Holding Danish Real Estate

DIRECT HOLDING OF REAL ESTATE

This paragraph discusses the most important tax implications of the direct holding 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

Personal income tax

Income derived from real estate such as rental income is subject to individual income tax. Depending on tax scheme and total income the income derived from real estate are taxed from a tax rate of approximately 40% and up to 56,5%.

Deductibility of costs, interest and depreciation
It is possible to deduction all operating costs related to the real estate business including interest costs. Acquisitions and improvement costs are depreciated as follows; it is possible to make tax depreciation of 4% of properties with, for example, retail stores, warehouses, or industry.

It is not possible to deduct tax depreciation on residential property or office property.

Losses – carry back/forward

Operating losses can be carried forward without any time limitations and be deducted in future income.

Value added tax
Each rental property must be individually registered for VAT in Denmark. It is possible to make a full VAT registration or partial VAT registration. When the property is registered for VAT, rental income is invoiced with VAT. 
Residential property is not subject to a VAT registration and rental income is invoiced without VAT.

Non-resident individuals

Non-resident individuals are treated the same way as resident individuals.

Resident companies

Corporate income tax

Business income such as rental income and capital gains are subject to corporate income tax. The profits are taxed against a flat tax rate of 22%.

Deductibility of costs, interest and depreciation
It is possible to deduction all operating costs related to the real estate business including interest costs. Acquisitions and improvement costs are depreciated as follows; it is possible to make tax depreciation of 4% of properties with, for example, retail stores, warehouses, or industry.

It is not possible to deduct tax depreciation on residential property or office property.

Losses – carry back/forward
Operating losses can be carried forward without any time limitations and be deducted in future income.

Value added tax
Same rules apply as for individuals.

Non-resident companies

Non-resident companies are for the permanent establishment in Denmark treated in the same manner as resident companies.

INDIRECT HOLDING OF REAL ESTATE

This paragraph discusses the most important tax implications of the indirect (shares) holding 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

Dividend withholding tax

Individuals who hold shares in a Danish company generate capital income that is subjected to a 27% tax of share income op to DKK 57,200 (2022) and 42% tax on income above this limit.

Deductibility of costs, interest payments and depreciation

As the distribution of dividends are qualified as share income, no costs related to the dividends are deductible. Interest expenses are in general deductible.

Non-resident individuals

Dividend withholding tax

Generally, dividends paid to non-resident individual are subjected to Danish withholding tax of 27%. If the dividends are paid to an individual 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.

Resident companies

A company receiving dividend from another limited liability company in Denmark are exempted of tax if the company own at least 10% of the shares.

Non-resident companies.

Dividend withholding tax

As a general rule, dividends paid to non-resident companies are subjected 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 in a tax treaty country may be paid without Danish withholding tax if the foreign company hold at least 10% of the capital in the Danish company.

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