Danish Employment Tax: Employer Obligations, Payroll and AM-bidrag

Hiring employees in Denmark comes with a specific set of tax obligations that employers must understand and fulfil. From withholding AM-bidrag and income tax to reporting via eIndkomst and paying holiday pay, getting payroll wrong can result in penalties from SKAT. This guide covers everything Danish employers need to know about employment tax.

AM-bidrag (Labour Market Contribution)

AM-bidrag is the labour market contribution — a flat 8% tax deducted from every employee’s gross salary. It funds unemployment benefits, sick leave, maternity/paternity leave, and other labour market programmes.

How it works:

• Withheld from the employee’s gross salary before income tax is calculated
• Employer is responsible for deducting and paying it to SKAT
• Applied to all salary, bonuses, and benefits in kind
• No threshold — the 8% applies from the first krone earned

AM-bidrag is always calculated on the gross salary. If an employee earns DKK 50,000 per month, AM-bidrag is DKK 4,000, reducing the taxable income to DKK 46,000.

Income Tax Withholding

After AM-bidrag is deducted, the employer must withhold income tax based on the employee’s preliminary tax card (forskudsopgørelse). The tax card shows the employee’s total tax rate, which the employer uses to calculate the correct deduction.

Standard tax components:

Key points:

• The employee’s preliminary tax card (forskudsopgørelse) determines the exact withholding rate
• Employers must register employees with SKAT before the first payroll
• If an employee does not have a Danish tax card, special withholding rules apply (typically 55% flat rate)
• Church tax only applies if the employee has opted in

E-Income Reporting (eIndkomst)

Danish employers must report all payroll information monthly via eIndkomst, SKAT’s electronic income reporting system. This is the primary mechanism through which SKAT tracks employment income and tax withholdings.

What to report:

• Gross salary and wages
• AM-bidrag deducted
• Income tax withheld
• Pension contributions (employer and employee)
• Benefits in kind (company car, phone, meals, etc.)
• Holiday pay
• Sick pay and parental leave pay

Reporting frequency: Monthly, due by the last day of the month following the payment month. For example, salary paid in March must be reported by 30 April.

Important: All corrections and adjustments must be reported through eIndkomst. Do not delete reports — amend them instead.

Payment Deadlines

Employers face strict deadlines for both salary payments and tax remittances.

Salary payments:

• Salary must be paid by the end of the month in which it is earned
• Late payment can result in compensation claims from employees

Tax and AM-bidrag payments:

• Must be paid to SKAT by the 10th of the following month
• For example, tax and AM-bidrag from March payroll are due by 10 April
• Late payment incurs interest charges at the National Bank rate plus a margin

Payment methods:

• Via Betalingsservice (online banking)
• Via FI-kort (giro slip)
• Direct bank transfer to SKAT’s account

Holiday Pay (Feriepenge)

Denmark’s Holiday Act (Ferieloven) requires employers to accrue holiday pay for every employee.

Accrual rules:

• Employees earn 2.08% of annual salary per month worked (equivalent to 12.5% annually)
• Holiday pay accrues during the holiday year (1 May to 30 April)
• Payment occurs during the holiday settlement period (1 June to 30 September) or when the employee takes holiday

Payment options:

• Pay out in May/June after the holiday year ends
• Pay monthly as a holiday allowance (1.08% per month)
• Pay when the employee actually takes holiday

FerieKonto registration:

• All holiday pay must be registered in FerieKonto (the national holiday pay system)
• Employers report holiday pay through the employer self-service on SKAT’s website
• FerieKonto administers payment if the employee changes jobs during the holiday year

Pension Contributions

Most Danish employees are covered by an occupational pension scheme (arbejdsmarkedspension). Employer pension contributions are a standard part of compensation.

Typical contribution rates:

• Employer: 4-8% of gross salary
• Employee: 4-8% of gross salary (often matched)
• Total pension contribution: typically 10-16% combined

Tax treatment:

• Employer contributions are a deductible expense for the company
• Employee contributions are tax-deductible from the employee’s taxable income
• Contributions are reported in eIndkomst

Common pension providers:

• PFA, ATP, AP Pension, Sampension, Nordea Liv & Pension
• Many collective agreements (overenskomster) specify the pension provider and contribution rate

Employee Benefits and Taxation

Employers often provide benefits beyond salary. Most benefits in kind are taxable, but some have favourable rules.

