, it is possible to divide the period of a total of 7 years over an unlimited period, provided that the conditions for the application of the scheme are met for each period.