Secondment/Assignment Abroad
Tax Implications of International Assignments and seccondment
An international assignment or seccondment means that you temporarily work in another country while keeping your base and residence in your home country. Your family may stay at home, or you may rent out your home while abroad. This allows you to maintain your Danish residence while, under certain conditions, having your foreign salary taxed only in the country where you work.
Tax on foreign income
If you earn income abroad while maintaining a Danish tax residency, you are generally subject to Danish tax on this income. However, you can usually credit the foreign tax against your Danish tax. For example, if you earn DKK 500,000 in the UK where 33% income tax is withheld, you only pay Danish tax on the difference between the Danish tax rate and the UK tax paid. This is called tax relief under the credit method.
Exemption releif
If you are employed by a foreign-based employer or work abroad for af Danish employer and are on assignment for more than six months, you may qualify for exemption releif under Section 33A of the Danish Tax Assessment Act (Ligningsloven § 33A). Key requirements include:
- The employer must be stationed abroad or, if it is a Danish based employer, there must be a clear business interest in the seccondment.
- You must be abroad for at least six months.
- During any six-month period, you cannot spend more than 42 days in Denmark, including travel days. For example, arriving in Denmark at 23:59 counts as one full day.
Assignments across multiple countries
You can be assigned to several countries without spending six months in each. You can also work for multiple employers and have multiple assignment periods. Careful planning is required, and double taxation agreements must be considered.
Tax relief under the exemption method
If you qualify under the assignment rules, you may use the exemption method for tax relief. Your foreign income is included in your Danish global income, but the portion of tax attributable to that income is not paid to Denmark.
Example:
- Assignment: 9 months in Germany, 3 months in Denmark.
- Income: DKK 1,000,000 in Germany, DKK 200,000 in Denmark.
- Global income: DKK 1,200,000.
- Total Danish tax: 50% of DKK 1,200,000 = DKK 600,000.
Under the exemption method, you do not pay Danish tax on the portion corresponding to the German income (DKK 1,000,000), which in this example reduces Danish tax by DKK 500,000. The German income still counts for determining your tax progression, so you are taxed in Denmark as if earning DKK 1,200,000, but only proportionally on the Danish portion.
Important considerations
It is not always straightforward to determine whether the assignment rules apply. Many choose to seek a binding ruling from the Danish Tax Authority to clarify whether Danish tax applies to a particular income.
Contact us if you need guidance on tax issues related to international assignments or alternative solutions.