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Guide to Tax and VAT When Working in Different Countries

Af Inge Nilsson, Skatte Inform

There are several rules and regulations regarding tax and VAT that it’s important you are aware of, if you work with theatre in different countries. SkatteInform, which is a consulting firm that specializes in tax legislation and legal practices as well as accounting, has developed a set of guidelines to tax practices and working conditions across the borders of Denmark and Sweden, especially for Kompas1 – with the theatre industry as its target group. The full-length guide can be downloaded (in Danish) from this webpage.

The following will give you a gist of the most important things to be aware of when you are employed with a set fee, as a wage earner and a producer.

Personal Taxation 

In which country do you pay your taxes? To find out how and how much you should be taxed, you need to first establish to which country you ‘belong’. As a general rule, this will be where you have your permanent residence. If you have several residences, you will ‘belong’ to the country you are affiliated most strongly with or where you reside for most of the time.

If you are resident in Denmark, as a general rule, all income will be taxable in Denmark, no matter where you earned your money. Normally, you will also be taxed on the money you make abroad. Reversely, people from abroad who work in Denmark can be deemed taxable in Denmark, in terms of the money they make while working in Denmark.

Full tax liability in Denmark can also occur if you stay in Denmark for longer than six months, without actually residing in Denmark.

In most European countries, the country of residence has the right to tax all income, regardless of where the money was earned. This is known as ‘the principle of global income’. Both Denmark and Sweden adhere to these regulations. When you work in a country other than the one in which you reside, the country in which you work will often also be eligible to tax your income. This is known as ‘source-country taxation’.

To avoid having to be taxed from the same income in different countries, especially within Europe, an agreement has been reached, in which the country of residence lowers the general taxation by reducing the overall tax (the global income tax) with the amount paid in taxes in the country where the work was carried out (the source-country tax). Denmark has signed an agreement with Sweden in accordance with this principle. If (and this is only for employees) you are covered by Swedish social security, Denmark has to reduce the Danish taxation of that part of the tax that is deducted from the money made while working abroad.

The taxation of your income depends on which kind of income we are talking about; is it a set fee, wages or earned income?

Working For A Fixed Fee

Performing artists include singers, actors, dancers and musicians, but not technical staff, directors, production managers etc. A performing artist will often be paid a set fee and is therefore not considered an employee. However, if the engagement with a specific theatre is long-term, the performing artist can be considered employed under conditions similar to those of an employee.

If you are an artist performing in Denmark and your full tax liability is in Denmark, your set fee will be taxed as B-tax (income not taxed at source).

If you are a performing artist performing in Sweden, Sweden will often be eligible to tax your income. As a general rule, the country in which the performance takes place will have the right of taxation. If the performance is primarily funded by public funding exceptions may occur. Whether or not the different countries have legislative right to taxation varies.

Employees

Wages are considered personal income and thus taxable in Denmark. If the work is carried out in Sweden while you reside in Denmark, then as a general rule, you will be taxed in the country of residence, according to the Nordic agreement on double taxation. However, Sweden as source-country may have the right to tax your income (source-country tax) if your salary is paid by a Swedish employer or if you work in Sweden for a Danish employer for more than 183 days.

In addition, your employer should be aware of in which country social taxes are due to be paid, seeing as a Swedish employer must pay 33% of the wage bill in social taxes, while in Denmark social taxes amount to less than 1%.

As a general rule, social taxes must be paid in the country in which you work. In other words, if you only work in Sweden, you are covered by Swedish social security.

According to a specifically Nordic agreement, if you are resident in Denmark, you can stay within the Danish regulations. This, however, is only if you are stationed or if you work in Denmark as well as Sweden.

Working Abroad (Ligningsloven § 33A – Law of Assessment)

There are specific regulations, however, that may prove beneficial to you as an employee, if your full tax liability is in Denmark while receiving pay for work carried out abroad. This can be the case for employees who in connection with an international production perform outside Denmark for a longer period of time.

