Labor rent rules and foreign labor

Although the Ukrainian workforce is predominantly women, right now there are many of them, and most people want a job here and now. This is good news for the Horesta area and the Life Science Industry for engineers, biochemists and pharmacists. Through the so-called special law, you can easily get people from Ukraine into work. If the person is not from Ukraine, or a Ukrainian citizen, then you can hire labor under the labor lease rules. However, there are many aspects, including temp-like conditions, collective agreements and the actual attachment to his home country and Denmark.

If the foreign employee is employed directly by the company in Denmark, the employee must have the same terms of employment as a similar employee with Danish citizenship. If the employee is posted to Denmark from a company abroad, the company and the employee can generally choose which country’s rules apply to the employment relationship during the posting. Usually, the company and the employee agree that the laws of the employee’s home country apply to the employment relationship and that any disagreements must be dealt with in the employee and the company’s home country.

However, the employment relationship is at least covered by the rules of the Posting of Workers Act, which, among other things, require Danish legislation on working environment and maximum working hours to be complied with. If the employee enters into a contract, it is important that the company, if the Danish company has a collective agreement, distinguishes between temporary agency work and a contract, as this may have an impact on whether the foreign company must comply with the rules of the collective agreement.

For researchers, there is a special 27% taxation for up to 84 months that we can also advise on.

No special requirements for Nordic citizens

If the foreign national is a citizen of the Nordic region, he or she can start working without further ado. The countries of the Nordic region are Finland, Iceland, Norway and Sweden.

Citizens of the EU, EEA and Switzerland must apply for an EU residence document (registration certificate)

If the foreign national is a citizen of an EU country, an EEA country or Switzerland, he or she can start working – and then apply for an EU residence document with the Danish Agency for International Recruitment and Integration (SIRI).

It applies to: Austria, Belgium, Bulgaria, Cyprus (Greek part of Cyprus only), Estonia, France, Greece, Malta, the Netherlands, Poland, Portugal, Romania, Slovakia, Slovenia, Spain, The Czech Republic, Hungary, Hungary, Ireland, Italy, Latvia, Liechtenstein, Lithuania, Luxembourg.

Labour rental rules in short on tax and VAT on foreign labour

Hiring employees from abroad

If you, as a Danish company, hire an employee who lives abroad and has a foreign employer, the employee must pay tax in accordance with the rules on hiring-out of labour.

  1. The tax is 8% in am contributions and 30% in labor rent tax.
  2. Your business needs to make sure the tax is paid.
  3. The rules on hiring-out of labour apply regardless of whether the foreign employer is registered for VAT in Denmark.

To set up hiring-out of labor for foreign labor

There is talk of hiring-out of labour when a foreign company’s employees are made available to perform personal work for a company in this country, and the work forms an integral part of the company.

  • The work can be part of the company’s core services, or it can form a natural part of the company’s operations, e.g. bookkeeping, cleaning or canteen operations.
  • The decisive factor is whether the Danish company actually disposes of the employee in a way that is customary for an employee relationship.

In the case of hiring-out of labour, there are always three parties applicable to foreign labour.

  1. A Danish company that hires labour.
  2. A foreign employer who rents out labor. For example, it could be a temporary employment agency or another company.
  3. A foreign employee who is employed by the foreign employer.

It is immaterial whether the contract for the provision of services is called a hiring-out contract or a construction contract. It is decisive whether the foreign employee actually works for the Danish company on terms that are broadly equivalent to the employee being in a service relationship with the Danish company.

When is there no work lease?

Foreign employees are not covered by the labour hiring-out rules when the work performed

(a)) is not an integral part of the company’s core services or operations, or

(b)) is segregated into an independent foreign company.

When there is doubt whether the benefits are sufficiently segregated

The determination of whether the work is delimited and segregated into self-employed foreign activities, shall be taken on the basis of a concrete assessment. It is important here to determine which of the parties bears the main part of the responsibility and financial risk for the work performed.

We can always help you to a successful recruitment of employees.

Additional criteria when assessing the hiring-out of labour apply to foreign labour

If the circumstances surrounding liability and financial risk point to the absence of a self-employed foreign company and that the Danish company can thus be regarded as the real employer, it may be relevant to look at these additional criteria:

  1. Who instructs the employee on how the work should be done?
  2. Who controls and is in charge of the place where the work is carried out?
  3. Is the bill for the salary charged to the Danish company?
  4. Who supplies work tools and equipment?
  5. Who determines the number of employees who will do the work and their qualifications?
  6. Who chooses the employee who will do the work and who can take him from work?
  7. Who imposes sanctions on the employee that are related to the work?
  8. Who determines working hours and vacations?

