Acquiring Danish Real Estate

DIRECT PURCHASE OF REAL ESTATE

This paragraph discus the most important tax implications of the direct purchase of real estate. First of all is discussed the impact for resident individuals and non-resident individuals. Thereafter is discussed the impact for resident companies and non-resident companies.

Resident Individuals

Transfer Taxes - Stamp duty
Anyone acquiring Danish real estate who wants to register their ownership, is subjected to stamp duty of 0.6% on the purchase price.

Value added tax

As a general rule, the sale and purchase of real estate is exempt from VAT. However, VAT is charged if a newly created building or building plot is sold by a ‘VAT-liable person’ who acts in this capacity. Persons liable for VAT are defined as "legal or natural persons engaged in independent economic activity". Private individuals do not have to settle VAT on the sale of building plots and new buildings. In this context, the definition of a new building includes both a newly built and a significantly rebuilt (renovated) building.

VAT on costs related to the purchase of real estate can be deducted if the real estate is to be used for VAT-liable activities, for instance rental with VAT.

Deductibility of costs
Costs related to the purchase of real estate, must be activated and depreciated along with the purchase price.

Treatment of purchase price – depreciation costs
The purchase price must be capitalized for tax purposes and allocated among different asset groups for commercial buildings and technical facilities. Deductions are achieved through annual depreciation, depending on the depreciation rate of the different asset groups.

The annual tax depreciation is calculated as 4% of the cost price of the building. It is possible to deduct tax depreciations of 4% of properties with, for example, retail stores, warehouses, or industry.

However, it is not possible to make tax depreciations on residential property or office property.

Non-resident individuals

Non-resident individuals are treated in the same manner as resident individuals. Investments in real estate in Denmark will result in a permanent establishment and income from the activity will be taxed in Denmark. Profit from real estate located in Denmark (the permanent establishment) is subject to individual income tax at a rate up to 56,5%.

Resident companies

Transfer Taxes - Stamp duty
Anyone acquiring Danish real estate who wants to register their ownership is subject to stamp duty of 0,6% on the purchase price.

Value added tax
Same rules apply as for individuals.

Deductibility of costs
Costs related to the purchase of real estate, must as a main rule be activated and depreciated along with the purchase price.

Treatment of purchase price – depreciation costs
The purchase price must be capitalized for tax purposes and allocated to different asset groups for commercial buildings and technical facilities. Deductions are achieved through annual depreciation, depending on the depreciation rate of the different asset groups.

The annual tax depreciation is calculated as 4% of the cost price of the building. It is possible to deduct tax depreciations of 4% of properties with, for example, retail stores, warehouses, or industry.

However, it is not possible to make tax depreciations on residential property or office property.

Non-resident companies

Non-resident companies are treated in the same manner as resident companies.

Profit from real estate located in Denmark (the permanent establishment) is subject to the corporate income tax at a tax rate of 22%.

INDIRECT PURCHASE OF REAL ESTATE

This paragraph discus the most important tax implications of the indirect (shares) purchase of real estate. First is discussed the impact for resident individuals and non-resident individuals. Thereafter is discussed the impact for resident companies and non-resident companies.

Resident individuals

Treatment of purchase price
The purchase price must be capitalized as taxable acquisition costs for the shares. The acquisition costs can be deducted against the future sales price for the shares. Individuals are taxed on the profit as share income at a tax rate of 27% for share income below DKK 57.200 (2022) and at a tax rate of 42% for share income above DKK 57.200.

The share income must be included in the tax return at the time of the sale.

Transfer taxes - Stamp duty
When purchasing shares, there is no change in ownership to the real estate itself. Therefore, no registration of new ownership is needed, and no stamp duty applies.

Value added tax

As a general rule, the sale and purchase of shares is exempt from VAT. Only in very special cases where the buyer of the shares obtains a special exclusive right of use for the real estate can VAT liability arise

Deductibility of costs
Costs related to the purchase of shares, must as a main rule be capitalized as taxable acquisition costs for the shares. 

Dividend withholding tax

Individuals receiving dividends from a Limited liability company in Denmark are taxed at a tax rate of 27% for dividend below DKK 57.200 (2022) and at a tax rate of 42% for dividend above DKK 57.200. Dividend from limited liability companies in Denmark are taxed as Share Income.

Non-resident individuals

Treatment of purchase price
lncome derived from indirect sale of shares is not taxable in Denmark for non-resident individuals. Non-resident individuals will be subjected to tax rules in their jurisdiction.

Transfer taxes - Stamp duty
When purchasing shares, there is no change in ownership to the real estate itself. Therefore, no registration of new ownership is needed, and no stamp duty applies.

Dividend withholding tax

As a general rule, dividends paid to non-resident individual are subjected to Danish withholding tax of 27%. If the dividends paid to an individual in a country covered by (a clause on exchange of tax information in) a double tax treaty with Denmark the withholding tax in most cases will be reduced to 15% or less.

Resident companies

Treatment of purchase price
The purchase price must be capitalized as taxable acquisition costs for the shares.

Gains from sale of shares are tax exempt if there is 10% or more ownership. Capital gains on un-listed portfolio shares are also exempted of tax if there is less than 10% ownership.

Any gains on shares must be included in the tax return at the time of the sale.

Dividend withholding tax

A company receiving dividend from another limited liability company in Denmark is exempted of tax on the dividend distribution if the company owns at least 10% of the shares.

Transfer taxes- Stamp duty
When purchasing shares, there is no change in ownership to the real estate itself. Therefore, no registration of new ownership is needed, and no stamp duty applies.

Value added tax
Same rules apply as for individuals.

Non-resident companies

Non-resident companies are taxed on capital gains and dividend distribution according to the rules in the resident country and any double tax treaty between Denmark and the resident country.

Dividend withholding tax

In general, dividends paid to non-resident companies are subject to Danish withholding tax of 22%. If the dividend is paid to a company in a country covered by a double tax treaty (with a clause on exchange of tax information) with Denmark, the withholding tax in most cases will be reduced to 15% or less. Dividends paid to another EU country or to a tax treaty country may be paid without Danish withholding tax if the foreign company holds at least 10% of the capital in the Danish company.

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