Contents
This section describes those who are liable to taxation under Section 1(1) of the Danish Pension Investment Return Tax Act.
This section describes:
- Persons fully liable to taxation under Section 1 of the Danish Withholding Tax Act (Kildeskatteloven (KSL))
- Specifically for persons with limited tax liability
- Exemption from PAL tax
- ►Specifically for Danish banks with pension holders with limited tax liability◄
- Companies with full tax liability under Section 1 of the Danish Corporation Tax Act (Selskabsskatteloven (SEL)) and Section 1 of the Danish Foundation Tax Act (Fondsbeskatningsloven (FBL))
Persons fully liable to taxation under Section 1 of the Danish Withholding Tax Act (Kildeskatteloven (KSL))
Persons liable to taxation under Section 1(1) of PAL are pension plan holders who are fully liable to taxation in Denmark, i.e. covered by Section 1 of KSL and who are not considered to be domiciled abroad, in Greenland or the Faroe Islands under any double-taxation treaty.
Persons covered by Section 1 of KSL include:
1) persons resident in Denmark,
2) persons who are not resident in Denmark, but who are staying here for a period of at least six months. Included in the six-month period are short-term stays abroad, for example in connection with holidays etc.,
3) Danish nationals not covered by items 1 and 2 who are doing service or permanently staying on board ships registered in Denmark, unless the persons can document that they are resident abroad or have never been resident in Denmark. Foreign nationals who, before starting to do service or before doing service or staying on board, were tax liable in Denmark under Section 1 of KSL are treated in the same way as Danish nationals,
4) Danish nationals who, by the Danish State, regions or municipalities, have been posted abroad and who are not covered by items 1 or 2. This also applies to the co-habiting spouses and children lf such persons living at home who are under 18 years of age at the start of the year of taxation when such spouses and children are Danish nationals, and they are not liable to pay income tax abroad under the rules governing residents there.
See also
See also the Assessment Guide (Ligningsvejledningen), Double taxation, Section D.A.1, Full tax liability.
Note
Persons with double domicile and resident abroad, in the Faroe Islands or Greenland under the double-taxation treaty are not tax liable under PAL. See the Assessment Guide, Double taxation,
- Section D.A.1.1.2.5, Double domicile and
- Section D.D.2, OECD's model treaty, Article 4.
Specifically for persons with limited tax liability
Under Section 1(2) of the Danish Taxation of Pension Investment Return Act (Lov om beskatning af visse pensionskapitaler), Danish Consolidation Act no. 1075 of 15 November 2006, persons with limited tax liability with pension plans in Danish banks or with Danish pension providers are liable to taxation up until and including the 2009 year of taxation. As from the 2010 year of taxation, persons with limited tax liability are no longer liable to PAL taxation.
Exemption from PAL tax
Persons fully liable to taxation with pension plans in foreign banks or with foreign pension providers who cease to be fully liable to taxation in Denmark before 2010 or who are fully liable to taxation but resident abroad, in the Faroe Islands or Greenland under a double-taxation treaty are not liable to PAL taxation, see Section 36(3) of PAL.
As from the 2008 year of taxation, pension plan holders not liable to taxation under PAL can apply for an exemption from PAL tax.
This means that the pension plan holder's foreign bank or pension provider does not have to withhold and pay PAL tax to Denmark once the pension plan holder is no longer fully liable to taxation in Denmark. See Danish Order no. 153 of 25 February 2008.
Apply using form 07.058E, and submit the application to Tax Centre Maribo.
Documentation for the pension plan holder's full tax liability in another country must be enclosed with the application. The documentation may be in the form of an address certificate from the new country of residence.
Certificate of exemption from PAL tax
SKAT issues a certificate accepting that the bank or pension provider is exempted from withholding and paying PAL tax for the pension plan holder on the plans covered by the application.
Withdrawal of tax exemption
SKAT may withdraw the exemption if
- the conditions are no longer fulfilled, or if
- the pension plan holder does not comply with repeated requests for a renewal of the documentation that the pension plan holder is fully tax liable in another country.
