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Bonuses for employees – what are the rules about taxation?

Date

18 Aug 2025

Category

Tax
To many Danes, the prospect of a cash bonus is an attractive part of a total salary package. But when the bonus payment date approaches, many employers and employees are faced with a relevant question: how exactly does taxation work?
When we talk about bonuses, we refer to an extraordinary amount paid into the employee's account. A cash bonus may be awarded either after a goal has been achieved – that is, when one or more conditions have been met. A bonus can be given as a cash amount, which is transferred to employees on a specified date.

The terms of the bonus hold significance

In most cases, the requirement for the bonus is agreed in writing. This may be, for example:
  • that the employee, department or entire company must reach a specific revenue target within a given period
  • that the number of customer enquiries has increased
  • or another agreed parameter.
Once the condition is met, it triggers a bonus. The bonus can be agreed as either a fixed amount or a percentage of a given amount (often revenue or profit).

When must a bonus be taxed?

A bonus must be taxed under the applicable rules of the Danish Act on Taxation at Source (income tax and labour market contributions). But when, exactly, should taxation take place?
Here, tax law distinguishes between whether the terms of the bonus are a formality, or whether there is real uncertainty as to when and whether the terms will be met.
In the first case, we may consider a hypothetical example where the company sets a condition that the employee must be employed on the bonus payment date.

Formality or uncertainty

If the condition is merely a formality, the bonus is taxed as soon as the agreement regarding the bonus is entered into.
However, if there is real uncertainty as to whether the condition can be met, taxation will only take place once all conditions have been fulfilled – for example, when the sales target or similar objective has been achieved.

Do you need advice?

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FAQ about bonus for employees

A bonus is taxable under the applicable rules of the Danish Withholding Tax Act, including A-tax and the labour market contribution (AM-bidrag). Tax law makes a distinction between cases where the bonus condition is a mere formality and those where there is genuine uncertainty about whether and when the condition will be met.

A salary that includes commission or bonus means the employee isn’t paid solely for their working hours but also receives variable pay when specific targets are achieved.

You are entitled to a proportionate share of your commission or bonus during your holiday. If a bonus or commission is paid after you leave your job, you are also entitled to holiday pay on that amount.

If you’re paid on commission, your earnings aren’t solely based on the hours you work. You also receive extra pay with each pay period when you reach specific performance goals.

Alex Nielsen

Alex brings extensive experience from the advisory industry and the Danish Tax Agency, where he has advised Danish and international companies and their employees on tax matters, with a particular focus on international personal tax and social security. Alex currently works as Lead Personal Taxation and Global Mobility on Azets' advisory team.