On the 1st of September 2020, the updated Danish Holiday Act entered into force. As of this day, employees are able to spend the holiday simultaneously with the earning hereof, contrary to the holiday system as we knew it, according to which the earning period and the spending period was displaced.

 

Payment of frozen holiday
As part of the transition period to this new holiday system, the economic value of the earned holiday in the period from 1st September 2019 to 31st August 2020 (equivalent to 25 days or five (5) weeks) has been frozen with the Danish Holiday Fund. The intention was for those money to be transferred to the employees at the time of retirement, but as part of Denmark’s measures to save the Danish economy during the Covid-19 pandemic, it has been decided that three (3) of the five (5) weeks can be paid out in October 2020 upon request.

 

Tax effect
The pay-out is taxable, similarly to salary payments and the level of taxation depends on the specific situation for each individual, but is in general progressive.

For individuals considered fully or limited liable to pay taxes to Denmark, taxes will be withheld at source based on the tax card. If no tax card is available due to no present preliminary tax assessment, a tax rate of 55% (+ 8% labour market contribution (“AM-bidrag”)) will apply. The final tax rate will only be available once the year-end statement has been issued.

However, certain groups of individuals are not normally withheld based on the tax card. Examples on such are:

• The Danish Expat Tax Regime/§ 48E-regime (“Forskerskatteordningen”) – 27% taxes + 8% labour market contribution (“AM-bidrag”)
• Hydrocarbon Tax Regime (”Kulbrinteskattepligt”) – 30% taxes + 8% labour market contribution (“AM-bidrag”)
• Hiring out of labour (“Arbejdsudleje”) – 30% taxes + 8% labour market contribution (“AM-bidrag”)
• Seafarers Tax Regime (”Sømandsbeskatning”) – 30% taxes + 8% labour market contribution (“AM-bidrag”)
• DIS-taxation – exempt of Danish tax withholding

 

Considerations
If you or your employee is currently covered by Danish holiday along with being taxed based on some of these regimes it is relevant to consider if
1) the frozen holiday shall be requested for pre-payment or kept until retirement
2) update of the preliminary tax assessment to reflect the additional income
3) how the additional income will impact you if you have any tax liability to another country than Denmark

 

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