Given the boost in work from home triggered by the COVID-19 pandemic, foreign companies who have employees working from their home in Denmark should consider the consequences of such an arrangement from a Danish tax perspective.
Several Danish court decisions have ruled that a home office can constitute a permanent establishment in Denmark for a foreign employer company. This conclusion relies not only on domestic Danish tax legislation but also on the relevant tax treaties. Therefore, foreign companies that allow employees to work from their home office in Denmark should consider if this will trigger any Danish tax liabilities.
If a home office constitutes a permanent establishment company must register for corporate tax in Denmark from the first day of business. This means that a Danish tax return must be prepared and submitted in a timely manner. Moreover, the permanent establishment must be incorporated in the company’s existing transfer pricing policy regarding income and cost allocation. The permanent establishment must withhold wage taxes on salary paid to their employees working in Denmark. Finally, the permanent establishment must register for and contribute to Danish social security.
Whether a work-from-home situation will create a permanent establishment in Denmark depends on the specific facts and circumstances. However, given Danish case law and decisions of the Danish tax tribunal, foreign companies should take into account the potential tax consequences before agreeing to such an arrangement.
Tanja Stocholm
BDO in Denmark