Do you own property abroad?

Many people own property abroad, and even more are considering buying one. However, not everyone is aware of the consequences of tax in Denmark caused by owning property abroad. Read about the rules in Denmark here.

Date 21/10 2022

Most people are surprised by the tax consequences in Denmark related to acquisition of  property abroad. The tax consequences depend on what the foreign property is used for primarily.

Private Use

As a person, who is fully taxable to Denmark, Danish property tax must be paid for foreign properties, when the property is used exclusively privately. It is irrelevant whether the owner makes use of the property, as the property tax is an availability-based taxation. A property tax reduction can only be made if the property is uninhabitable. In accordance with the current rules, the value of the property in 2001 and 2002 must be taken into account in order to calculate the current property tax. For this reason, in most cases it is a much lower value than the acquisition amount, on which tax is payable.

There are no tax deductions for maintenance expenses, property taxes, insurance, etc. However, deductions can be made for interest expenses on loans for the purchase of property; regardless of whether the loan is in foreign currency or in a foreign bank. For loans in a foreign currency, there is usually a deduction for exchange rate losses, and any exchange gains will be taxable.

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Business (full rental)

As a rule, Danish property tax does not have to be paid, when the property is used exclusively for business purposes (e.g. rental). Still, the profit from the rental must be included as personal income according to Danish tax regulations. A deduction is provided for interest expenses on loans for the purchase of the rental property.

When you rent out your property exclusively for more than 12 consecutive months, you will be considered to be self-employed. This means that you operate the rental property at your own expense and risk, with the aim of making financial profit. You must keep accounts of rental income and operating expenses related to the rental. In addition, you must be able to present the financial statements for the property; as well as documentation of rental contracts and operating expenses to the Danish Tax Agency when they request it.

When conducting a business, you can choose from 3 types of taxation:

• Personal Tax Act (PSL)
• Capital Return Scheme (KAO)
• Corporate Tax Regime (VSO)

It is possible, under certain conditions, to make use of the corporate tax system. In this system, interest expenses may have a higher deductible value than when using the PSL/KAO, and the rental profit can be saved at a provisional tax rate of only 22%.

Partial rental

If the foreign property is used both for rental purposes and for private use, the profit from rental must be included on the income statement in Denmark, and taxed as capital income. It will be considered a partial rental if you rent out the property for part of the year.

The profit of a partial rental can be calculated by two methods; the accounting method and bottom deduction method.

With the accounting method, one must pay tax on the rental income less the deductible expenses. Please note, if you choose the accounting method, you cannot later switch to the base deduction method. When using this method, property tax is payable only for the period, in which the property was not leased.

Alternatively, profit can be calculated using the base deduction method, which is the most simple and uncomplicated method to use. Tax is paid on the rental income only when the annual rental income exceeds the bottom deduction.

The base deduction depends on whether the home is rented privately or through a rental agency or portal (such as Airbnb).

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• The minimum deduction for renting through a rental agency or portal is 29,900 DKK in 2021 and 30,300 DKK in 2022. Please see the tax rates here.
• Base deduction for private rental is DKK 11,700 in 2021 and DKK 11,900 in 2022.

When using the base deduction method, one must pay property tax for the entire year.

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Double Taxation

Often taxpayers think that if they have paid property tax or tax on rental income abroad, they will exempt from tax in Denmark. That is not entirely accurate. Denmark has signed so-called double taxation agreements with almost all countries. These agreements provide directions for how to proceed in such cases.

In the case of immovable property, the primary right of taxation always rests with the country in which the property is located. This means that Denmark will, in most cases, grant credit for the tax paid abroad. The credit method means that taxes must be paid both abroad and in Denmark. However, the Danish tax is reduced by the tax paid abroad. The maximum amount of credit that can be granted is equal to the Danish tax calculated on foreign income.

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Sale of property abroad

When selling property, the taxation of the profits will depend on what the property is used for primarily. If the property has been used in whole or in part privately, profit will in principle be tax-free, according to Section 8 of EBL (Ejendomsavancebeskatningsloven). However, there may be tax on property gain  on the sale abroad.

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If the property has been used exclusively for commercial purposes, such as rental, the profit must be included in the income statement in Denmark.

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Tax Abroad

Please note that we only work with the Danish tax regulations. You should seek advice from an advisor from the country, where the property is located.

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We can help you

If you have a foreign property and are unsure about how to handle it for tax purposes, we are ready to help you.

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We can help with:

• Self-assessment of property abroad
• Rental income statement
• Determining which method will be most beneficial for you to apply
• Sale of property
• Correct reporting
• Double Taxation
• Assistance with inquiries from tax authorities in Denmark
• Counseling

At Skatteinform, we have extensive expertise and experience in tax advice, tax litigation, auditing and accounting for both individuals and companies. You can read more about our tax advice here.

Please feel free to contact one of our professionaltax advisors for further questions.

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Contact SkatteInform
We provide qualified answers to your tax questions. If you are interested in assistance with the calculation of taxable income, we will be happy to provide this for a fee upon further agreement.

Call us at 33 32 10 10
Send an email to info@skatteinform.dk

SkatteInform Statsauthorized
Accounting partnership company
Frederiksborggade 54 1. tv
1360 Copenhagen K


We do not accept responsibility for any actions, that may be made on the basis of this information without prior individual advice. Likewise, we do not accept responsibility for any errors or omissions.