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Israel – Denmark Tax Treaty

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Israel – Denmark Tax Treaty

denmark

UTC:
Capital City:
Language:
Population:
Currency:
Country Code:
Domain:

+2
Copenhagen
Danish
5.8 million
Danish krone
+45
dk

Recent news

Property Transfers and VAT Exemptions Explained
On December 6, 2024 the Danish Customs and Tax Administration addressed online the VAT deduction rules for real property purchases. A company planned to buy parcels of land, including several properties and an activity track, with the intention of continuing to rent one property previously leased by the VAT-registered seller. The Tax Council ruled that the property transfer, including the activity track, was VAT-exempt because the rental activity would continue. It further found the VAT charged by the seller invalid since the purchase did not qualify as a business transfer. Consequently, the company could not deduct the VAT.
Parliament Considers Major Tax Law Changes
On October 2, 2024 the Danish Parliament moved forward with Bill No. L 28, proposing changes to various tax laws for both companies and individuals. Important amendments proposed include: exempting companies from income tax on dividends from unlisted portfolio shares, gradually increasing the cap for share savings accounts starting in 2025, and allowing companies to choose capital gains taxation for up to seven years after listing. In addition, the bill also raises the personal share income tax threshold from 63,300 to 83,100 kroner, increases the R&D tax credit cap to 35 million kroner starting in 2027, and adjusts rules for carrying forward losses. The law is set to take effect on January 1, 2025, excluding the Faroe Islands and Greenland.
Investment Fund Management Services Confirmed VAT-Exempt
On September 2, 2024 the Danish Customs and Tax Administration published a binding ruling (No. SKM2024.430.SR) that clarifies the VAT exemption for management services of collective investment funds (CIFs). The ruling followed the case of an investment management company that claimed its services namely, Undertakings for Collective Investment in Transferable Securities and Alternative Investment Funds, covered by EU directives, were VAT-exempt. The Tax Council confirmed that these services are exempt from VAT as they are specifically designed for managing investment funds in compliance with the EU rules. To read more on the arguments following the ruling, click here.
Legal Precedent Set for Tax Residency
On August 22, 2024 the Danish Customs and Tax Administration published the City Court decision regarding tax residence and liability. The case subject to the decision concerned a Danish taxpayer who left Denmark in 2007 but was later deemed liable by the tax agency for taxes starting from January 1, 2014. The City Court decision confirmed the National Tax Court’s earlier ruling, affirming that the deadline for income tax notices under Section 26(1) of the Tax Administration Act does not prevent the tax authority from establishing tax liability as of January 1, provided the taxpayer spent more than 180 days in Denmark during the previous year.
VAT Deduction Guidelines Clarified by Court Ruling
On August 22, 2024 the Danish Customs and Tax Administration published National Tax Court Decision, which clarifies the conditions for partially deducting VAT on expenses. The decision followed the assessment of the case pertaining to a taxpayer engaged in various taxable activities, including real estate brokerage. The National Tax Court partially upheld the Tax Agency's decision to allow only a partial VAT deduction on the taxpayer's general costs. The Court confirmed the following practices regarding VAT deductions:
a. Taxpayers engaged in both taxable and non-taxable activities are only eligible for partial VAT deductions on general costs.
b. Deductions must be reassessed when future transactions, such as fees from subsequent years, are incorrectly included in prior-year calculations.
c. Full VAT deductions are applicable when expenses, such as brokerage fees, are directly related to taxable transactions.
Dividend Exemption Clarified for Danish Company
On July 11,2024 the Danish Customs and Tax Administration published Tax Council Binding Answer No. SKM2024.375.SR online, explaining dividend exemption under the Corporation Tax Act and the Equalization Act. The decision followed the case of a Danish company that sought clarification on whether its EU parent company would face Danish taxation due to its dividend distribution to the subsidiary. The Tax Agency concluded that the distribution didn’t cause taxation in Denmark because it complied with the EU Parent/Subsidiary Directive and didn’t breach the Equalization Act’s general avoidance clause. In addition, it concluded that the dividend distribution for earn-out payments wasn’t taxable in Denmark and that nonresident tax liability included domestic dividends with specific exemptions.
Important Updates on Dual Domicile and Tax Residence Issues
On May 29, the Danish Customs and Tax Administration published City Court Decision No. SKM2024.295.BR, addressing dual domicile, tax residence, and tax obligations under DTA (Double Tax Agreement) rules. Following the case of a dispute between a Danish resident and the Tax Agency on the tax liability under the DTA, the Court established that dual domicile can occur under DTA provisions. However, to end Danish residence, a taxpayer must provide proof of terminating cohabitation with a spouse to end Danish residence. Additionally, the Court ruled that the Danish Tax Authority can exercise its taxing rights if the taxpayer does not submit evidence that their center of life interests has shifted to a foreign country.
Tax Agency Clarifies Taxation of Bank Deposits
Recently, the Danish Customs and Tax Administration issued online City Court Decision No. SKM2024.267.BR, addressing the taxation of bank deposits. The case involved a Danish resident who faced additional income tax imposed by the Tax Agency on deposits from his mother’s company, which he claimed were gifts. The legal dispute raised on wheather certain bank deposits are to be considered as employment income or gifts. The City Court ultimately qualified the deposits as additional salary, and not gifts.
Supreme Court Rules on Transfer Pricing Adjustments in Controlled Transactions
The Danish Customs and Tax Administration recently published the Supreme Court Judgment, explainin transfer pricing adjustments in controlled transactions. Following the case involving a taxpayer parent company which established two nonresident oil production subsidiaries, which later acquired exploration licenses in the states where they were situated. The tax authority found that the fees for these services from related parties didn’t match the fair market value, so it raised the disputed taxable income. Upon appeal, the Supreme Court upheld this decision, ruling that the preliminary exploration phases, performance guarantees, and know-how had intrinsic economic value that would warrant continuous payments in an independent setting. The court also affirmed that the transactions among the companies were controlled transactions and that the costs charged didn’tmeet the arm's length standard because there were no ongoing payment obligations.
Danish Parliament Reviews Bill to Reform Tax Laws on Energy and Fuel
The Danish Parliament has introduced Bill No. L 183 which promits change different tax laws telated to energy and fuel.. Key changes include phasing in a CO2 tax increase to 750 kroner per ton for non-EU quota companies and setting a 375 kroner per ton rate for quota-covered space heating from 2025 to 2030. A 125-kroner CO2 tax will also be applied to mineralogical processes. Furthemore, new CO2 taxes on fishing, domestic ferries, and aviation are proposed, along with the removal of floor deductions for certain companies. Additionally, the bill aims to reduce the energy tax for space heating, amend waste CO2 tax calculations to align with EU Directive 2003/96/EC, and standardize extraordinary tax liability resumption rules.

