More frozen holiday money are now pre-payable

Introduction

On March 16th 2021 the Danish parliament passed bill L164 which means that it will soon be possible to claim the frozen holiday funds accrued in the period 1st September 2019 – 30th August 2020.

The bill aims to release the remaining two (out of five) weeks of holiday as it was possible to claim the initial three weeks during autumn 2020. If the initial three weeks were not claimed during autumn, it will be possible to claim all five weeks now. In other words, if the claim is requested, the total amount reminaing will be paid out – regardless of it being two or five weeks. Any remaining funds in the system will be kept until one of the events for payout happens. If all holiday funds are claimed, the individual also voids any profit generated going forward.

The system for claim and payout is currently being finalized and will according to schedule be available by end of March 2021.

Taxation

In regards to taxation of the payout, this has been specifically outlined in the comments for the legislation.

As a main pricinple, the payout is ordinary taxable income (personal income taxation). In other words, the payouts are treated as A-income as well as being subject to Labour Market Contribution.

Special taxation

In some cases the taxation of the prepayment will be affected by the tax position of the individual.

Tax Assessment Act § 33 A (“Ligningslovens § 33 A”)

If the payout happens while the individual is comprised by Ligningslovens § 33 A, the payout will be comprised Ligningsloven § 33 A (exemption relief). This is regardless if the funds were accrued during a period in which the individual was comprised by Ligningslovens § 33 A or not. In other words, it is the situation upon payout that is the deciding factor for the taxable treatment.

Double tax treaties

If the payout relates to an accrual period during which the taxation was exempt in accordance to a double tax treaty, the payout will enjoy a similar exemption. In this case, it is the treatement of the salary in the accrual period, which is the deciding factor.

Already taxed contributions

If the funds were taxed upon accrual, there will not be tax liability upon payout.

Seafarers comprised by DIS

DIS income is techncally already taxed during the accrual period, which means that these payouts will not be taxable upon payout.

Inbound expat regime

If the holiday accrual happened while the individual was comprised and taxed under the inbound expat regime, the payouts will also be taxed under the expat regime under the condition that the individual is still comprised and taxed under the expat regime when payment happens.

Change of tax status?

If the tax status of an individual changes shortly after the application of the funds, long process time can result in a payout during a different status. It is possible for the individual to request that the tax treatement must follow the time of request rather than the time of payment – such request must be filed no later than 1st July 2021. This only applies in cases where the payout has taken more than 14 days to process.

 

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