When a foreign employee wishes to move to Denmark, both the company and the employee must consider how the stay should be organized. In other words, the situation can be divided into two situations:
either a temporary posting of workers or a permanent relocation to Denmark.
1. Posting of Workers to Denmark (max. 24 months)
If an employee is posted to Denmark from a foreign company for a limited period of up to 24 months, the employee remains employed under foreign law and continues to be managed by the foreign employer. At the same time, Danish minimum rules must be respected, including, for example, rules on holiday accrual, working environment, and working time.
Foreign employers should also always be aware of whether the posted employees are assigned to a sector covered by a Danish collective bargaining agreement. In such cases, the employer must also comply with the applicable wage levels and collective agreement provisions. Failure to do so may lead to conflict with the local trade union.
Which issues must a foreign employer consider and address before the posting takes place?
In most cases, it will be necessary to supplement the original employment contract with a posting addendum specifying the terms of the employee’s stay in Denmark.
If the posting takes place as part of the provision of services in Denmark or as an intra-group posting, the employee must also be registered in the Danish RUT register.
Finally, the foreign employer must obtain an A1 certificate from the authorities in the home country, documenting that the employee remains covered by the social security system of the home country during the stay in Denmark. This can have a direct impact on the employee’s net salary.
Even though the employee continues to be covered by the foreign social security system, the stay in Denmark has tax implications for the employee, which should always be considered in the preparations.
2. Permanent relocation to Denmark
If an employee is not posted for a limited period but instead relocates permanently to Denmark, for example, to work remotely or to build up a new customer base in Denmark, a completely different legal framework applies.
In this case, the employee is regarded as locally employed in Denmark and is therefore subject to Danish employment law. A new employment contract governed by Danish law must be drawn up.
The employee will also be fully covered by the Danish social security system, which means that the company must register as an employer in Denmark and pay the mandatory social security contributions.
At the same time, the question often arises as to whether the foreign company establishes a permanent establishment in Denmark as a result of the employee’s activities.
This issue must always be carefully assessed, as it can have significant tax consequences, potentially resulting in the company becoming liable to pay taxes in Denmark, not only withholding income tax on behalf of the employee but also corporate tax on the part of the business attributable to Denmark.
Conclusion
The difference between posting of workers and local employment is significant. It is therefore crucial to clarify the legal, tax, and social security aspects in advance, so that both parties have a clear and secure basis for the cooperation when work is carried out in Denmark.
It is equally important to prepare the process thoroughly to avoid mistakes and to minimize the foreign company’s risk of facing fines or additional payment claims in Denmark from the Danish tax authorities.
At advores, we have extensive experience in handling these types of issues and can guide your company safely from the beginning.