Denmark-Israel Tax Relations

Israel and Denmark have had full diplomatic relations, and embassies in each other’s capitals since 1949; Ever since, both nations have extensive cooperation on various issues, among others, in the fields of trade and tourism. Denmark was one of the first nations to support Israel Independence.

During the pandemic, Denmark and Israel worked closely together and assisted one another in relation to medications and vaccines.

Details about Denmark’s embassy in Israel

Museum Tower, 11th floor, Berkowitz Street 4, Tel Aviv 6423806 Israel
+972 (0)3 608 5850
tlvamb@um.dk
Website: https://israel.um.dk/en/about-us/embassy-information

Details about Israel’s embassy in Denmark

Lundevangsvej 4, 2900 Hellerup, Copenhagen
+45 88185532 OR +45 88185536
Website: http://copenhagen.mfa.gov.il
consular@copenhagen.mfa.gov.il
consular1@copenhagen.mfa.gov.il

Bilateral Agreements Denmark-Israel

Denmark-Israel Double Tax Treaty:

On June 27, 1996, both countries signed a double tax treaty agreement.  The double tax treaty for Denmark and Israel established in order to eliminate double taxation with respect to taxes on income as well as the prevention of tax evasion and avoidance. The bilateral tax treaty between Israel and Denmark was renewed on September, 2009.