Specifically for Danish banks with pension holders with limited tax liability
►As from 2010, persons with limited tax liability are no longer liable to pay tax under the Danish Pension Investment Return Tax Act (Pensionsafkastbeskatningsloven (PAL)) to Denmark. If a person domiciled abroad keeps his or her pension plan taken out with a Danish bank, the person in question will, despite the termination of the limited tax liability in respect of yields from the pension plan assets under PAL, still be subject to limited tax liability in respect of any dividends from Danish shares under Section 2(1), Item 6 of the Danish Withholding Tax Act (Kildeskatteloven (KSL)) on dividends, unless the plan taken out with the bank is a pooling plan. ◄
►The dividend tax is withheld by the Danish company in connection with the distribution of dividend. ◄
►Under Section 65(4) of KSL, the Danish Minister for Taxation can lay down rules to the effect that no dividend tax should be withheld in respect of dividends not be included when determining the recipient's taxable income. ◄
►Under the provisions of the above section, Section 32(1), Item 3 of the Danish Withholding Tax (Consolidation) Act (Kildeskattebekendtgørelsen), compared with Section 32(5), lays down that Danish companies can omit withholding dividend tax of dividend for pension plans marked ‘withholding-free' by the pension holder's bank. The bank is liable to the Danish state for any incorrect marking. ◄
►As from 2010, a pension holder with limited tax liability is no longer liable to PAL taxation. This means that the dividend will once again be included in the pension holder's taxable income and is thus no longer covered by the exception set out in Section 32 of the Danish Withholding Tax (Consolidation) Act. ◄
►A bank having a pension holder with limited tax liability must thus mark the pension holder's pension plan upon receipt of a PAL tax exemption certificate in respect of the pension holder. Danish companies will then again start withholding dividend tax on dividend to the pension plan. ◄
Fully tax liable under Section 1 of SEL and Section 1 of FBL
Companies and foundations liable to taxation under Section 1(1) of PAL are pension plan holders that are fully liable to taxation in Denmark under Section 1 of SEL and Section 1 of FBL and that are not considered to be resident abroad, in Greenland or the Faroe Islands under any double-taxation treaty.
Pension plan holders are
- companies and foundations which have covered their pension obligations as the employer of a manager by taking out a pension plan with a pension provider, or
- a municipal association which has covered its obligations in relation to municipal officials by taking out a pension plan with a pension provider.
Section 1 of SEL states that:
"Under this act, the following companies and associations etc. resident in Denmark shall be liable to taxation:
1) incorporated limited liability companies,
2) other companies in which none of the participants shall be personally liable for the obligations of the company, and which share their profits in proportion to the capital invested by the participants in the company,
2a) savings banks, cooperative banks, associations of cooperative banks in accordance with Sections 89-96 of the Danish Financial Business Act (Lov om finansiel virksomhed) and associations established in accordance with Section 207 of the Danish Financial Business Act,
2b) (Repealed).
2c) (Repealed).
2d) DSB.
