Availability of holiday apartment - avoid fire taxation

Order on taxation of the disposal of hotel apartments abroad

The National Tax Tribunal has issued an order on the taxation of a principal shareholder's disposal of a hotel holiday apartment abroad. The principal owner had to be taxed for all the days when the holiday apartment was not rented.

1. Taxation of free summer residence

If you are provided with a holiday home, you must be taxed at ½% of the value of the home in weeks 22-34 and ¼% in the other weeks of the year.

If you are the principal shareholder or another person with a significant influence on your own remuneration, the company's holiday apartment is generally considered to be available throughout the year. In the worst case scenario, you will thus be taxed on 16.25% of the value of the apartment. However, deductions must be made for the weeks in which the apartment has been rented to persons other than related persons.

2. Decision of the National Tax Court

The case concerned a principal shareholder who had bought a hotel apartment through his company.

The Land Tax Court held that the principal owner should be taxed for the periods in which the apartment had not been rented, although it could be proved that the principal owner had never used the holiday home.

It is clear from the case:

• The company had bought an apartment.
• Rentals were made collectively through an owners' association
• The rental agreement stated that the owners' association could mediate the rental of the apartment throughout the year.
• The owner was entitled to use the opportunity himself during the periods when it was not rented and, moreover, by agreement with the intermediary, but for a maximum of 3 weeks during the high season.

The Land Tax Court reached the conclusion that the principal shareholder should be taxed for the periods when the apartment had not been rented. The Swedish Tax Court took the view that the apartment had been available to the principal owner for non-leased periods and it could not be attributed to the fact that the principal owner had not actually used the apartment.

Our comments

Despite the fact that:

• The hotel apartment was registered for rent all year
• The principal shareholder had, in fact, not taken advantage of the opportunity.

Did the Land Tax Court conclude that the owner of the apartment had been in possession of the apartment during the period when it had not been rented.

The decision shows that, as a principal shareholder, you must be very careful when concluding contracts with rental intermediaries if you want to avoid taxation of free holiday accommodation throughout the year.

Good advice

According to the rules, there are the following options for avoiding taxation of free holiday apartments throughout the year:

• It can be used as a staff holiday home. This means that the holiday home is made available to employees of the company other than directors, etc. for at least 13 weeks a year, of which at least 8 weeks must be during the high season.
• The use of the dwelling may be irrevocably renounced by a contract with a letting agent.

It is necessary to be very careful when drawing up these contracts with the rental agent. Otherwise, as the principal shareholder, you risk being taxed on the availability of the holiday apartment throughout the year.

The following example illustrates taxation:

Apartment value

1,000,000

Taxable income 16.25%

162,250

Tax 59%

95,728

In the worst case, an apartment worth 1 million DKK will cost you 95,728 DKK in taxes per year.

Contact SkatteInform

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Tax Inform

Chartered Accountants

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1552 Copenhagen V

Article No 2005-47. 05 October 2006

Source: SKM 2006, 468 LSR

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Disclaimer

‍The above information is for guidance purposes only, and we accept no responsibility for decisions made based on this information without prior individual advice. We accept no responsibility for errors or omissions.

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