The full double taxation treaty between Israel and Denmark can be found here.

Denmark-Israel social security Convention

The Social Security Agreement between the State of Israel and the Kingdom of Denmark is intended to ensure and regulate the social rights of those who move from Israel to Denmark and Denmark to Israel. The social security treaty between Israel and Denmark became effective on April 1, 1996.

The arrangement in the social security treaty between Denmark and Israel is intended to prevent a situation in which a resident of Israel will be subject to the laws of both countries at the same time, and as a result will be required to pay insurance premiums in both nations, and alternatively will be deprived of rights in both nations.

If you are sent by your Israeli employer to work in Denmark and you are a resident of Israel, your employer will continue to pay your salary and social security contributions in Israel. The maximum placement period is 24 months. During this period, you will be exempt from paying insurance premiums in Denmark.

If you are recognized as a resident in Denmark, being a resident of Israel, you must pay social security fees in Denmark as well. Therefore, before your departure to Denmark, you must settle your insurance status in the collection department at the National Insurance branch at your place of residence; You must continue to pay the national insurance premiums in Israel and produce every six months certificates proving that you are insured in Denmark in order to receive a refund of the insurance premiums you paid in Israel.

For further information regarding social security agreement between Denmark and Israel press here.

Residency for Tax Purposes in Denmark:

Individual Residency for Tax purposes in Denmark

An individual is fully liable to pay tax in Denmark if he has been staying in Denmark for a period of at least six months or 183 days, consecutively. To determine residency of an individual in Denmark, it is necessary to assess that the individual’s center of interests is in Denmark.

For more information regarding residency of an individual, click here.

Company residency for tax purposes in Denmark

A corporation is considered a Denmark resident for Tax purposes if it’s incorporated in Denmark and registered in the Denmark company register as having a Danish place of business. Furthermore, foreign companies will be considered Tax resident if it can be determined that the actual place (where the day-to-day operations are made) of management is in Denmark.

Further information about company residency in Israel, can be found here.

Denmark Tax Regime:

Income Tax: Up to 56% (i.e., 52% + 8% labor market tax)

Corporate Tax: 22%.

VAT: 25%

Capital Gains Tax: 22% (subject to the normal CIT rate)

Withholding tax

Denmark Internal tax rate

Israel Internal tax rate

Treaty Withholding Tax

Personal Income tax (Tax brackets)

Up to 56%

0%-50%

–

Corporate income tax

22%

23%

–

Individual capital gains tax rate

Subject to the normal PIT rate

25%-30% (plus exceptional income tax for high earners at 3%)

10%-25%

Branch tax

22%

23%

–

Withholding tax

(Non-Resident)

Dividends

27%/22%/22%

25% or 30%

5%/10%/15%

Interest

22%

15%/25%/23%

7.5%/10%

Royalties

22%

23%-40%

2%/5%

Tax on renting real estate in Denmark

Exempted

Margin or 15%

Exclusive Taxation right to the origin country of the real estate

VAT

25%

17%

–

Inheritance Tax

1-40%

NA

–

Inheritance and Estate Tax:

A person residing in Denmark who receives inheritance from a family member residing abroad is not liable to pay either tax or duty on the value of the person’s inheritance, unless the inheritance includes assets in the form of real property, fixtures and fittings located in Denmark, or assets with a permanent establishment located in Denmark, which then tax is payable on the value in Denmark.

Estate tax amounts to 15% and is levied on all heirs; the deceased’s children and descendants, stepchildren and their descendants, parents, or cohabitant during the last two years of one’s life.

