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Extend the researcher tax scheme by two years - it won’t cost a penny

Companies can better retain high-paid foreign employees if the researcher tax scheme is extended. Calculations show it will not cost extra. We should do it, says the Confederation of Danish Industry. The Conservative People’s Party and Danish Social Liberal Party are in favour.
If an employee has more time to settle in Denmark, he or she will also be more inclined to stay and work, says Kent Damsgaard, deputy director at the Confederation of Danish Industry.

Publiceret: 28.02.2017
Af Lotte Malene Ruby mail

Foreign researchers and employees who earn at least DKK 63,700 per month are entitled to a tax deduction for five years.

This is a big help for Danish companies when competing for the best specialists.
But even though five years might sound like a long time, it is not enough to retain employees over time. This is something Lars-Peter Søbye, CEO of the consulting group COWI and chairman of DI Global Talents Advisory Board, knows.

“In the global competition for the most talented employees, the offer of an attractive job is not enough. We have the good jobs here at home, but the tax is also very important because the cost of living is high - and we compete with countries with much lower income taxes,” he says.

See also: Is Deutsche Bank Danish? - Young talents don’t choose Denmark

Employees move after three to four years

On average, companies like COWI find that by using the so-called researcher tax scheme, they can maintain highly specialised employees for 3.5 years.

But when the period of low taxation approaches its expiration date, employees start looking for new opportunities. The Confederation of Danish Industry (DI) is therefore proposing an extension of the researcher tax scheme from five to seven years.

“It’s a costly affair for companies each time they lose a highly qualified employee. It leads to a loss of knowledge and a period of lower productivity while the company searches for a new employee and trains the new recruit. Meanwhile, if an employee has more time to settle in Denmark, there’s a greater chance that they will set roots and want to stay,” explains Kent Damsgaard, deputy director at DI.

He also points out that the researcher tax scheme is already today very profitable for Denmark, given that the employees contribute significantly more to the economy than they cost, despite the tax deduction.

See also: Copenhagen get spouses of foreign nationals into work

The extension won’t cost a penny

In fact, an employee who is part of the scheme contributes an average of DKK 225,000 per year, while a highly educated immigrant under standard tax conditions contributes an average of DKK 130,000 per year.

This is the conclusion of the report “Are highly-educated immigrants a good investment for Denmark?” that the think tank DEA has drawn up for DI.

Calculations from the Danish Ministry of Taxation show that the scheme can be extended by two years without it costing the government a penny. Financing can be obtained by letting employees who use the scheme pay just one percentage point more in taxes, so the tax rate rises from 26 to 27 per cent plus labour market contributions.

An increase that small is not something that will break the camel’s back, says Peter Søbye.

“That one percentage point will not matter for recruitment. It’s the big increase that today comes after five years that’s a problem.  And I think it’s great that this way, the extension won’t cost the government anything, but instead purely benefit all parties,” he says.

See also: DI Insight - Denmark ranks low in the fight for brilliant minds (in Danish)

Political support for the proposal

It is the Danish Conservative People’s Party that has requested the calculations from the Ministry of Taxation.

“The researcher scheme helps attract good and qualified labour force to Denmark. This is necessary if we’re going to create more growth and prosperity for all Danes,” says tax spokesperson Anders Johansson Retz.

The Conservatives will work to extend the system so that Denmark can attract more talented employees to companies.

“This is an easy and cost-free way to do it. We support that,” he says.

On the political side, the Danish Social Liberal Party can also see the point of improving companies’ capacity to recruit highly skilled workers from other countries.

“Perhaps the biggest obstacle to growth in Danish companies is the lack of qualified employees. If an extension of the researcher tax scheme from five to seven years will help, then we support it. It would, of course, be even better if our tax system itself made Denmark so attractive to employees that schemes like this weren’t necessary. But until that happens, it’s most certainly a good solution,” says the Social Liberal Party’s tax spokesperson Martin Lidegaard.

See also: Every fourth full-time employee will pay top-bracket tax in 2022

The researcher tax scheme

Actually called the “Tax scheme for foreign researchers and highly-paid employees”
Introduced in 1992, amended several times
Aims to strengthen the ability of businesses and research institutions to attract and retain highly skilled research and development employees from abroad
Currently calculated as a gross tax scheme with a tax rate of 26 per cent, corresponding to a gross tax of 31.92 per cent including labour market contributions.
May be used for up to five years
In order to be eligible, the employee must fulfil several requirements - as a point of departure, they must have a special researcher status or an income of at least DKK 63,700 per month. It is also a requirement for eligibility that one has not been liable to taxation in Denmark in the past 10 years

See also: Tax scheme for foreign researchers and highly-paid employees

The tax is very important because the cost of living is high - and we compete with countries with much lower income taxes.
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PUBLISHED: 2/28/2017 LAST MODIFIED: 2/28/2017