Regardless of the content of any agreement on double taxation, domestic Danish regulations allow you a reduction of your Danish tax, for that part of the tax, which befalls the income you have earned abroad. This means that in many instances you won’t have to pay tax or only half tax of the money you make abroad. There are many rules and regulations that have to be fulfilled and documented for this rule to be applicable though:

  • You have to stay outside Denmark for no less than six months. If you take vacation in Denmark at the beginning or the end of the stay, you will not have stayed out of Denmark for six months.
  • That you within any period of six months spend no more than 42 days in Denmark. Travel to and from holidays in Denmark at the beginning or end of the six months are not included in the 42 days you can stay in Denmark.
  • That you do not work while in Denmark for said 42 days, except covering necessary work in relation to the work you are doing abroad.
  • That you receive regular wages and not a set fee or earned income (when self-employed)

If the right of taxation according to an agreement on double taxation befalls Denmark, you will only receive a 50% reduction in taxation.

If you stay outside Denmark beyond six months, the number of days you can stay in Denmark rise proportionally with seven days per month.

Deductions And Tax-Free Remuneration

As an employee, you have the possibility of receiving earned income relief. Obtaining tax-free remuneration or deductions in connection with business travel is conditioned by it being a ‘genuine’ trip, and so staying overnight in your residence is not an option, and you should keep all documentation to this effect. The employee is therefore instructed to have a different place of work and the trip must last more than 24-hours and include staying overnight.

Artists As Suppliers

If you are neither an employee nor paid a set fee, you can be classed as being self-employed, but only if your business is not considered a leisure-time pursuit. When self-employed, you will invoice the production company/employer for your services. What characterizes being self-employed is the fact that your income depends on your company’s proceeds and that the work carried out is at your own discretion and risk.

The right of taxation of self-employed artists usually befalls the country in which your company is registered. If you live in Denmark, the general rule is that you will be considered to be managing your company from Denmark.

Self-employed artists can deduct actual business expenses that have been used to accrue your income. It is important that the expenses are not of a private nature. By way of example, everyday clothes and spectacles will not be deductible. These are expenses that ordinary employees also have to cover themselves and therefore they are not deductible. However, special costumes, make-up etc. used for acting will be considered deductible, if you have documentation that they were purchased strictly for business purposes and NOT for private use. Determining the fine line between business and private use is often difficult, but there are a number of decisions that indicate a leaning towards rather strict assessments.

Actors, set designers, directors, production managers can also be self-employed, in which case their companies will invoice their clients, in this case the production company. You will then be considered employed by your own company from where you receive pay and any possible reductions. Your company will invoice the production company and you can deduct business expenses as long as they are not for private use. Any proceeds can be distributed to the artist/owner as profit and taxed as equity income.

Volunteer Without Pay

If a volunteer in a dramatic society or some other cultural society receives compensation for expenses by bill which relate to the society’s tax-free activities, this compensation will not be taxable. Furthermore, the volunteer may obtain tax-free transportation according to state rates. 

Royalties

According to the Nordic agreement on double taxation, royalties must be taxed in the country where the rightful owner is resident

If you are a resident of Denmark, Denmark has the right of taxation. If you run a business with a permanent address in Sweden, but you’re a resident of Denmark, Sweden has the right of taxation.

Royalties are taxable at the time of acquisition. If you cannot calculate the total amount of royalties until the end of the calendar year, you should not include royalties until the time of payment. 

Taxation of Production Companies 

Corporation Tax

Unlike private people, companies in Denmark are taxed according to the principle of territory; in other words, a company is only taxed in Denmark, if the company’s permanent address is in Denmark.

So a Danish investment trust will only be taxed on its profits if the theatre company has a permanent address in Denmark. If its permanent address is in Sweden, Denmark has no right of taxation of any profit from this activity.