Company car:

• Benefit value (personalebil) is taxed as income
• Calculated based on the car’s list price and annual value
• If the car is also used privately, the benefit value is added to the employee’s taxable income
• Must be reported in eIndkomst

Mobile phone:

• Tax-free if the employee’s use is limited and the phone is primarily for work
• If unlimited private use is allowed, the full benefit value is taxable
• In practice, most employers provide phones tax-free by documenting work-related use

Meals:

• Tax-free if provided through a staff canteen (kantinemodel)
• If meals are provided outside a canteen arrangement, the benefit value is taxable
• Subsidised canteen meals below cost price may still be tax-free under certain conditions

Education and training:

• Tax-free if the education is relevant to the employee’s current or future role
• Must have a clear connection to the employment relationship
• General education unrelated to the job is taxable as a benefit in kind

Other common benefits:

• Internet subscription: partially tax-free up to a fixed amount
• Health insurance: tax-free if offered to all employees
• Fitness membership: taxable as a benefit in kind

Non-Danish Employees

Hiring employees who are not Danish citizens or residents requires additional steps.

Employer registration:

• Foreign employers hiring in Denmark must register as an employer with SKAT
• A Danish CVR number (business registration number) is required
• Appoint a Danish tax representative if the employer has no Danish presence

Employee tax cards:

• Non-Danish employees must apply for a Danish tax card (skattekort)
• If the employee does not yet have a tax card, the employer must withhold 55% tax as a default rate
• Once the tax card is issued, withholdings are adjusted retroactively

Special tax scheme for researchers:

• Qualified researchers and key employees may use the 30% tax-free allowance scheme
• Up to 30% of gross salary is paid tax-free for up to 7 years
• Employee must meet specific qualifications (typically a relevant master’s degree or higher)
• Application must be submitted to SKAT before employment begins

EU/EEA citizens:

• Generally subject to the same rules as Danish citizens
• May be exempt from AM-bidrag under certain social security coordination rules

Transport Allowance

Employers may pay a tax-free transport allowance for business travel between workplaces or to client sites.

2026 rates:

Conditions:

• Must be documented with dates, destinations, and distances
• Applies to travel between the employee’s regular workplace and other work locations
• Does not apply to the commute from home to the regular workplace (which is not deductible)
• The allowance is separate from salary and not subject to AM-bidrag or income tax

Deductions for Employer

Employers can deduct the following costs as business expenses:

• Salary costs — gross salary, AM-bidrag, and income tax withheld
• Pension contributions — employer’s share of occupational pension
• Training costs — courses, certifications, and education relevant to the job
• Work clothes — uniforms and protective clothing required for the job
• Holiday pay accrual — the 12.5% holiday pay obligation
• Administrative costs — payroll administration, accounting, and advisory fees

All deductions must be documented and supported by invoices or other evidence. SKAT may audit payroll deductions, so keep records for at least 5 years.

Worked Example: DKK 50,000/Month Gross Salary

Here is a complete breakdown of payroll calculations for an employee earning DKK 50,000 per month.

Step 1: AM-bidrag

Step 2: Income tax withholding

Step 3: Net salary

Step 4: Employer cost

What the employer pays:

• DKK 54,000 total cost (salary + pension)
• DKK 32,584 to the employee (net salary)
• DKK 4,000 to the pension provider (employer contribution)
• DKK 4,000 to SKAT (AM-bidrag)
• DKK 13,416 to SKAT (income tax)
• DKK 4,000 to the pension provider (employee contribution, deducted from salary)

Summary of Employer Responsibilities

Reference

This guide is based on the employment tax rules published by SKAT.dk. Tax rates and thresholds are for the 2026 tax year. Always verify current rates with SKAT or a qualified tax advisor before making payroll decisions.