Denmark Payroll Tax Guide (Lønsumsafgift)

What is Payroll Tax?

Payroll tax (lønsumsafgift) is a national tax imposed on businesses whose supplies are exempt from VAT under the Danish VAT Act (Momsloven). It is intended to compensate for the fact that VAT-exempt businesses do not charge output VAT, while still consuming VAT-bearing inputs. The tax is deductible as an operating expense in the income tax return.

Payroll tax is governed by the Lønsumsafgiftsloven (LAL) and administered by Skattestyrelsen. The tax base and rate depend on the nature of the business activity and its organisational form.

Which Businesses Are Liable?

A business is liable for payroll tax if it sells goods or services that are exempt from VAT under the following provisions of the Danish VAT Act (ML §13):

• Healthcare: Medical treatment, dental care, physiotherapy, alternative treatment, psychologist services
• Education: Teaching, tutoring, training courses, seminars
• Sports and culture: Sports activities and events, cultural events, museums, theatres
• Insurance and financial services: Banking, insurance, pension funds, investment services
• Lotteries and gambling: Lotteries, betting, gambling operations
• Passenger transport: Taxi services, bus transport (scheduled routes), ambulance services
• Funeral services: Undertakers and burial services
• Independent groups of persons: Certain joint purchasing and service arrangements

Businesses with only VAT-taxable activities (e.g., most retailers, restaurants, manufacturers) are not subject to payroll tax.

Registration Threshold

• DKK 80,000 threshold (2026): If the annual payroll tax base exceeds DKK 80,000, the business must register for and pay payroll tax. Below this threshold, no registration is required.
• Registration: Done through E-tax for businesses (TastSelv Erhverv). Non-Danish companies register through the special registration portal at virk.dk.
• Upon registration: The business receives a registration certificate stating which calculation method and rate apply. The certificate is available in E-tax for businesses.

Four Calculation Methods

The applicable method depends on the business's primary activity and legal form. Each method has its own tax base formula and rate.

Method 1 — Financial businesses (Metode 1, LAL §2)

• Who: Banks, mortgage institutions, insurance companies, pension funds, other financial enterprises.
• Classification rule: A company qualifies as a financial business if VAT-exempt financial services revenue exceeds 50% of total revenue.
• Tax base: Total payroll (salaries, wages, bonuses, pension contributions, and all other remuneration paid to employees).
• Rate: 15.3% (from 2021 onwards).
• Calculation: Payroll × 15.3%.

Method 2 — Lotteries, tourist offices, organisations, associations (Metode 2, LAL §3)

• Who: Lottery operators, tourist information offices, non-profit organisations, associations with VAT-exempt activities.
• Tax base: Total payroll.
• Rate: 6.37%.

Method 3 — Newspaper publishers (Metode 3, LAL §5)

• Who: Publishers or importers of newspapers (aviser) subject to zero-rated VAT.
• Tax base: The value of newspaper sales (not payroll).
• Rate: 3.54% of sales value.

Method 4 — Other payroll-tax-liable businesses (Metode 4, LAL §4)

• Who: All other businesses with VAT-exempt activities not covered by methods 1-3. This is the most common method for healthcare professionals (doctors, dentists, physiotherapists, psychologists), taxi drivers, teachers, funeral homes, and similar service providers.
• Tax base: Payroll + profit from self-employment (or − loss). For sole proprietorships without employees, the tax base is simply the business profit (as the payroll component is zero).
• Rate: 4.12%.
• Calculation: (Payroll + profit − loss) × 4.12%.

Mixed Activities (Both VAT-Taxable and VAT-Exempt)

If a business carries out both VAT-taxable activities and payroll-tax-liable (VAT-exempt) activities, it must:

• Split the accounting records into separate segments for each activity type.
• Only pay payroll tax on the portion of payroll and profit attributable to the VAT-exempt (payroll-tax-liable) activities.
• The allocation must be based on a clear specification in the financial statements (opdeling af regnskabet).
• If the VAT-taxable activities are below the VAT registration threshold (DKK 50,000), the business is still not VAT-registered but must still split the accounting for payroll tax purposes.

Filing and Payment

• 5 filings per year: Businesses with employees file 4 quarterly a conto (provisional) declarations plus 1 annual final declaration.
• Quarterly a conto: Based on actual payroll for the quarter. Due by the end of the month following the quarter.
• Annual declaration: The final reconciliation based on the full year's payroll and profit. Due by 15 August of the following year (for calendar-year businesses). The annual declaration adjusts for any difference between a conto payments and the actual liability.
• Businesses without employees: May only need to file annually (the annual declaration), since the tax base is solely the business profit and there are no monthly/quarterly payroll amounts.
• Payment: Payable to SKAT through the Tax Account (Skattekontoen). See Tax Account Guide →.

Non-Danish Businesses

Foreign companies without a permanent establishment in Denmark but earning VAT-exempt income from Danish activities may also be liable for payroll tax. Registration is done through the special registration portal at virk.dk for non-Danish companies. The same DKK 80,000 threshold and calculation methods apply.

Payroll Tax and VSO

For sole proprietors using the Virksomhedsordning (VSO), payroll tax is deductible as an operating expense. The payroll tax paid reduces the business income subject to the 22% provisional tax. See Starting a Business Guide → for VSO details.

Key 2026 Rates Summary

Related Guides

• VAT Registration Guide → — VAT vs payroll tax interaction
• Tax Account Guide → — payment via Skattekontoen
• Starting a Business Guide → — VSO and business registration
• Hiring Employees Guide → — payroll reporting