In 1992, a special taxation scheme was introduced in Denmark for high income foreigner who take up residence in Denmark for a limited period of time, this tax scheme also known as the preferential tax regime or special tax scheme in Denmark. It applicable to all foreigner who sign their contracts for work in Denmark after 1st of June 1991. When this scheme is first introduce, there is a special tax rate on labor earnings of 30% for a maximum period of up to 3 years (36 months). This Foreigners' Tax Scheme is almost twice lower than the regular tax rate where workers with earnings above the scheme threshold would need to paid average income tax rates of around 55% with the absent of the special tax scheme.
The scheme rate was dropped to 25% in 1995, however, a payroll tax of 8% was gradually phased in between year 1994 to 1997. The payroll tax is deductible in the regular income tax, the total scheme rate calculated as 31% from 1997 onwards. This make the total foreigners’ tax scheme rate roughly unchanged from the previous tax scheme rate.
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