Inheritance received by any other relatives than the above-mentioned is subject to a supplementary estate tax of 25% of the value of the asset, after deduction of the first 15%.

The taxes are not levied on the first DKK 312,500 (in 2022) of the estate.

  • 15% or 36. 5%: Value of inheritance tax imposed on net values that exceed DKK 312,500; This is also the value of the estate tax (for which the spouse is not liable) in Denmark;
  • 15% or 31%: Gift tax when the said gift exceeds DKK 67,100.
  • 51%: The maximum rate at which gifts may be taxed for individuals who are non-family;
  • 0%: There is no inheritance tax between spouses in Denmark, and no gifts tax between first-degree relatives.

Currency differences between Denmark and Israel:

The currency in Denmark is called the Danish krone. The currency symbol is DKK. The Israeli currency called New Israel Shekel (NIS) or Israeli Shekel (ILS).

Transfer Pricing in Denmark:

Denmark transfer pricing legislation contains a general definition of the arm’s-length principle which reflects the principle of the OECD guidelines. The legislation covers transactions between companies and individuals and applies to domestic transactions as well as cross-border ones.

For more information about transfer pricing in Denmark click here.

Transfer Pricing in Israel:

The legislation within Israel in respect of transfer pricing is disclosed within Section 85A of the Israel Tax Ordinance (New Version) 1961, and the Income Tax Regulations (Determining Market Conditions) – 2006 (The Regulations).

Relocation in Denmark:

Relocating to Denmark from non-EU/EEA countries is more difficult, and custom laws are tighter. On the contrary, Denmark ranks 10th out of 80 countries in UN assessments as the most favorable country for immigrants and therefore attracts quite a few Israelis who move to Denmark for work needs.

In addition, there is a “Start-up” program in Denmark – A scheme for foreign entrepreneurs, giving you the opportunity to be granted a Danish residence permit to establish and run an innovative growth company. Your “Start-up” idea must be approved by a panel of experts appointed by the Danish Business Authority before SIRI (Danish agency for international recruitment and integration) can process your application for residency and work permit based on the scheme.

The “start-up” program can be used by both individuals and teams of up to 3 people who desire to start a business together in Denmark through a joined business plan.

A comprehensive study conducted (2022) by the Association of Jewish Organizations in Europe (EJA) in collaboration with the British Institute for the Study of European Jewish Policy examined the performance of European governments in relation to the main parameters required for the existence and prosperity of Jewish communities.

The study found that the sense of security of the Jewish communities in Denmark is one of the highest in comparison to other European states.

In addition, the public’s attitude towards Jews and Israel in Denmark is very positive, making it one of the two friendliest countries to the Jewish community in Denmark, compared to other European countries.

Real Estate in Denmark:

Denmark is a coveted destination in the Real Estate field, and the authorities in Denmark are aware of that. Therefore, Unless you have domicile in Denmark or you have had residence in Denmark for at least five years, you must have permission from the Department of Civil Affairs to acquire real property in Denmark.

A foreigner investor who is interesting in purchasing property in Denmark needs to get an approval as a business investor from official authorities in Denmark. Its important to know that even investors that owns a citizenship of the European Union, can not purchase real estate in Denmark without the above-mentioned approval.

For further information on Real Estate investments in Denmark click here.

Business Activities between Denmark and Israel:

Our firm specializes in providing tax consultation and assistance to our clients in Denmark. Our relationships with accountants and lawyers in Denmark help aid clients by setting up businesses, opening bank accounts, and more.

Transfer of funds from Israel to Denmark

According to section 170(a) of the Israeli income tax ordinance, most transfers of funds from Israel to Denmark will require prior approval of the tax authority.

