Summary
Employee benefits are, as a general rule, taxable and are taxed at market value, but there are important exceptions. The benefits are divided into four groups: benefits subject to special valuation rules (e.g. a company car), work-related benefits below a de minimis threshold, minor benefits below a tax-free threshold, and tax-free employee welfare. If a de minimis limit is exceeded, the full value is taxed. The current thresholds can be found at skat.dk.
Short answer
Employee benefits are benefits that you, as an employer, provide to your staff in addition to their regular salary. As a general rule, employee benefits are taxable and are taxed at their market value – but there are important exceptions. Some benefits are completely tax-free, others are taxed only if their value exceeds a de minimis threshold, and a third group is always taxed according to special rules. The specific thresholds are adjusted annually and can be found on skat.dk.
What is an employee benefit?
An employee benefit is a non-cash benefit made available to an employee by virtue of their employment – for example, a company car, a company mobile phone, health insurance, a free newspaper, a coffee and fruit scheme, or a Christmas present. What all employee benefits have in common is that they provide the employee with a benefit of a personal nature. These benefits can either be added on top of the salary as an extra benefit or form part of the overall remuneration package.
Employee benefits are, as a general rule, taxable
Under tax legislation, all income is taxable, and employee benefits are therefore, as a general rule, taxable in the same way as salary. The benefits are valued at market value – that is, the amount the employee would have had to pay for the same goods or services. The specific treatment depends on which category the benefit falls into.
The four categories of staff benefits
In practice, employee benefits can be divided into four groups:
- Assets subject to special valuation rules: e.g. company car, free telephone and internet, free board and lodging, and free accommodation. They are always taxed according to their own rules – regardless of the de minimis thresholds.
- Work-related employee benefits: benefits provided primarily for work-related purposes, such as free meals during unplanned overtime or a free newspaper for work purposes. These are only taxable if the total annual value exceeds the de minimis threshold for work-related benefits.
- Minor staff benefits (small benefits): small personal gifts such as flowers, wine, chocolate and access cards – and the Christmas present. These are only taxed if the total annual value exceeds the tax-free de minimis limit for small gifts.
- Tax-free benefits and staff welfare: benefits of no significant financial value provided at the workplace as part of standard staff welfare – e.g. coffee, tea, fruit, the canteen, the Christmas party and company outings. These are not taxable and do not need to be reported. The same applies, for example, to on-site parking and employer-funded training.
Important: if the limit is exceeded, the entire value will be taxed
For both de minimis thresholds, if the total value of the goods exceeds the threshold, the entire amount is taxed – not just the portion exceeding the threshold. Furthermore, the thresholds apply collectively per employee per year, including across multiple employers, and it is the employee’s own responsibility to monitor whether the threshold has been exceeded and, if so, to declare the value themselves.
Christmas presents and gifts for special occasions
A Christmas present in the form of a gift in kind is tax-free if its value remains below the special Christmas present limit – but the value is taken into account when calculating whether the limit for small gifts has been reached. A gift voucher that can be exchanged for cash, on the other hand, is taxable. Occasional gifts given to mark events such as milestone birthdays or weddings, which are of a private nature and of a reasonable value, are generally tax-free and do not count towards the de minimis limit.
Who reports what?
As an employer, you are required to report taxable employee benefits that are reported via eIndkomst as part of the salary. You do not need to report minor benefits below the tax-free threshold – but you must report them if the value of a simple Benefits exceeding the ‘minor benefits’ threshold. Tax-free benefits and staff welfare provisions do not need to be reported. It is a good idea to keep a record of the benefits you provide so that you can document that they remain below the thresholds.
Pay restructuring
Certain employee benefits can be funded through a salary restructuring scheme, whereby the employee receives the benefit in return for an agreed reduction in their gross salary. A similar scheme is the flexible savings account, where the employee chooses between pay, pension and time off. The rules governing pay restructuring are detailed, so they should always be clarified on a case-by-case basis.
We can help you with your staff benefits
Employee benefits are a useful tool for promoting well-being and staff retention, but taxation and reporting can easily go wrong – and mistakes can lead to adjustments by SKAT. At Dansk Løn Service, we manage valuation and reporting as an integral part of our payroll processing. Read more about company car and holiday days, or Contact us.
The rules have been simplified here, and the thresholds are adjusted annually. If in doubt, always seek specific guidance on skat.dk or from a payroll officer.