Living in Germany and Working in Denmark

If cross-border commuters live in Germany but receive additional income from Denmark besides their Danish salary — for example from a holiday home — this income is generally taxed in Denmark.

For cross-border commuters, however, the taxation of employment income is a particularly important issue. Danish employment income is generally taxed at the higher Danish tax rates. Nevertheless, each individual situation must be analyzed separately, as tax outcomes can vary depending on the specific circumstances.

On this page you will find some initial information to give you a general overview. If you have further questions, please contact us by email or phone.

Employment Income from Denmark with Residence in Germany: In principle, the higher Danish tax rate applies 

Employees who live in Germany and work in Denmark generally pay tax on their full salary in Denmark. Cross-border commuters quickly notice the difference between the tax systems in Germany and Denmark. With the same income level, the tax burden is often lower in Germany.

But what does “taxed in full” mean? Similar to German payroll, Danish salaries are also subject to various deductions. Denmark also has different tax classifications, which the employee must inform the employer about so that the correct tax rate is applied. If incorrect information is used, the consequences usually become visible in the next Danish tax return, where either a large additional payment or a refund may occur.

In Denmark, the tax return is completed online via SKAT. Various factors are considered, such as commuting distance between home and workplace, tax-free allowances, and many other items. Unlike Germany, employees in Denmark are generally required to file a tax return every year.

Cross-Border Commuters Working from Home

If a cross-border commuter works partly from home, the double taxation agreement between Germany and Denmark must be taken into account. According to this agreement, the right to tax employment income belongs to the country of residence if the work is physically performed there.

This means that if a German commuter who normally works in Denmark performs part of their work from a home office in Germany, a portion of the salary must be taxed in Germany. As a result, the employee must file tax returns in both countries, since the salary is now taxed in two jurisdictions.

For example, if 20% of the work is performed in Germany, then 20% of the salary is subject to German taxation. This portion must be declared in the German tax return and excluded from taxation in Denmark.

If the employee works 25% or more in the country of residence, additional rules apply. In this case, the Danish employer must register in Germany for social security purposes, because the employee’s salary becomes fully subject to social security contributions. Under this scenario: 60% of the salary is taxed in Denmark and 40% is taxed in Germany. The Danish employer should apply for a partial tax exemption through SKAT. If the employer does not do so, the employee must arrange the exemption themselves. With a typical five-day workweek, this threshold can already be exceeded if the employee works two days per week from home.

During the COVID-19 pandemic, however, European social security authorities temporarily suspended this rule for social security purposes.

Shifting Income to Germany?

Under the German–Danish double taxation agreement, the portion of salary earned outside Denmark by a German resident working for a Danish employer may be taxed in Germany. This includes: Business trips to Germany, Sweden, or other countries; or work performed from a home office in Germany. It is important that such working days outside Denmark are properly documented.

The portion of salary taxable in Germany must also be reported to the tax authorities in both countries. If Denmark waives its taxation rights and Germany applies its often lower tax rates, this can have a positive effect on the employee’s net income.

One reason is that social security contributions in Denmark are already included in the Danish tax rate. If the employee is not subject to German social security, only income tax and possibly church tax are payable in Germany.

Additional tax savings can often arise because Germany offers more possibilities to deduct job-related expenses, such as double household expenses, home office expenses. Further deductions may include medical expenses, donations, household services or craftsmen services, childcare costs.

However, if too large a portion of the work is performed outside Denmark, this may affect social security obligations in both countries, and the consequences must be examined individually.

The Impact of Foreign Income on the German Tax Rate

If someone moves to Germany or leaves Germany during the year or earns income in both countries during the same year, the German tax rate is determined based on total worldwide income. This can have significant consequences.

For example, a person living in Germany earning €10,000 annually would normally face a tax rate of around 2.5%, resulting in €250 in tax. However, if the same person also earns €120,000 in Denmark, the German tax rate applied to the €10,000 income increases to about 37%, resulting in €3,700 in tax.

For German tax purposes, Danish income must be recalculated according to German tax rules. This usually requires detailed knowledge of both tax systems, particularly regarding differences in areas such as pension contributions, travel expenses and company car taxation.