Danish tax obligation for a 'side business'
Nailing Secondary Incomes' Tax Game in Denmark: A Michael Barrett Guide
Hey there, let's dive right in!
Are you earning extra dough on the side in Denmark? Well, that's fantastic! But remember, even your side hustle comes with its tax obligations. Let's break it down.
Let's TalkTax Cards
First things first, it's essential to understand the three types of tax 'cards' that dictate your tax obligations.
- The Frikort (Free Card) represents the amount you can earn income tax-free in a year. This fluctuates based on factors like age (youths benefit from higher tax exemptions). You can check your personal limit on the preliminary tax statement - the forskudsopgørelse.
- The Hovedkort (Primary Card) outlines your income tax rate and any applicable deductions. Employers using this card apply taxes to your main income.
- The Bikort (Secondary Card) is used when you have multiple jobs. This card is crucial for your side hustle as it sets a higher tax rate than the Hovedkort.
Choosing Your Bikort Over Hovedkort
Always opt for the Bikort for your secondary job. The Bikort applies tax deductions from the start, whereas the Hovedkort only does so for earnings above your tax deductions.
Freelancers and Self-Employment
If you're self-employed or operate as a freelancer (a.k.a. honorarmodtager in Danish), you're more responsible for your tax information. Remember, the Bikort should not be confused with the B-skat!
Tax Rules for Freelance Jobs
You can deduct business expenses, but they must be documented and not exceed the fee. Generally, you don't need to register for VAT, but the rules change if annual revenue surpasses 50,000 kroner.
Second-Hand Item Sales
Tax rules apply if you sell items you've purchased for resale, whether on marketplaces or at flea markets. If you sell private items for your personal use, there's no tax to pay.
Pro Tip: If your revenue exceeds 50,000 kroner per year and originates from activities not subject to VAT, VAT registration may not be required.
You're responsible for reporting your income in the annual filing (E-tax - TastSelv, box 20 or field 250, depending on your situation). Different deductions apply depending on whether you're renting or providing services.
Undeclared income can lead to fines and back-tax charges, so be sure to stay on the up-and-up!
A Handy Dandy Tax Deduction - Servicefradrag
enjoy a 25.5% tax credit for home-related labor costs, payable to tax-compliant workers via traceable methods. However, unfortunately, materials aren't deductible.
Stay informed on all things tax-related in Denmark, and don't hesitate to get in touch with the Danish Tax Authority should you have any questions or doubts. Their added number is 7222 2828.
Stay in the know about tax rules and let's make that dough work for you!
[1] The Local's original article on sharing economy tax compliance
[2] Skattestyrelsen's guide for self-employed individuals (in Danish)
[3] Skattestyrelsen's guide for secondary income (in Danish)
[4] Skattestyrelsen's guide for rental income (in Danish)
[5] Skattestyrelsen's guide for home repair deductions (in Danish)
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