Danish tax return 2006

Transcription

1 Danish tax return

2 The purpose of this meeting To give you advice and training on how to fill in a Danish tax return for

3 Agenda Setting the stage Your Danish tax and social security status Global taxation principles Brief introduction to the Danish tax system When and where to submit your tax return What and how to declare on the tax return How to calculate any outstanding tax liability How to make a voluntary payment of taxes to save interest 3

4 Scope of the meeting This is the first year a meeting like this is held for the expats This is a general meeting during which we will teach you some of the basics for filling in a Danish tax return. We will not: fill in your tax returns individually be able to offer you individual advice, questions are welcome of course! 4

5 Scope of the meeting (Assumptions) This slideshow is based on the following assumptions: You are employed on a permanent contract by Microsoft Denmark, i.e. a Danish employer You arrived to Denmark during 2005 or prior years 5

6 Your tax and social security status The basics about determining your Danish tax and social security status 6

7 Your tax and social security status (The applicable rules to consider) Liability to Danish taxation The internal Danish tax rules The applicable double tax treaty between Denmark and your home country Liability to Danish social security contributions The internal Danish social security rules The EU social security convention and bilateral treaties 7

8 Your tax and social security status (internal tax rules) When you live and work in Denmark, you are liable to Danish taxation as a a resident. Taxation as a resident, means that you are subject to Danish taxation on your global income. The taxation as a resident starts the day you arrived to Denmark, and will continue until you leave Denmark, and no longer has a residence available in Denmark. 8

9 Your tax and social security status (the double tax treaties) If you have a residence available (i.e. not rented out) outside Denmark, you may be liable to taxation as a resident in more than one country In this case we must apply the applicable double tax treaty to determine your treaty country of residence. You can only have one treaty country of residence 1/ To which country do you have the closest connection Close family, i.e. wife and children Employment Other financial ties, e.g. bank, insurance etc. 2/ In which country do you spend most time 9

10 Your tax and social security status (conclusion) As a main rule you are treaty resident in Denmark, since you live and work in Denmark for a period of more than one year. -- > The rest of the slides are based on this filing position. 10

11 Your tax and social security status (this means ) Denmark will tax you on your global income You must declare your global income in Denmark Other countries ( source ( countries ) ) may tax you on income from that country, if allowed by the applicable treaty (for instance the US/Denmark tax treaty). = Double taxation situation 11

12 Your tax and social security status (how to resolve a double taxation situation credit relief) The source country may tax you on income from that country Taxation according to the internal rules of the source country. Denmark will tax you on your global income, e.g. including the income taxed in the source country Denmark must grant you a credit in your Danish taxes for taxes paid in the source country. In most cases the credit relief cannot exceed the Danish tax on the same income. 12

13 Your tax and social security status (how to resolve a double taxation situation exemption relief) The source country may tax you on income from that country Taxation according to the internal rules of the source country. In Denmark you must declare your global income, e.g. including the income taxed in the source country In the Danish tax calculation, however, the foreign income is not included (= No Danish taxation on the foreign income) The foreign income may increase the Danish tax on other income. 13

14 Your tax and social security status (global taxation) Credit relief is the normal way to avoid double taxation. 14

15 Your tax and social security status (The Danish / US tax treaty) Income type Who can tax? Credit in DK? Dividend from US company Interest income from US sources Rental income from property located in US Work performed in Denmark for MDCC Both. US only up to 15% Only Denmark Both Only Denmark Yes No Yes No Work performed in US during short business trips for MDCC Only Denmark (up to 183 days during 12 months) No 15

16 Your tax and social security status (US citizens and green card holders) US citizens and green card holders are taxable in USA according to US internal rules. A special provision of the treaty between Denmark and USA USA is allowed to tax US citizens and green card holders, as if the treaty did not exist. USA must grant a credit for Danish taxes. Please consult your US tax advisor regarding your US tax filing status and tax return. 16

