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 Danish Tax Agency (Skattestyrelsen) about this before they receive the information.
Date 21/10 2022
For persons with property abroad, it is very important to have foreign assets properly declared and disclosed to the tax authorities. This is true regardless of how the wealth abroad has been created, and where it is located. For several years, Denmark has entered into tax information exchange agreements with more than 130 countries. Thus, the Danish tax authorities continuously provide and receive information from abroad.
From our experience, it may be beneficial for the taxpayer to make a request on his own initiative regarding self-reporting of foreign assets, rather than the Danish tax authorities themselves obtaining the information from foreign authorities.
Most people do not realize that buying a property abroad can have tax and potentially even criminal consequences in Denmark.
The tax consequences depend on what the foreign property is used for primarily.
The criminal consequences depend on whether the foreign property has been self-reported to the tax authorities in Denmark, within the time limits. These consequences also depend on 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 use. Please read the article “Do you own property abroad?”, which explains 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. This 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, the tax authorities can go back three years of income according to the regular deadline.
However, 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 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. In fact, it is a criminal offence not to tell the tax authorities about 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 action is judged to be intentional or grossly negligent. Intentionally, means that tax authorities believe that a person has deliberately failed to inform them about the foreign property in order to avoid paying tax (e.g. property 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 acting 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.
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. This requires making a full confession. In practice, this can be achieved by you or your accountant applying to the Danish Tax Agency with a request to correct the error. Therefore, it is 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 to determine whether a criminal offence is involved.
We can help you
If you have a foreign property that you have not yet reported or you 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 feel free to contact one of our professional tax advisors for further questions.
Contact SkatteInform
We provide expert answers to your tax questions. If you are interested in assistance with calculation of taxable income, we will be happy to provide this for a fee upon further agreement.
Call us by phone 33 32 10 10
Send an email at info@skatteinform.dk
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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.
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