Summary

Denmark operates a comprehensive social security system which provides a range of old age, invalidity, sickness, unemployment and other social benefits, including family allowances and income guarantees. Entitlement to benefits generally derives from an individual’s contribution history, although some benefits arise due to residence in Denmark.

Details

Contributions

The Danish social security system is financed mainly through revenue coming from taxes. Employees and employers make minimal contributions to social security. Employer contributions covering pensions, maternity and industrial injuries are generally less than $2,300 per year, and employee contributions are around $190. There is also an 8% pre-tax employee charge for unemployment insurance, although strictly speaking this is a tax charge.

Treaties

Denmark has social security agreements with all European Economic Area countries and 18 other non-EEA countries, including the UK, US, India, China and Australia. These agreements determine which country has the right the levy social security contributions, has the obligation to provide benefits, and prevent social security being levied twice on the same income. Non-EU Nationals are not covered by the EU Social Security agreement as Denmark opted out of the extension of EU rules to these workers. In the case of the UK, home country coverage is limited to two years. Special rules apply to individuals working in Denmark and other EEA countries (plus the UK) on a regular basis.

Because Denmark’s social security contribution rate is so low, there is a considerable financial benefit from structuring assignments from social security agreement countries in a way that avoids having to remain insured in the home country. This is usually achieved by considering assignment length (ie assigning people for longer than provided for in the relevant agreement) or using local hire arrangements.

Exemptions

Given the low rate of contributions, exemptions are not applicable.

Administration

The seven elements of social security are aligned with tax withholding and the administration surrounding the withholding and payment of Danish social security is not complex.

Benefits

 The Danish benefit system is very broad and by most standards, generous. Entitlement to benefits comes from paying contributions to the social security system and, in particular, from residence in Denmark. Combined with the low rate of contribution, this magnifies the benefit of a host-based approach for expatriates working in Denmark.  

Other

 Danish social security contributions and in some cases foreign social security contributions are deductible from personal income for tax purposes.

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