Many Danes receive letters from the Danish Tax Agency regarding their properties abroad. This could have significant tax and potentially criminal consequences for you. If you own property abroad, it is worth informing the Skattestyrelsen about this before the Skattestyrelsen receives the information.
Date 21/10 2022
For persons with property abroad, it is very important to have the foreign assets properly declared and disclosed to the tax authorities. This is regardless of how wealth abroad has been created and located. For several years, Denmark has entered into tax information exchange agreements with more than 130 countries, where they continuously provide and receive information from abroad.
From our experience, it may be more important if the taxpayer makes a request on his own initiative regarding self-reporting of foreign assets than if the Danish tax authorities themselves obtain the information from the foreign authorities.
Most people do not realize that buying a property abroad can have tax and potentially criminal consequences in Denmark.
The tax consequences depend on what the foreign property is used for.
The criminal consequences depend on whether the foreign property has been self-reported to the tax authorities in Denmark within the time limits and whether there is intent or gross negligence.
Tax consequences
The tax consequences of buying foreign property depend on whether it is for private use or business. Read the article “Do you own property abroad?” which deal with different tax rules for private use and business, respectively.
If you are fully taxable in Denmark, you are taxed according to the global income principle, which means that you are in principle liable to tax on all income regardless of where in the world the income relates. Often taxpayers are not aware that wealth abroad, including property, must be disclosed to the Danish tax authorities, regardless of whether the tax has been paid abroad.
If the taxpayer does not disclose the property abroad to the Danish tax authorities, the tax authorities still have the option to change your tax assessment for previous income years if they receive information from foreign authorities after the end of the income year. Paragraph 26 (1) of the Tax Administration Act states that the tax authorities may change the tax assessment of income and property value tax before 1 May of the fourth year following the end of the income year. That is, tax authorities can go back 3 years of income according to the regular deadline.
This rule has an exception. If the tax authorities consider that the taxpayer has acted grossly negligently by not declaring tax on his foreign property, they may, according to SFL §27 (1) (5), resume the taxpayer's income assessment going back 10 years.
Criminal consequences
Foreign property and rental income must be self-declared to the Danish tax authorities. It is a criminal offence not to tell the tax authorities about its taxable income. In addition to paying the evaded tax, the taxpayer risks having to pay a fine or, in the worst case, imprisonment.
The amount of the penalty depends on whether the relationship is judged to be willful or grossly negligent. Intentionally, it is believed that tax authorities have deliberately failed to inform the tax authorities about the foreign property in order to avoid paying tax (e.g. property value tax). Read here about Punishment by intent of evasion.
Tax evasion is also punishable even if one did not intend to evade tax, that is, even if there is no intention. It is also a criminal offence to have acted grossly negligently. Gross negligence is characterised by the fact that one has acted in a particularly reprehensible manner, albeit without intending to commit anything illegal. For this, the penalty may not exceed a fine.
Whether the tax authorities in Denmark will judge a relationship as grossly negligent or intentional cannot be known in advance. It is an individual assessment of the subjective situation in question cf. A.C.3.2.4.
If you voluntarily report to the tax authorities before the tax authorities find out about the incorrect tax return, you can obtain the status of self-declarant. It requires making a full confession. In practice, this can be done by the fact that you or your accountant applies to the Tax Agency with a request to correct the error. It is therefore always a good idea to self-report the property and rental income before the Danish tax authorities themselves obtain the information from abroad. This may have an impact on the assessment of whether a criminal offence is involved.
We can help you
If you have a foreign property that you have not reported yet or are considering buying a property abroad, we are ready to help you with your situation.
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
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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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