US Expat Taxes for Americans Living in Denmark – What You Need to Know
It has been estimated that there are several thousand Americans living in Denmark.
Living in Denmark is an incredible experience for a number of reasons, including the friendly locals, the high-quality public services, the hygge, the culture, not to mention easy access to the rest of Europe. As an American expatriate living in Denmark though, what exactly do you need to know regarding filing US expat (and Danish) taxes?
All US citizens and green card holders who earn a minimum of around $10,000 (or just $400 for self-employed individuals) anywhere in the world are required to file a US federal tax return and pay taxes to the IRS, regardless of where in the world they live or their income is generated.
The good news is if you are paying income tax in Denmark, there are various exclusions and exemptions available to prevent you paying tax on the same income to the IRS too.
US taxes – what you need to know
If you earn over US$10,000 (or just $400 of self-employment income), wherever the income originates in the world you have to file IRS form 1040. While any US taxes due are still due by April 15th, expats get an automatic filing extension until June 15th, which can be extended further on request until October 15th.
If you have overseas assets worth over US$200,000 per person, excluding your home if it is owned in your own name, you also have to file form 8938 to declare them.
If you had a total of at least US$10,000 in one or more foreign bank and/or investment accounts at any time during the tax year, you also have to file FinCEN form 114, otherwise known as a Foreign Bank Account Report or FBAR.
“An individual who has a home in Denmark, or who stays in Denmark for at least six consecutive months, is considered a resident in Denmark for tax purposes.”
If you pay income tax in Denmark, there are several exemptions that allow you to pay less or no US income tax on the same income to the IRS. The main one is the Foreign Earned Income Exclusion, which lets you exclude the first around US$100,000 of foreign earned income from US tax if you can prove that you are a Danish resident, and the Foreign Tax Credit, which gives you a $1 tax credit for every dollar of tax you’ve paid in Denmark. These exemptions can be combined if necessary. Remember though that even if you don’t owe any tax to the IRS, if your income is over US$10,000 (or $400 if you’re self-employed) you still have to file a federal return.
The US and Danish governments share taxpayer info, and Danish banks pass on US account holders’ account info to the IRS, so it’s not worth not filing or omitting anything on your return. The penalties for incorrect or incomplete filing for expats are steep to say the least.
If you’re a US citizen, green card holder, or US/Danish dual citizen, and you have been living in Denmark but you didn’t know you had to file a US tax return, don’t worry: there’s a program called the IRS Streamlined Procedure that allows you to catch up on your filing without paying any penalties. Don’t delay though, in case the IRS comes to you first.
Danish taxes – what you need to know
Danish residents are taxed on their worldwide income. Personal income taxes include national and local taxes, plus a labor market tax. While local rates vary, residents are typically taxed a total of between 12.14% and 55.89% of their income.
Denmark has an expatriate scheme however which allows expatriates employed in Denmark and earning over around $9,000 a month to pay a flat 27% income tax for up to 7 years.
Foreigners living in Denmark are considered a resident for tax purposes if their home is in Denmark, or if they spend a period of 6 months in a year in Denmark. It doesn’t matter if you travel abroad during this 6 month period.
The Danish tax year is the same as the US, which is to say the calendar year. Tax returns are due by May 1st for those whose tax situation differs from a pre-printed tax statement that they may receive from the Danish tax authority, or otherwise by July 1st. The Danish tax authority is called the Skatteministeriet.
We strongly recommend that if you have any doubts or questions about your tax situation as a US expat living in Denmark that you contact a US expat tax specialist.