17 Your tax and social security status (Danish social security) You are liable to Danish social security contributions, when you are working for a Danish employer. AM contribution = 8% of your gross salary ATP contribution = a small fixed monthly amount of DKK (employee contribution) (employer contribution) Both contributions are withheld by Microsoft on the pay slip 17

18 Your tax and social security status (Danish social security the EU convention) You are hired locally by MDCC. You therefore cannot remain on your home country social security scheme under the EU convention 18

19 Your tax and social security status (Danish social security) You should not declare the Danish social security contributions on your tax return. It has already been deducted from the taxable income reported by Microsoft to the Danish tax authorities. 19

20 Brief introduction to the Danish tax system 20

21 The Danish tax system (which taxes to pay) The different Danish income taxes to pay (2006) Municipal tax (approx. 24 %) Regional tax (8%) Church tax (approx. 0.7%) Basic state tax (5.48%) Medium state tax (6% on income > DKK 265,500 per year) High state tax (15% on income > DKK 318,700 per year) Other Danish taxes Property value tax (1% / 3% of property value) Share income tax (28% / 43%) 21

22 The Danish tax system (the progressional tax system) Denmark has a progressional tax system 70% 60% 50% 40% 30% 20% 10% 0% 0-39,500 39, , , ,700 > 318,700 22

23 The Danish tax system Tax year = calendar year (Jan 1 Dec 31) Pre-assessment: Before the start of the year you received a pre- assessment with a tax card. Withholding during the year: During the year Microsoft has withheld Danish taxes based on your tax card. Tax return: After the end of year, you must submit your tax return rn and declare your actual income for the year Tax assessment: The tax authorities final calculation of your liability 23

24 The Danish tax return The practical side 24

25 The tax return You may need to fill in more than one form Tax return for Danish income ( Udvidet ( selvangivelse ) Tax return for foreign income ( Udenlandsk ( indkomst ) Tax return for foreign business income Danish property Foreign property Rental income 25

26 The tax return (deadline for the tax return) Your 2006 tax return is due 2 July Note: If you have received a pre-filled tax return (1 page only) the deadline is 1 May

27 The tax return (Where to submit your tax return) If you live in the Copenhagen municipality: SKAT Sluseholmen 8B 2450 København K SV If you live in north Sealand: SKAT Rundforbivej Nærum N 27

28 The tax return (Typical income to declare) Income Salary, cash allowances, non-approved pension schemes and bonus Taxable benefits-in in-kind, e.g. free phone Interest income and expenses Deductions Commuter allowance Employee deduction Travel expenses Property Rental income Property value 28

29 The tax return (Filling in the tax return for Danish income) Your name and address Your CPR-number Your spouse s CPR-number 29

30 Salary, cash allowances, non-approved Danish pension schemes and bonus (What) Salary, cash allowances and bonus is taxable income subject to social security contributions. Microsoft has already declared the salary, cash allowances and bonus to the Danish tax authorities, but you must also declare it on your tax return. You can find the total amount of salary, cash allowance and bonus on the bottom of your December 2006 pay slip from Microsoft. 30

31 Salary, cash allowances, non-approved Danish pension schemes and bonus (from Microsoft Denmark how & where) The amount of income taxes withheld by Microsoft. Should not be declared on the tax return. 31

32 Salary, cash allowances, non-approved Danish pension schemes and bonus (What special regarding 25%-tax scheme) If you are subject to the special Danish 25%-tax scheme, you should not declare your salary, cash allowances or bonus from Microsoft Denmark on your tax return. Other income, for instance non-cash income from MDCC, or non-mdcc income should be declared on your tax return. 32

33 Taxable benefits-in-kind (What) The taxable value of company free phone is DKK 3,000 per year (DKK 250 per month). You are taxed at this fixed amount irrespective of your use of the phone You can deduct private expenses for phone in your residence from the taxable value of company phone. Company paid internet (ADSL) is not taxed separately, but is included in the above mentioned taxable value of company free phone. 33

