On 16 May 2024, the Danish Parliament adopted the new top-top tax as part of an extensive tax reform for individuals. The change will take effect from 2026.
On 16 May 2024, the Danish Parliament adopted the new top-top tax as part of an extensive tax reform for individuals. The change will take effect from 2026.
In Denmark personal income is taxed according to a progressional rate. AM-contribution of 8% is calculated and then the remaining amount is taxed according to the progressional rates. The tax reform entails that the current top tax rate of 15%, which applies to income from DKK 640,100, will be replaced with a middle tax, a top tax and a top-top tax.
Thus, the 15% top tax rate will be substituted with a middle tax rate of 7.5% for income of DKK 640,100 and an additional top tax of 7.5% for income from DKK 776,500 up to DKK 2,588,300 (all thresholds before AM-contributions) (2024-amounts).
The top-top tax is an additional tax of 5% on the personal
income. It is introduced for individuals who earn more than DKK
2,588,300 (before AM-contributions) (2024-amount). The top-top tax
entails that the marginal tax rate for personal income increases
from approximately 55.9% to approximately 60.5% when
AM-contributions are included.
It can be illustrated as follows:
| Tax type | Tax |
|---|---|
| Middle tax | 7.5% on income between DKK 640,100 and DKK 776,500 (before AM-contributions) |
| Top tax | 7.5% or in total 15% incl. middle tax on income between DKK 776,500 and DKK 2,588,300 (before AM-contributions) |
| Top-top tax | 5% or in total 20% incl. middle and top tax on income that exceeds DKK 2,588,300 (before AM-contributions) |
To address this increase in taxes, the possible top-top taxpayers should consider their options to lower their income tax payments.
This could be by reassessing the size of their pension payments, they should consider certain employee tax schemes, or even consider tax exempt business transformation into a company. Furthermore, conversion of income to dividend distributions, when possible, could be a good option as the share income tax rates are not changed. The latter entails, that the taxation on share income will be significantly lower than personal income taxation as share income is still taxed at 27% or 42% depending on the amount of the share income, or a total of up to 54.8% when the 22 % corporate tax on the amount is included.
The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.