OpEd: Remove the "Top Tax" to Attract Talent
With the new Danish government in place, it seems Prime Minister Lars Løkke Rasmussen has defused the bomb under the former V-Government – in the form of opposing demands to the proposed "Top Tax" legislation.
However, the fundamental challenges facing Denmark do not disappear by simply adding more parties to the government coalition – and one of the key challenges is our ability to attract and retain highly-skilled labor from abroad.
If international companies are to place investments in Denmark – and thereby create jobs and growth – access to the necessary workforce is imperative. And since Denmark is not capable of producing all the required talents, it’s vital to supplement with talents from around the globe.
AmCham’s annual Business Barometer show that when recruiting highly-skilled labor from abroad, companies rely heavily on the expat taxation program, which offers a lower tax rate of 32% for up to five years. Companies find the program easy to use, but also report that it’s nearly impossible to retain these key employees once the tax rebate expires after 5 years.
The program is actually a makeshift solution, with inherent challenges. In fact, many companies argue that the program can create friction between Danish and foreign workers, who receive different (net) pay for performing the same work. Instead, most companies would rather remove the "Top Tax" altogether, which would make the expat taxation program unnecessary.
In 2015, the program was expanded, when the qualifying monthly salary threshold was reduced from DKK 70k to 61,5k. At the time, the government estimated the program would attract 2,500 additional experts – of which 550 would not have come to work in Denmark otherwise.
Unfortunately, this has not been the case – at least not yet: Last week, the Ministry of Taxation released new figures, which showed an increase of only around 250 people in 2015.
Clearly, the DKK 61,5k threshold is still high, and companies are reluctant to recruit foreigners at that cost level. In fact, companies are increasingly managing without costly expats – focusing instead on attracting younger specialists. However, attracting them will require other measures.
Reducing the salary threshold would be the easiest solution. However, to really change things, Denmark must address its "Top Tax". Eliminating the "Top Tax" altogether - or at least increasing the "Top Tax" threshold to match the 61,5k level - would make it significantly easier to attract and retain the talents that add the most value to the Danish society. And to the Danish government’s coffers.
OpEd published in Børsen, November 29. 2016.
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