13 Mar 2020
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COVID-19 consequences on Tax, Social Security and Immigration

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EY Denmark

Multidisciplinary professional services organization.

13 Mar 2020
Related topics Tax

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The Corona-virus measures taken by the Danish government and governments around the world have and will continue to change where people stay and work. 

Exactly these two things are very decisive when it comes to taxation, social security memberships and payments just as immigration possibilities are heavily affected.

Taxation

From an employer and employee tax point of view the tax burden and consequently the employer tax compensation cost may be affected in a number of ways such as:

  • The employee can create a corporate permanent establishment by working at home if the home is not in the employer home country.
  • A permanent establishment in  a country leads to a individual taxation requirement as of the first day of work in the country. This may imply obligations for both the employer and employee.
  • A stay of more than 6 months and/or 183 days in a home country will also often lead to a individual taxation requirement in the home country.
  • The Danish 27% expat taxation can be effected in several ways:
    • Employees who are fully tax liable to Denmark and tax treaty resident in Denmark lose the expat taxation if the salary is taxed in another country for a period of more than 30 days.
    • Employees who are limited tax liable to Denmark must work 1-2 days per month in Denmark in order to remain covered by the expat taxation. If the employee step out of the expat taxation he/she may be able to step in to the scheme again when having work days in Denmark again.
    • A forced vacation period without pay may result in the minimum salary requirement not being met unless the yearly salary in average fulfill the salary requirement (note that this will also affect any non-EU nationals working in Denmark under the Pay Limit scheme if the minimum salary requirement is not met at all times).
  • Danish “Ligningslovens § 33A” sets out a maximum stay in Denmark of 42 days within any 6-month period in order to be exempted from Danish (full or half) taxation upon salary for work performed outside Denmark. If the 42-day period is exceeded the exemption does not apply and instead only a credit for foreign taxes may be applicable. In any case the salary for the work performed in Denmark is subject to Danish taxation.
  • The possibility of using “Ligningslovens § 33A” will also be lost if the employee performs work in Denmark which is not strictly connected to the work he/she should have performed abroad.
  • The “Øresund” treaty between Denmark and Sweden operates with a minimum work period of 50% (within a 3 month period) in the employer home country in order to maintain taxation of the full salary in the employer home country. This is also applicable when covered by the expat taxation.
  • The residency for tax treaty purposes may shift to Denmark if employees and their family have a home available in Denmark and stay there for a certain period of time.

Social security

The social security membership in a country also rests on the stay in the country in question. Thus the employee and employer social security contributions may change and lead to an increase in costs such as:

  • For multi-state workers EU/EAA country social security rules are based on the general rule that home country social security and charges are applicable if 25% ore more of the working time is spent in the home country. The social security charges in a home country outside Denmark can easily be up to 30-40% of the renumeration package.
  • The “Øresund” treaty between Denmark and Sweden operates with a minimum work period of 50% (within a 3 month period) in the employer home country. If this is not adhered to, the social security contributions will go to the employee home country. I.e. Swedish social security charges will apply if an employee living in Sweden employed by a Danish employer spends less than 50% of the working time in Denmark. Note that the Swedish employer contributions may be more than 30%.

Immigration

From an immigration perspective, non-EU nationals are not allowed to work in Denmark to the benefit of a Danish company unless a Danish work and residence permit is in place first.

  • Since the Danish immigration authorities closed down their offices yesterday, 12th of March - initially until 27th of March (both days included) - as a consequence of the government’s COVID-19 measures, this effectively means that non-EU nationals hired as employees to work in a Danish Fast Track-certified company, planning to travel to Denmark and obtain a provisional work permit to start working asap by appearing in person at the offices of the authorities, are not able to do so until after 27th of March (or later, if the period is extended). This may very well affect the start date of the employee in Denmark.
  • Since many employees and Danish companies rely on the provisional work permit procedure to ensure a fast work start it should be ensured quickly that employees to come to Denmark complete the required biometrics process outside of Denmark to allow the Danish immigration authorities to start processing the application. As this procedure is, however, much longer than obtaining a provisional work permit, the start date of the employee may have to be postponed with up to 30 days. Since such a delay may very well also affect the tax status of the employee in question (e.g. in relation to the expat taxation scheme referred to above), we urge Danish employers to coordinate both tax and immigration asap and reach out to EY for advice, where relevant.
  • Note that employees who are either visa exempt to enter Denmark or have a valid Schengen visa are free to travel to Denmark (provided that they do not enter Denmark from any prohibited areas, of course) and await that their work permit is granted after having completed the biometrics process abroad, but it is vital that any activities that constitute work (meaning that they contribute to the Danish company’s output in any way) are not carried until the work permit is granted just as the employee in question cannot receive any salary from the Danish company until the work permit is in place.

Please contact EY's People Advisory Services in case of any questions.

Morten S. Dalsgaard, Partner, tel. +45 5158 2771
Bettina Fristed, Associate Partner, tel. +45 7323 4579
Mona Lorentsen, Director, tel. +45 2529 4508
Søren Erenbjerg, Director, tel. +45 3038 0422
Rikke Wolfsen, Immigration Lead, tel. +45 2529 3158

Summary

The Corona-virus measures taken by the Danish government and governments around the world have and will continue to change where people stay and work. Exactly these two things are very decisive when it comes to taxation, social security memberships and payments just as immigration possibilities are heavily affected. 

About this article

By

EY Denmark

Multidisciplinary professional services organization.

Related topics Tax