If you have relocated to Denmark from abroad in order to work in Denmark, you may be among the individuals who can benefit from reassessing their provisional tax payments for the income year 2015 and pay additional taxes - if required - before year-end or as early as possible in 2016.
This is especially the case, if you are liable to Danish taxes on income from non-Danish sources and if this income is in another currency than DKK - namely USD, GBP or CHF.
The exchange rate for these currencies have changed considerably within the last year.
This means that income in foreign currency may be up to 20 pct. higher when converted to DKK than you estimated when you prepared your provisional tax assessment for the income year 2015 a year ago.
As outlined in more detail below, you can reduce your risk of incurring interest-bearing residual taxes by making a voluntary provisional tax payment for the income year 2015 before year-end of as early as possible in 2016.
If you require assistance in assessing whether you need to pay additional provisional taxes for the income year 2015, BDO can assist you.
Background
In Denmark, individual taxpayers pay provisional taxes during the year where they earn their income.
Your Danish employer is required to withhold taxes when paying salary to you. The employer will pay the withholding taxes to the Danish tax authorities on your behalf.
Depending on the circumstances, you may also be required to pay provisional taxes yourself in addition to the taxes withheld by your Danish employer.
This is generally done in 10 monthly instalments during the income year (no instalments are due in the months of June and December).
It is also possible to make a voluntary payment of additional provisional taxes for the income year any time during the year.
Once the income year has ended, any residual taxes become subject to interest.
The interest applicable to residual taxes for the income year 2015 is calculated as 2.2 pct. of the residual taxes.
However, the interest is prorated for the number of days from 1 January 2016 until the day you pay the residual taxes.
Please note that residual taxes for the income year 2015 that has not been paid on 1 July 2016 at the latest become subject to a surcharge of 4.2 pct. The surcharge replaces the prorated interest.
Hence, in order to reduce the risk of incurring interest-bearing residual taxes, it may be a good idea to reassess your Danish tax liability for the income year 2015 at this point and make a voluntary payment of provisional taxes before year-end or as early as possible in 2016.
The above article is taken from tax:watch, our electronic English newsletter on Danish Tax and VAT matters. tax:watch is issued on the last Friday of each month and is free of charge.