Global Daily Tax News, Danish Tax Reforms Lauded By IMF, (Jun 21, 2024)

The International Monetary Fund has praised recent tax reforms implemented or announced by Danish authorities.

In its annual report for the territory, the IMF said the new property tax system, which went into effect in January 2024, will help improve the stability of housing markets. However, it said the high tax deductibility of mortgage interest expense should also be reduced.

It said the implementation of the proposed personal income tax reform would be "a step in the right direction to enhance work incentives". The Government has proposed to provide a 7.5 percentage point reduction to the top tax rate for incomes (before labor market contribution) up to DKK750,000 (2023 level), while at the same time increasing the top tax rate by five percentage points for incomes (before labor market contribution) over DKK2.5m (2023 level).

In addition, the legislation increases the employment deduction and the additional employment deduction for single parents and introduces an additional employment deduction for employed seniors who have two years or fewer until retirement age.

On environmental taxation, the IMF said it is vital for Danish lawmakers to reach political consensus on implementing carbon taxation on agriculture early, given the agriculture sector's significant contribution to total greenhouse gas emissions.

Finally, the IMF welcomed the Government's new strategy for entrepreneurship. The IMF said this initiative should support startups by improving their access to capital, lowering taxes, and easing the regulatory burden. Building on this, the authorities should consider further enhancing R&D tax incentives, it recommended.

Danish authorities have proposed numerous measures to support start-ups. For instance, for companies that are not listed, it is proposed that dividends paid to shareholders should become taxable only when the underlying shares are sold.

A hike is proposed to the threshold for the 42-percent rate of tax on income from shares to income exceeding DKK80,000 (USD11,500), up from DK61,000, with the 27-percent rate applying below this threshold.

The Government is also proposing more flexible rules for initial public offerings; an increase to the maximum deduction for carried forward losses to DKK20m, up from DKK9.5m; and eased rules for shareholder loans and income tax-privileged employee share schemes.

Changes are also proposed to the special scheme for researchers and highly skilled personnel relocating to Denmark for work, which enables taxation at a fixed rate of 32.84 percent for seven years. Under the proposals, individuals with a salary of at least DKK60,000 per month will be eligible, down from DKK75,100 currently.

Finally, the Government has proposed raising the ceiling on research and development tax credits to DKK35m, up from DKK25m.