Low researcher tax attracting highly-skilled workers

Business interest group Dansk Erhverv estimates that the tax scheme is providing the Danish state with about two billion kroner a year

The number of highly-skilled researchers in Denmark is at its highest ever thanks to a tax scheme that allows researchers and other certain 'essential workers' to pay a lower tax than the average employee.

New research due to be published in the Quarterly Journal of Economics shows that the number of foreign researchers and essential workers is double what it would have been without the tax scheme. New figures from the tax authority Skat also confirm the scheme's success. Skat found the number of foreigners paying the 'researcher tax' rose by 23 percent in 2012 to a record 4,703 people.

The 'research tax' scheme has existed in various formats since 1991 and today’s version allows workers who are recruited from abroad to be taxed at a rate of 26 percent for up to five years. Taking labour market contributions into account, the workers pay an average tax of almost 32 percent on their wages. In comparison, the average highly-paid employee has to fork over about 46 percent of their wages.

To qualify for the research tax scheme, one either has to be a scientist or have wages that exceed 69,300 kroner a month, a salary that ranks among the top one percent of wage earners in the nation. The employer must be Danish and the person cannot have been liable to pay taxes in Denmark for three years prior to employment, a time period that is extended to 10 years for Danes returning from abroad.

“The 'researcher tax' scheme has a profound effect on how many highly-paid and highly-skilled workers that Denmark can attract,” Esben Schultz, the lead researcher of the think-tank Kraka, told Børsen newspaper. “The scheme has led to a doubling of highly-qualified foreigners coming to Denmark.”

Attracting highly-skilled workers has been an issue for Denmark for quite some time thanks to high taxes, an inflexible job market and stringent immigration laws.

The popularity of the scheme was confirmed by the pharmaceutical giant Novo Nordisk, an avid user of the tax scheme.

“Novo Nordisk is very pleased with the 'researcher tax' scheme and we use it regularly. It is an important instrument for us in being able to attract international profiles to positions in Denmark,” Lief Fenger Jensen, the head of international specialist recruitment for Novo Nordisk, told Børsen.

Business interest group Dansk Erhverv said that the scheme is so beneficial to the Danish economy and the state coffers that the monthly wage demands of at least 69,300 kroner should be downgraded so that more workers could take advantage of the tax rate.

“Research over a number of years has shown that there is strong empirical evidence about the scheme’s positive effect on Denmark,” Bo Sandberg, a spokesperson for Dansk Erhverv, told Børsen. “A further improvement of the scheme could entail lowering the income minimum from the 69,300 a month to 60,000 kroner.”

Sandberg estimated that the research-tax scheme provides an extra two billion kroner to state coffers annually. One reason is the highly-paid foreigners pay into the welfare system via the tax on their high salaries but don't typically use many welfare benefits.

The tax minister, Holger K Nielsen (Socialistisk Folkeparti), said that while he believed that people working in Denmark should pay Danish taxes, he agreed that the scheme was necessary and seems to be a resounding success.

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