Hiring Out of Labour:Streamlined Compliance Solutions
Hiring out of labour, or “arbejdsudleje,” involves leasing foreign employees to a Danish company for essential tasks. However, navigating the complexities of hiring out labour compliance in Denmark can be challenging for foreign companies. Therefore, proper management is vital to avoid tax compliance issues, penalties, and administrative burdens. Moreover, effective handling ensures compliance, minimises financial risks, and maintains smooth operations. Additionally, addressing double taxation challenges helps retain foreign talent. At Crossbord, we provide comprehensive solutions, including assessment, payroll management, accurate tax calculations, and ongoing compliance monitoring to ensure Danish companies meet tax regulations.
What is hiring out of labour?
Hiring out of labour, or “arbejdsudleje,” occurs when a foreign company’s employees are leased to a Danish company to perform tasks integral to the Danish company’s operations. For instance,this can include essential services like bookkeeping, cleaning, or catering. Importantly, the key factor is that these foreign workers operate under conditions similar to those of regular employees within the Danish company.
The Three-Party Structure in Hiring Out of Labour
Danish Company
The entity that leases the manpower.
Foreign Employer
The staffing agency or business supplying the employees.
Foreign Employee
The worker who remains employed by the foreign company but works under the Danish company’s direction.
It does not matter whether the agreement is termed as a labour leasing contract or a service agreement; the critical factor is whether the foreign employee is effectively performing duties for the Danish company, similar to an employment relationship.
When Hiring Out of Labour Does Not Apply
The rules around hiring out of labour do not apply if:
- The work performed is not a core or integrated part of the Danish company’s operations.
- The task is fully outsourced to an independent foreign business.
- The employee is fully taxed in Denmark or employed directly by a Danish company, or the employee is covered by tax liability due to 183 days in Denmark in a 12-month period.
- The foreign employer has a permanent establishment in Denmark.
When there is doubt about whether a situation qualifies as hiring out of labour, it depends on specific factors such as who controls the employee’s work, who bears the financial risks, and who provides the necessary work tools. For example, if the Danish company assumes a significant level of control over the work, it may be considered arbejdsudleje.
The Tax Compliance Problem: Navigating Danish Hiring Out of Labour Tax
Once the arrangement qualifies as hiring out of labour, Danish tax law imposes significant compliance responsibilities on the Danish contractor. Specifically, the contractor becomes liable for withholding and paying Danish taxes on the wages earned by the foreign employees, even though they are employed by the foreign company.
The taxes involved include:
- 8% Labour Market Contribution (AM-bidrag): This contribution must be withheld from the employee’s wages.
- 30% Hiring Out of Labour Tax (Arbejdsudlejeskat): A flat-rate tax on the gross wages of the foreign employee, applicable regardless of the worker’s tax residency or whether the foreign company is VAT-registered in Denmark.
Failing to meet these obligations can lead to penalties and interest, adding to the administrative burden for Danish businesses. Our services ensure that your business meets all hiring out labour compliance requirements, avoiding potential legal issues.
Double Taxation: A Frequent Challenge
One of the most significant challenges in cross-border employment is the issue of double taxation. Indeed, foreign workers may be subject to taxes both in Denmark and their home country, as their global income may still be taxed by their country of tax residency. Consequently, this can result in the employee being taxed twice on the same income.
Causes of Double Taxation
If the foreign employee remains a tax resident in their home country, they may still be required to pay income tax there, despite working in Denmark.
Although Denmark has treaties with many countries to prevent double taxation, the interpretation and practical application of these treaties can be complicated, and not all situations are clearly addressed.
The Impact on Workers and Businesses
Foreign workers could see their earnings diminished due to taxation in two countries, leading to dissatisfaction and potential retention issues.
Danish companies must navigate both local tax compliance and international tax treaties to ensure their workers are not overtaxed.
The Crossbord Solution: Comprehensive Compliance for Hiring Out of Labour
Crossbord offers a fully integrated solution for managing the complexities of hiring out of labour compliance, ensuring that Danish companies remain compliant with Danish tax regulations while minimising risks such as double taxation.
Our services include:
We begin by evaluating whether your arrangement qualifies as hiring out of labour under Danish tax law. This determination is critical to understanding your compliance obligations and avoiding penalties.
Crossbord handles the gathering of salary and HR information from the foreign employer, managing the payroll data required for accurate tax withholding, despite the employees not being on the Danish contractor’s payroll. Data is shared safely and securely using our dedicated data sharing setups.
We apply a thorough review of the information to determine the proper tax compliance measures. For hiring out of labour, we ensure correct calculations for withholding the 8% AM-bidrag and 30% arbejdsudlejeskat, minimising the risk of errors that could result in penalties or interest charges.
To prevent double taxation, Crossbord applies relevant tax treaties, ensures proper documentation, and assists workers in claiming tax credits or exemptions in their home country. This reduces the financial burden on the employee and simplifies the contractor’s administrative responsibilities.
Crossbord manages the submission of required forms, ensuring that all necessary documentation is provided to the Danish tax authorities digitally and in a timely manner.
Danish tax regulations are subject to change, and staying compliant requires constant vigilance. Crossbord provides continuous monitoring of your tax situation, updating filings and payments as needed to ensure compliance with the latest regulations.
Cross-border employment can also raise concerns about the creation of a permanent establishment (PE) in Denmark for the foreign employer. Crossbord assesses and advises on PE risks, ensuring that the foreign company does not inadvertently trigger additional tax liabilities.
Your Benefits When Choosing Crossbord for Hiring Out of Labour Compliance?
Risk Management
Non-compliance can lead to costly penalties and interest. Therefore, Crossbord mitigates these risks by ensuring that your filings, payments, and form submissions are handled with precision and timeliness.
Efficiency
We simplify the compliance process, handling everything from data collection to digital submission and payment instructions, and thereby reducing your administrative burden.
Expertise in Double Taxation
Crossbord’s team of tax specialists ensures that the relevant tax treaties are applied correctly. Consequently, you will be protecting your employees from double taxation while making sure your company remains compliant across borders.
End-to-End Support
Crossbord not only advises on compliance but also executes the entire process, from determining tax liabilities to ensuring all obligations are fulfilled.
To discover how Crossbord can support your company with Hiring Out of Labour Compliance, reach out to us today for a consultation. Our specialists are prepared to navigate you through the process, ensuring compliance and optimising tax benefits for your international team. Ensure that your business stays compliant with Danish regulations. Contact Crossbord today to achieve seamless hiring out of labour compliance for your operations!
Hiring Out of Labour Compliance
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