Here, the rules on hiring-out of labour do not apply

Thus, the rule does NOT apply when:

  1. The employee is fully liable to pay tax in Denmark.
  2. The employee is subject to limited tax liability on salary for work performed in Denmark due to residence, or is directly employed by a Danish employer.
  3. The agreement on hiring-out of labour is concluded between two Danish companies, and there is no question of the transfer of foreign labour
  4. The foreign employer, which provides labor available, has a permanent establishment in this country.
  5. The employee is a performer, musician, artist or athlete.

Examples of hiring-out of labour

  1. A Danish IT company, A, is responsible for ongoing support and maintenance of an IT system at a Danish customer. For a period of 5 months, A does not have enough employees to perform the task and therefore hires 5 employees from a foreign IT company, B, to help carry out the work. A is responsible for training the 5 employees, and these are part of teams together with A’s own employees. There is talk of A lacking the resources to perform work that A’s own employees also do. A also has the opportunity to exercise instruction, guidance and control over B’s employees, and this speaks collectively in favour of hiring-out of labour.
  2. A Danish customer enters into an agreement with a Danish construction company to build a large building. The construction work is so extensive that the Danish construction company enters into an agreement with a foreign construction company to carry out parts of the construction. In connection with the construction, it is continuously agreed which tasks the employees of the foreign construction company will be responsible for, and settlements are made in proportion to the number of hours that the employees of the foreign company perform work on the construction. The services of the foreign company are not clearly defined and individualised in advance. The Danish construction company is responsible for the purchase of the materials used for the construction. After an overall assessment, there will be a hiring-out of labour.
  3. A Danish horticultural company, A, enters into an agreement with a foreign company, B, that it will pick 2,000 kg of A’s cucumbers. In connection with the agreement, B makes available a supervisor, vegetable boxes and employees. The work takes place at A’s horticultural company, and A has organized the cucumber production itself. The work is planned and carried out in general, taking into account the operation of the nursery, including the timing of the deposition of the cucumbers. This therefore suggests that it is a question of hiring-out of labour.

Examples that are not hiring-out of labor

Example 1: A Danish construction company builds detached houses. The company, with its own employees, generally carries out masonry and carpentry contracts. As regards flooring, the Danish company enters into a construction contract with a foreign flooring company that carries out the flooring work at a fixed agreed price. It is only the flooring company’s own employees who carry out the task, under the direction and responsibility of the flooring company. The flooring company, by agreement, supplies the bulk of the floor and building materials itself. Any complaints will be rectified by the flooring company at its own expense. The work must be regarded as an independent service provided by a self-employed foreign business, and the service in the flooring company delimited and separated in relation to the Danish company.

Example 2: A Danish consultancy hires a consultant to provide a specific defined service on a specific project. The consultant is employed by a foreign company. The foreign company provides the service for the project at a pre-agreed price. The Danish company has one employee with competencies within the special niche, but this employee is busy with other tasks. The task on the project is solved independently by the foreign company’s consultant, i.e. without guidance, instruction or control from a project manager. The Danish company’s project manager is solely responsible for coordinating the submission of the consultant’s assignment with the rest of the project. If, on the basis of an overall concrete assessment of the other relevant supplementary criteria, the foreign consultant is considered to provide an independent consultancy service, there will be no hiring-out of labour.

Example 3: A manufacturer ceases to run its products to customers on its own. Instead, this work is carried out by an independent haulier. The task is then outsourced as an independent company to the haulier and no longer integrated into the company.

It is the case that many companies advertise in vain for labor, so we can well venture the claim that it is almost difficult not to get a job. Precisely, the table below gives a total of 85,600 unsuccessful recruitments and in Denmark there are estimated approximately 200,000 jobs that could have been filled if you could have got labor.

Apart from the fact that it is a distress call to the Danish Parliament to reduce the minimum wage for people outside the EU under the Pay Limit Scheme to, for example, 25,000, – it is the workers’ market that can largely choose between a lot of jobs.

  • Source:, The Danish Tax Agency and the Danish Agency for Labour Market and Recruitment
  • Photo credit: courtesy of Keld Navntoft