34 Taxable benefits-in-kind (from Microsoft how & where) Fixed value 3,000 - private expenses Value for tax return 34

35 Danish interest income and expenses (What) Interest income from Danish banks are taxable capital income and must be declared. Interest expenses from Danish banks are tax deductible and must be declared. You must declare the Danish interest on the Udvidet selvangivelse. 35

36 Danish interest income (how & where) Interest income from Danish bank accounts. 36

37 Danish interest expenses (how & where) Interest expenses from Danish bank accounts. 37

38 Deductions (what - commuter allowance) If your commute is more than 24 km per day (12 km each way) you can claim a commuter allowance. The allowance per days is: 0-24 km DKK 0 per km between 0 and 24 km km DKK 1.78 per km between 25 and 100 km km DKK 0.89 per km above 100 km Example: if your daily commute is 50 km, your deduction per workday is DKK

39 Deductions (what - travel expenses) We assume that you get your travel expenses (transportation, hotel and meals) paid by Microsoft, when you are on a business trip. You can, however, still claim a deduction for other necessities Each travel must last at least 24 hours, and your destination must be at least 150 km away from your Danish residence. The deduction for other necessities is DKK per 24 hours (DKK 4.34 for additional travel hours). You must deduct DKK 5,100 from the amount before you declare it on the tax return. I.e. you must have traveled at least 49 full days during the year, before you can claim any deduction on your tax return. 39

40 Deductions (what - travel expenses - continued) You cannot claim a travel expense deduction for working in Vedbæk. You are not on a business travel, when working in Vedbæk not even if you have maintained your home in your home country. 40

41 Deductions (what employee deduction) You get a employee deduction of 2.5% of your income subject to Danish social security contributions. The employee deduction cannot exceed DKK 7,300 The deduction is calculated automatically by the Danish tax authorities, and you should not declare it on your tax return. 41

42 Deductions (how & where) Commuter allowance Travel expenses 42

43 Filling in the tax return for foreign income Country 43

44 Foreign interest income (how & where) Interest income from Foreign bank accounts. 44

45 Foreign interest income (how & where - continued) Foreign tax paid on interest income from Foreign bank accounts. Note that for most countries, no credit will apply as only Denmark may tax interest income. 45

46 Foreign interest expenses (how & where) Interest expenses from Foreign bank accounts. 46

47 Share based incentive plans 47

48 Microsoft s share based incentives Type of plans ESPP, Stock Awards and Microsoft Stock Options Taxation General rules: ESPP: salary tax of discount at purchase of shares Stock awards: salary tax of market value of shares at vesting date Stock Options salary tax in the year of exercise of the difference between the exercise price and the FMV of the Microsoft share Payroll will in most cases have reported the taxable benefit to the Danish tax authorities, and the amount should appear in space 12 48

49 Microsoft s share based incentives Stock Awards, ESPP and Stock Options granted prior to arrival: The tax treatment follows the rules above, but there may be a possibility to elect 7H taxation. Stock Awards, ESPP and Stock Options granted and vested prior to arrival: No salary income taxation occurs An entrance value is established based on FMV when you become Danish tax resident Capital gains taxation if you have sold shares during

50 Microsoft s share based incentives What is 7H? Danish tax implications of electing 7H: Taxation is deferred until sale of the share and the tax rates are a reduced from salary level (marginal 63 %) to capital gains rates (28% or 43%) Which programs may be covered? Stock Options granted and vested after setting up Danish tax res Stock Options granted and vested after setting up Danish tax residency under certain conditions ESPP (participation after arrival): discount at purchase date max x 15% Stock awards : Value of the total shares at grant cannot exceed 10% of annual salary s in year of grant Exceeding value is taxed as salary in year of vesting (the taxable value is reported by Microsoft in the annual salary statement in the year of vesting) 50