2e) electricity companies, which for the purposes of this act are companies etc. the activities of which involve the production of, transport of, trade in or delivery of electricity. The tax liability shall apply irrespective of the organisational form of the electricity company. Incorporated companies shall however, be covered by item 1. If the activities mentioned in item 1 are carried out by a limited partnership, the partners shall be taxed in accordance with these provisions, cf., however, Section 3(7). The production and consumption of electricity in trains, ships, aircraft or other means of transport and the production of electricity by means of emergency generators in those instances where the normal electricity supply fails shall be exempted from taxation under these provisions, provided that the company is not otherwise carrying out activities mentioned in item 1,
2f) municipalities engaging in grid-related activities and other activities which are either covered by Section 2(1) of the Danish Electricity Supply Act (Lov om elforsyning) or exempted pursuant to Section 2(4) from the provisions of the Danish Electricity Supply Act (electricity business), cf., however, Section 1(1), Items 1 and 2 e. The tax liability shall apply to income from such activities as well as the gains or losses from the sale, divestment or surrender of capital assets which are or have been connected with such activities. If the municipality is engaged in combined heat and power production (CHP), the tax liability shall also apply to income from the production of heat. Income from waste-fired CHP production shall, however, be exempted from taxation,
2g) Energinet.dk,
3) cooperatives, i.e., for the purposes of this act, associations the purpose of which is to further the joint business interests of at least ten members through their participation in the activities of the association as consumers, suppliers or in any similar way, the revenue of which in relation to non-members does not exceed 25 per cent of total revenue, and which, apart from normal return on invested membership capital, base the appropriation to members on the revenue from such members. Cooperatives may be covered by item 1 even though they own shares or parts in companies which do not meet the requirements set out in item 1,
3a) consumer cooperatives not covered by item 3, the purpose of which is to further the joint interests of members through their participation as consumers in the activities of the consumer cooperative or in the activities of the partially or wholly owned companies of the consumer cooperative, provided that deliveries are used partially or wholly for the private consumption of members or the member cooperatives, and provided that appropriations, apart from normal return on invested membership capital, to members, possibly, in accordance with the provisions of the consumer cooperative, only to personal members, are based on the revenue of the consumer cooperative and selected underlying companies from the members in question, or if the consumer cooperative upon liquidation instead elects to make appropriations for the benefit of the consumer cooperative movement or to further general consumer interests subject to approval by the Danish National Tax Board (Skatterådet),
4) associations the purpose of which is to further the joint business interests of members through their participation in the activities of the association as consumers, suppliers or in any other similar way, and which are not covered by items 2, 3 or 3 a,
5) mutual insurance associations not covered by Sections 294-303 of the Danish Financial Business Act unless such mutual insurance association is exclusively engaged in health insurance activities and the Danish Central Customs and Tax Administration has decided that the insurance association in question is covered by item 6, as well as companies, associations etc. established following a change in a mutual insurance association upon the transfer of its insurance activities, cf. Section 14 d of the Danish Merger Tax Act (Fusionsskatteloven), and which is not covered by items 1 or 2 or the Danish Foundation Tax Act (Fondsbeskatningsloven),
5a) investment funds issuing negotiable certificates for the investments made by the members, with the exception of investment companies, cf. Section 19(2) of the Danish Capital Gains Tax Act (Aktieavancebeskatningsloven), and with the exception of dividend-paying investment funds, cf. Section 16 C of the Danish Tax Assessment Act (Ligningsloven),
5b) foundations and associations as mentioned in Section 216 of the Danish Financial Business Act, KommuneKredit and Dansk Eksportfinansieringsfond,
6) other associations, corporations, foundations, trusts and self-governing institutions, cf., however, Section 3 to the extent that such association etc. is not covered by the Danish Foundation Tax Act. The tax liability shall apply only to income from business activities as well as gains or losses from the sale, divestment or surrender of capital assets which are or have been connected with such business activities."
Section 1 of FBL states that:
"Under this act, tax liability shall apply to:
1) Foundations covered by the Danish General Foundations Act (Lov om fonde og visse foreninger) or the Danish Commercial Foundations Act (Lov om erhvervsdrivende fonde), unless the foundation is exempted from these acts.
2) Associations covered by the Danish General Foundations Act, to the extent that such association is not liable to taxation under item 3.
3) Associations covered by the Danish General Foundations Act as regards:
a) employers' associations and unions,
b) other professional associations the capital of which is stipulated for supporting members during industrial disputes as well as
c) associations the funds of which primarily originate from the associations listed under a) and b), provided that the purpose of such association is to support companies or persons during industrial disputes or actually provides such support.
4) Foundations and other self-governing institutions established abroad, in the Faroe Islands or Greenland, the management of which is domiciled in Denmark. This applies irrespective of where the foundation or the self-governing institution may be incorporated."
See also
See also the Assessment Guide, Companies and shareholders, Section S.A.1, Companies etc., foundations and associations with full tax liability.