Do you own property abroad?

Many own a property abroad and even more are walking around with the idea of buying one. However, not everyone is aware of the tax consequences in Denmark that a property abroad entails. Read here about the rules in Denmark.

Date 21/10 2022

Most people are surprised by the tax consequences in Denmark that come with the acquisition of a property abroad. The tax consequences depend on what the foreign property is used for.

Private Use

As fully taxable to Denmark, Danish property value tax must be paid for foreign properties when the property is used exclusively privately cf. EVSL §2. It is immaterial whether the owner makes use of the property, as the property value tax is a disposal tax. A reduction in property value tax can only be made if the property is uninhabitable. When calculating the property value tax in accordance with the current rules, the value in 2001 and 2002 must be taken into account cf. EVSL §4 a, which is why 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. On the other hand, deductions can be made for interest expenses on loans for the purchase of property, regardless of whether the loan is in foreign currency or a foreign bank. For loans in foreign currency, there is usually a deduction for exchange rate losses and any exchange gain will be taxable.

Business (full rental)

As a rule, Danish property value tax does not have to be paid when the property is used exclusively for business purposes, e.g. rental cf. EVSL §1. The profit from the rental, on the other hand, must be included in the Danish income, including personal income. 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 self-employed. This means that you operate the rental property at your own expense and risk, and 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, as well as documentation of rental contracts and operating expenses to the Tax Agency when they request it.

When conducting a business, you can choose between 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 which interest expenses may have a higher deductible value than when using 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 in the income statement in Denmark and taxed as capital income. It will be a partial rental if you rent out the property for part of the year.

The profit of a partial rental can be calculated by 2 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, once you have chosen the accounting method, you cannot later switch to the method of base deduction. When using this method, property value tax is payable only for the period in which the property has not been leased.

Alternatively, the 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 you rent the home privately or through a rental agency or portal (such as Airbnb).

• The minimum deduction for renting through a rental agency or portal is 29,900 DKK in 2021 and 30,300 DKK in 2022 See tax ratser.dk.
• 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 value tax of the entire year.

Double Taxation

Often taxpayers think that if they have paid property value tax or tax on rental income abroad, you are exempt from tax in Denmark. That's not entirely accurate. Denmark has signed so-called double taxation agreements with almost all countries on how to act in such cases.

In the case of immovable property, the primary right of taxation always rests with the country in which the property is situated. 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 Denmark, but so that the Danish tax is reduced by the tax paid abroad. A maximum of Credit can be granted with an amount equal to the Danish tax calculated on foreign income.

Sale of property abroad

When selling the property, the taxation of the profits will depend on what the property is used for. If the property has been used in whole or in part privately, a profit will in principle be tax-free cf. Section 8 of the Property Income Tax Act. However, there may be property reserve tax on the sale abroad.

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

Tax Abroad

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

We can help you

If you have a foreign property and are not sure how to handle it for tax purposes, we are ready to help you.

What we can help with:

• Self-assessment of the property abroad
• Statement of rental income
• Which method will be most beneficial for you to apply
• Sale of property
• Correct reporting
• Double Taxation
• Assist 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. Read more about our tax advice here.

Please be more than welcome to contact one of our professional tax advisors for further questions.

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

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

SkatteInform Statsauthorized
Audit partner company
Frederiksborggade 54 1. tv
1360 Copenhagen K


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

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