For the sale of commercial real estate as of January 1, 2020, the seller of a commercial property can obtain a tax credit by issuing a seller mortgage as part of the financing of the sale amount.
Tax Credit
If, when disposing of a commercial property, the seller issues a seller's lien, the taxable seller may choose to include the profit in equal amounts for up to 10 income years.
The tax credit may amount to a maximum of 10% of the cash converted waiver amount.
If exceptional installments are paid or the seller's pledge is paid, the proportional share of the exchange gain on the promissory note that has been exceptionally repaid or redeemed shall be taxed.
The tax credit ends if the property is no longer used for business. Special rules apply to the termination of the seller's tax liability.
Who do the rules apply to
The rules apply to all persons including close relatives. The rules do not apply to transfers between affiliated companies or in shareholders' relationships.
What properties
The rules apply to all commercial properties. Rental property is not considered commercial property, just as the part of a property that is used as a residential part cannot be considered as used for commercial purposes.
Company scheme
By way of derogation from the corporate scheme, a simultaneous right to recognise seller mortgages covered by that scheme is introduced in the business scheme.
Example
Cash sales amount DKK 5,000,000. Seller's taxable profit 1,000,000, cf. EBL §6.
Financing
Mortgage debt cash value DKK 3,000,000
Seller mortgage with maturity 10 years, cash value DKK 500,000. Pledge residual debt 625,000, corresponding to rate 80.
Cash payment DKK 1,500,000
Total financing cash converted NOK 5,000,000
The seller is taxed in the sales year at DKK 1,000,000 minus DKK 500,000, a total of DKK 500,000.
The seller is taxed at 1/10 of DKK 500,000 spread over 10 years, equivalent to DKK 50,000 annually.
In addition, the exchange gain tax on the exchange gain on the mortgage note corresponds to the exchange gain on the annualized installment, which in this example, in the case of a first year installment of DKK 62,500, amounts to DKK 12,500.
Contact SkatteInform
We provide qualified answers to your tax questions. If you need further advice regarding the seller's pledge letter, 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
or visit us at www.SkatteInform.com
We do not accept responsibility for any dispositions that may be made on the basis of this newsletter without prior individual advice. Likewise, we accept no responsibility for any errors and omissions.
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