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LEGAL News - Hiring out of Labour - a clarification is about to come

Logo LEAD  - Legal Advice Denmark
26. March 2014

In September 2012 the Danish rules on the hiring-out of labour were tightened and the scope of application has been widened and now applies to all cases where foreign employees perform work in Denmark and such work constituted an integral part of the Danish business.

The rules entail that the foreign employee is subject to limited tax liability in Denmark of his remuneration earned for work performed in Denmark. This means that the Danish business is obligated to withhold and settle tax on the hiring-out of labour. In consequence the foreign company has to disclose to the Danish business partner the exact amount of salaries paid to the employee. If not, the contract sum would form basis for the tax calculation. Moreover, the employees are at risk of double taxation.

Since changing the rules, the Danish National Tax Board has issued some binding rulings on the new concept – showing a tendency that it would be hard to avoid the hiring-out of labour tax when using subcontractors or suppliers from abroad. Suddenly, the rules also hit companies that used IT consultants from abroad – even if they only performed work for a short period in Denmark.

Recently, the Danish tax authority has released the proposal for a steering signal (”Styresignal”) that shall clarify the rules for the hiring-out of labour tax. It is stated that it shall no longer be the only point of reference whether the work performed is deemed to be an integral part of the Danish business. The rules shall be interpreted in accordance with the OECD model treaty and each case shall be subject to a specific assessment.

When thus assessing whether the services provided are an integral part of the Danish business, it is essential to find out who carries the material responsibility and the economic risk for the work performed. If this assessment would lead to that the work performed is part of the Danish business, some additional criteria shall be taken into account to assess which business can be deemed as the real employer.

Among these criteria are:

  • Who has the right to instruct the employee on how to perform the work?
  • Who controls and is responsible for the workplace?
  • Is the Danish company invoiced for the salaries/wages?
  • Who supplies tools and machinery?
  • Who has influence on the amount of hired labour to be used and the qualifications needed?
  • Who has the right to pick the person who is going to perform the work, and who has the right to remove that person from the work?
  • Who has the right to impose sanctions on the employee in relation to the work?
  • Who determines the working hours and holidays?


In the steering signal the tax authority gives concrete examples on when the rules of hiring-out of labour shall apply, especially with references to the IT sector, but also to other sectors as well as to hiring-out of labour amongst group companies.

This steering signal when adopted and in force will definitively clarify the rules on hiring-out of labour and limit the scope of the rules. However, it is still important to have these rules in mind when performing work in Denmark for a Danish company and when drafting the contracts.

For further information please do not hesitate to contact LEAD - Legal Advice Denmark , Lawyer Alexandra Huber, phone 44 45 50 00.


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