On 29 September 2026, The Local Denmark published a preview of the Danish government’s upcoming 2027 budget proposal, scheduled for formal presentation later in October 2026. The article outlines several tax-related measures already announced, including a reduction in VAT on food products, adjustments to the commuter deduction (befordringsfradrag), and the aforementioned mellemskat cut for high earners. The budget aims to address cost-of-living pressures while maintaining fiscal discipline under the EU’s Stability and Growth Pact. The government has indicated that the VAT cut on food – from the standard 25% to a lower rate – will be implemented swiftly, with the Tax Minister expressing confidence that retailers will pass on the savings to consumers. The Ministry of Finance projects a headline deficit of 0.5% of GDP for 2027, within the EU’s 3% limit, but structural deficits remain a concern. The budget also includes a DKK 5 billion allocation for green transition initiatives, funded by a gradual increase in the carbon tax on industrial emissions. For foreign residents, the budget maintains the special expatriate tax scheme (Section 48E of the Danish Tax Assessment Act), which allows qualifying researchers and key employees to pay a flat 27% tax on gross salary for up to seven years. The government has ruled out changes to this scheme in 2027, providing certainty for international recruitment. Additionally, the budget proposes a simplification of the foreign tax credit mechanism, aligning it with the OECD’s Pillar Two framework for global minimum taxation. This will affect Danish multinational groups and foreign-controlled companies operating in Denmark. The parliamentary debate on the budget is expected to dominate the autumn session, with a final vote in December 2026.
Key Takeaways
- VAT Cut on Food as Flagship Measure: The proposed reduction in the standard 25% VAT rate on groceries is designed to alleviate household inflation. The Ministry of Taxation estimates the measure will cost approximately DKK 15 billion annually, financed through spending reallocations. Retail sector compliance will be monitored via the new digital reporting system introduced in 2025, which requires real-time invoicing data submission. The government has pledged to publish a quarterly pass-through report to ensure transparency.
- Commuter Deduction Increase Extended: The temporary increase in the commuter deduction (DKK 2.28 per km beyond 24 km) introduced in mid-2026 due to fuel price spikes will be prolonged through 2027. This benefits an estimated 1.2 million commuters, with an average annual tax saving of DKK 2,300. The deduction applies regardless of transport mode – car, train, or bicycle – and is claimed via the annual tax return (arsopgorelse). The government has indicated that the rate may be indexed to fuel prices in future years.
- Implications for Foreign Residents and Cross-Border Workers: The budget maintains existing rules for foreign tax credits and the special expatriate tax scheme (Section 48E). However, the mellemskat cut will apply to all taxpayers meeting the income threshold regardless of nationality, potentially improving Denmark’s attractiveness for highly skilled expatriates. Cross-border commuters from Sweden and Germany should note that the commuter deduction is available only for work performed in Denmark, and the increased rate applies symmetrically. The budget also proposes enhanced information exchange with Nordic tax authorities to combat undeclared income.
Disclaimer: This article is compiled and summarized by the AI based on publicly available information and is for general information purposes only. It does not constitute any form of formal tax advice, legal opinion, or basis for performance. Please consult a qualified professional tax advisor or legal counsel for tax advice.
Source: Read Official Announcement