51 Microsoft s share based incentives Gains: Gains on listed shares are taxed as share income with 28% of the first DKK 44,300/86,600 (2006 threshold) and with 43% of any exceeding gain. The gain or loss should be reported in space 63 if shares in foreign companies. Gains or Loss derived from shares in Danish companies are to be included in space 61 Loss: Loss on listed shares can be deducted against gains from other listed shares that are sold where the gain is taxable, or dividend income from listed shares. Dividends : Taxed as share income with the same tax rates. 51

52 Microsoft s share based incentives When you sell Microsoft shares purchased prior to 1 January 2006, the gain at sale may be tax exempt under certain conditions: - if the fair market value of your total portfolio of quoted shares (not only Microsoft shares) at 31 DKK 136,600 or DKK at 31 December 2005 did not exceed 136,600 or DKK 273,100 for married couples - and the shares have been owned for three years or more at the time of sale. In order to determine which share you are considered to have sold for Danish tax purposes and in order to determine the length of the ownership, the FIFO principle applies 52

53 Microsoft s share based incentives Shares acquired under ESPP are acquired at the actual purchase date (end of savings period) Shares acquired under the stock award program is acquired at vesting Shares acquired under Microsoft stock option program are acquired at exercise 53

54 Microsoft s share based incentives Shares are sold according to the so-called FIFO principle (First In First Out) Example: 100 shares are purchased under the ESPP in March Microsoft Vesting Stock Awards vest in August shares are purchased under the ESPP in December December shares are sold and in January shares are sold. At the sale in December 2005 the 100 shares purchased in March via ESPP are sold along with 400 of the shares acquired via Vesting Stock Award program. In January shares from Vesting Stock Awards are sold along with 100 shares from the ESPP savings. 54

55 Microsoft s share based incentives When the shares are sold, as a main rule the purchase price is calculated c through the so-called average method ( gennemsnitsmetoden ( gennemsnitsmetoden ) The purchase price is: ESPP shares: FMV of the shares at purchase Stock award: FMV at vesting (or the FMV at the arrival date) Stock Options: FMV at exercise (or the FMV at the arrival date) If 7H is elected the purchase price is: ESPP shares: the actual purchase price Stock award: DKK 0 Stock Options: The purchase price Stock Options: The purchase price Example of the average method Example of the average method: 1 share is purchased for share is purchased for 150 At the sale the average purchase price is

56 Microsoft s share based incentives If you hold certificates in foreign mutual fonds,, in general such certificates will be subject to: taxation according to an accrual principle based on the FMV value in the beginning and the end of the income year the value is taxed as capital income with marginally 59 % the taxable value determined in 2006 will in most cases be subject to taxation in

57 Foreign non-approved pension schemes (how & where) Capital gain (dividend and interest) from foreign non-approved pension schemes set up after 18 February The taxable capital gain includes reinvested capital gain. 57

58 Taxation of real property Taxation of rental income 58

59 Taxation of real property If you rent out your foreign property, you are liable to pay Danish income tax on the rental income. You must declare your rental income and expenses related to the rent on the tax return for foreign business income. Only expenses directly related to the rental period can be deducted, for instance property tax etc. Renovation cost is generally not deductible. 59

60 Taxation of real property (Rental income) Rental income - Expenses related to rental income Profit before interest expenses - Interest expenses Profit after interest expenses 60

61 Taxation of real property (Rental income) 61

62 Taxation of real property (Rental income) Tax return for foreign business income. Profit before interest Net Interest 62

63 Taxation of real property (Rental income) Market value 31 December 2006 of the property Debt owed (mortgage) on the property 31 December 2006 Foreign taxes paid on the rental income 63

64 Taxation of real property (Rental income capital gain due to currency exchange changes) If you have a mortgage in a foreign currency, an decrease in the currency exchange rate will mean that you owe less away in DKK. This decrease in the amount owed is taxable income, if it exceeds DKK 1,000. The exchange rate at entry to Denmark or at the time the amount was borrowed is used as the basis for the calculation. The taxable event is each repayment on the loan Example: USD DKK You borrowed USD 100,000 before you arrived to Denmark. When you arrived, the exchange rate USD/DKK were 780 You pay back (part of) the mortgage at an exchange rate of 560. The difference between 780 and 560 is taxable. 64