  • Corporation tax in Denmark 2014 is 24,5%
  • Corporation tax in Sweden 2014 is 22%
  • Corporation tax in Norway 2014 is 27 % 

Tax Deducted At Source And Notification Duty

In Denmark there are rules and regulations regarding retention and payment of tax as well as notification of salary and personnel benefits, including tax-free deductions etc. for companies with employees.

As a general rule, the employer must withhold and forward tax-payments to the Inland Revenue (Skat). How much depends on the individual’s personal tax liability.

Income taxed at source includes wages, free use of car, telephone, food and lodgings as well as set fees.

When receiving a set fee you are eligible to pay B-tax (income not taxed at source) and it’s up to the recipient her-/himself to pay the right amount of tax.

Furthermore, in most instances, the ‘AM-Bidrag’ (labour market contribution) should also be withdrawn from personal income, although public lending right fees are exempt from this taxation. This applies regardless of whether the income was earned in Denmark or abroad. In 2013, the AM-Bidrag is 8% of both wages and set fees, considered part of your personal income.

There are also rules and regulations for employers’ notification duty regarding wages, set fees and personnel benefits. In 2012 regulations were introduced in which an employer will be fined if s/he does not comply with these rules. The fines are relatively large and we therefore recommend that you investigate the regulations regarding notification duty further. You may even have to seek advice from a councillor.

You can also find further information on the Danish Inland Revenue’s webpage.

VAT

As a general rule, invoicing services for a theatre production should include VAT. However, certain services are not subject to VAT as described below.

You need to divide your work into services and commodities. We only describe the VAT regulations in relation to services provided by artists and contractors in connection with a theatre production as well as VAT on ticket sales.

As a general rule in terms of services, you have to adhere to the VAT regulations within the country, where the salesperson resides. According to Danish VAT regulations, certain services are exempt from VAT while others are subject to VAT.

A-income (taxed at source) is never subject to VAT. However, both artists being paid a set fee and self-employed artists whose company is based in Denmark could be subject to VAT.

Artistic Activity Is Exempt From VAT

According to Danish VAT regulations, artists do not have to pay VAT. This also holds true for artists who supply artistic business services.

When assessing services in the arts, the regulations in the country where the performance takes place will apply, because whether or not a service is subject to VAT depends on place of delivery.

If a performance takes place in Denmark, the service that the actor/artist delivers to the production company will not be subject to VAT. However, as a result hereof, the artist will not be able to deduct VAT for expenses in connection with providing said services.

If the performance takes place in Sweden, it will be Swedish VAT regulations that apply.

The VAT exemption is only valid for performing artists, such as actors in a theatre production, and this regardless of whether the artist is paid a set fee or is self-employed.

Other Contractors Who Are Subject To VAT

As a general rule, other self-employed contractors (not artists), including directors or stagehands, will have to invoice the production company including VAT, as their services are not exempt from VAT, if both buyer and salesperson is from Denmark.

If buyer is from another EU country and subject to VAT, the salesperson will not have to add VAT to the invoice. Buyer will then have to notify VAT with reverse liability to pay and notify his or her own country.

  • VAT in Denmark is 25 %.
  • VAT in Sweden is a compound of a normal rate of 25 % and a reduced rate of 12 % on foods, restaurants/catering and travel as well as a reduced rate of 6 % on tickets, books and magazines.
  • VAT in Norway is a compound of a normal rate of 25 % and a reduced rate of 15 % on foods as well as a reduced rate of 8 % on cinema tickets and transportation.

The Production Company Is Subject To VAT

Danish VAT regulations stipulate that artistic activities are exempt from VAT; however, this does not include theatre producers. The production company in charge of the performance will have to add VAT to its invoices. As an example, income from ticket sales will be subject to VAT, which however, will also enable the production company to deduce VAT from purchases subject to VAT.

Download the full guide to taxation and VAT when working across borders. Here you will find extensive guidelines, illustrative models and overviews of deductions and rates etc. (in Danish).

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