Our office assists to obtain tax exemptions from withholding and Transfer of funds to Denmark, in addition to consultation regarding the foreign banks demands, such as, among others; An accountant approval in all matters of Tax payments; Examination of other actions required in light of the unified standards of the CRS – Common Reporting Standard for the Automatic exchange of information between Denmark and Israel, which is carried out first through the banks and then between the tax authorities of each country.

Types of business entities in Denmark

Private Limited Company in Denmark – Anpartsselskab (ApS)

  • Can be set up by at least one shareholder, regardless of residency;
  • Minimum share capital for a private limited company is 40,000 DKK;
  • Shareholders are liable for their contributions.

Public Limited Company in Denmark- (Aktieselskaber or A/S)

  • Minimum one founder that has a minimum share capital of 400,000 DKK;
  • Provides shares for the public in Denmark.

Limited Partnership Company in Denmark – (Partnerselskaber or P/S)

  • Registration with Danish trade register is mandatory;
  • Minimum of Two partners;
  • One general partner oversees and runs the business while limited partners do not partake in managing the business, and with limited liability to the extent of their own contribution;
  • Partners can be individuals or legal entities.

Types of business entities in Israel

Private Company in Israel

  • 1-50 shareholders;
  • Can’t sell stocks or debentures to the public.

Public company in Israel

  • Minimum of 7 shareholders;
  • Must publish an annual report;
  • Can sell stocks or debentures to the public.

Foreign Company in Israel

  • A company from overseas with a branch in Israel;
  • Partnership;
  • Self- Employed;
  • Cooperative;
  • Non-Profit Organizations.

Investments incentive in Denmark:

Based on the international survey “Doing Business” (2020), Denmark is rated first in Europe, and 4th worldwide, in terms of ease of doing business.

There are some competitive advantages for foreign and domestic investors to run their business in Denmark:

  • Procedures, time, cost, and paid-in minimum capital to start a limited liability company;
  • A Danish limited liability company can be incorporated in Denmark with same day formation;
  • Enforcing contracts and resolving commercial disputes;
  • Protecting minority investors rights in related-party transactions and in corporate governance;
  • Cross-borders trade in Denmark;
  • Dealing with construction permits in Denmark;
  • Flexibility in employment regulation and aspects of job quality in Denmark.

Denmark’s reference to transactions in virtual currencies:

Danish Tax Agency Proposes Changes to Crypto-Asset Taxation Draft Control Signal

A draft Control Signal No. 24-0334438 consultation was presented by the Danish Customs and Tax Administration on March 2024 having as a purpose the clarification of the taxation of trading in crypto assets, including:

  • A Revision of the calculation method applicable for the trading in cryptocurrencies.
  • The setup of May 1st as the deadline for the revision of 2020 tax year assessments based on the Control Signal Draft..
  • Provisioning of the requirement for undocumented deposits to be assessed with an acquisition cost of zero Danish Krones, when the acquisition cost of deposits is not documented.

Denmark’s Tax Treaties:

Argentina

BVI

Estonia

Iceland

Kenya

Montenegro

Serbia

Netherlands

Zambia

Armenia

Brazil

Faroe Islands

India

South Korea

Morocco

Singapore

Trinidad and Tobago

Australia

Canada

Finland

Indonesia

Kuwait

New Zealand

Slovenia

Tunisia

Austria

Cayman Islands

Germany

Ireland

Latvia

Norway

South Africa

Turkey

Azerbaijan

Chile

Georgia

Isle of Man

Lithuania

Pakistan

Sri Lanka

Uganda

Bangladesh

China

Ghana

Israel

Luxembourg

Philippines

Sweden

Ukraine

Belarus

Croatia

Greece

Italy

Macedonia

Poland

Switzerland

UK

Belgium

Cyprus

Greenland

Jamaica

Malaysia

Portugal

Taiwan

USA

Bermuda

Czechia

Guernsey

Japan

Malta

Romania

Tanzania

Venezuela

Brazil

Egypt

Hungary

Jersey

Mexico

Russia

Thailand

Vietnam

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