65 Taxation of real property (Rental income capital gain due to currency exchange changes) kursgevinst The taxable capital gain due to currency exchange rates 65

66 Taxation of real property (Rental income selecting a tax scheme) In general there are 3 schemes for taxation of profit from rental income Ordinary taxation: Profit is taxed at up to 59%, interest expenses are deductible at approximately 32% Kapitalafkastordning Kapitalafkastordning : : Profit is taxed at up to 59%, interest expenses are deductible at up to 59%. Virksomhedsskateordning Virksomhedsskateordning : : Same as kapitalafkastordning kapitalafkastordning,, but with the possibility to postpone some of the taxation. Strict requirements for bookkeeping and separation of finances. 66

67 Taxation of real property (Rental income selecting a tax scheme) By checking this box on the ordinary tax return, you select the kapitalafkastordning 67

68 Taxation of real property (Rental income) You must specify the original purchase price of the house * 4% in this space, if you intend to utilize the special kapitalafkast scheme for business income. For example for a house purchased for DKK 2,000,000 you would put DKK 80,000 in the space. 68

69 Taxation of real property Property value tax 69

70 Taxation of real property (Property value tax) If you do not rent out your foreign property, you are liable to pay Danish property value tax The Danish property value tax is based on the market value of the property The basis for the calculation is the lower value of: Market value 1 January 2001 Market value 1 January 2006 (the tax year) Market value up to DKK 3,040,000 is taxed at 1% Market value in excess of DKK 3,040,000 is taxed at 3% If purchased before 1 July 1998: 0.4% reduction (up to DKK 1,200) of the property value tax 0.2% reduction (no limit) of the property value tax 70

71 Taxation of real property (Property value tax) If you pay property value tax in the country in which your property is located, you may be able to ask for a credit in the Danish property value tax. The foreign property value tax must resemble the Danish property value tax, i.e. it must be calculated on the market value of the property. KPMG USA have informed us that the US property value taxes does resemble the Danish property value taxes. You must submit documentation for the amount paid in foreign property value tax. 71

72 Taxation of real property (Property value tax) Danish property Foreign property 72

73 Taxation of real property (Property value tax) CPR-number 73

74 Taxation of real property (Property value tax) 74

75 How to calculate your taxes You can calculate your taxes online using the tax authorities Tast-Selv system. Go to The calculation system is in Danish and does not include all income types. 75

76 Payment of taxes If your pre-assessment for 2006 has been incorrect, you may have outstanding taxes to pay You can make a voluntary payment of up to DKK 40,000 before 1 July By making a voluntary payment you save interest on the amount you pay. If your outstanding taxes is more than DKK 40,000, or if you do not make a voluntary payment, you will be charged 7% interest by the Danish tax authorities The remaining outstanding tax liability (after any voluntary payment) is payable in installments after you receive your tax assessment from the Danish tax authorities. 76

77 Payment of taxes (how to make a voluntary payment) The voluntary payment can be made to the following bank account: Recipient: Danish tax authorities Sort code: 3100 Account no.: IBAN no.: DK SWIFT code: DABADKKK You must must state your CPR-number and the income year ( ) ) in the message to the recipient when making the payment. 77

78 Contact: Anja Bech Senior Tax Manager Contact: Jesper Arnø Tax Manager The information contained herein [or insert the title of the presentation, report, or talkbook] is of a general nature and is not intended to address the circumstances of any particular individual or entity. Although we endeavor to provide accurate and timely information, there can be no guarantee that such information is accurate as of the date it is received or that it will continue to be accurate in the future. No one should act on such information without appropriate professional advice after a thorough examination of the particular situation. 78