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Country - Denmark
Taxes
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A. AVAILABLE INVESTMENT STRUCTURES
Which legal structures are available for an investment in real estate in Denmark?
Asset deals:
- direct acquisition of the asset from abroad;
- direct acquisition of the asset from abroad through a local permanent establishment;
- indirect acquisition through a local company;
- indirect acquisition using a foreign entity;
- indirect acquisition using a foreign entity with a local permanent establishment;
- indirect acquisition through a local holding company.
Foreign companies and individuals who have been domiciled outside Denmark for more than five years cannot, generally, acquire land in Denmark, unless authorised by the Ministry of Justice.
B. TRANSFER TAXES, NOTARY FEES AND OTHER ACQUISITION COSTS
How is the purchase of a real estate asset taxed?
A registration fee is payable to register the title in the Land Register. This protects rights over the real estate if the property is sold or mortgaged. The fee for registration of a title document is DKK 1,400 plus 0.6% of either the purchase price or the public land value assessment, whichever is higher.
Do any specific rules for transfer taxes apply if the asset is a shopping centre or another asset used for retail activities?
No.
How is the purchase of shares in an SPV holding real estate taxed?
This is not subject to tax.
Who normally pays the transfer taxes, the buyer or the seller?
The buyer normally pays the registration fee, but it is possible for the parties to agree that the seller pays the fees or that the costs will be split.
Are notary fees determined by law or should they be negotiated?
No notary fees are payable, but in the case of an asset deal registration fees are paid to the Land Register. These are determined by law.
Are there any other costs related to the purchase of real estate assets or SPVs?
Other costs include fees payable to professional advisers.
C. TAXATION OF CURRENT INCOME
How is income generated from the letting of real estate taxed in Denmark?
Rental income is subject to taxation. For foreign corporate owners (landlords), net income is taxed at a rate of 25%. Individuals are taxed at a rate of up to 59%, depending on the level of their total taxable income (applying progressive tax rates). This income is categorised as capital income, unless it is derived from business activities, and is therefore taxed as personal income.
How can income generated by investment be transferred to a foreign investor?
Tax will normally be payable in Denmark, but double taxation can often be minimised or avoided where the investor is covered by a double taxation agreement.
Are there local taxes on the possession of real estate assets?
Land tax is levied on every private property in Denmark, and property value tax is levied on every property in Denmark and abroad, whereas building tax only involves commercial properties. The property value tax paid for property located abroad is usually subject to double taxation agreements.
The level of land tax varies from municipality to municipality, since it is up to the local authorities to determine the level of taxation within a framework stipulated by the government.
The land tax payable to the municipality varies between 16% and 34% of the official land value.
Property value tax is 1% of that part of the property value below DKK 3,040,000 and 3% of any greater value. Property value tax is therefore progressive. In addition to property tax, the municipal council is entitled to impose a special financial levy on properties used as offices, hotels, factories or for other business purposes.
D. DEPRECIATION
What are the basic rules for the depreciation of real estate assets?
Tax depreciation is possible on buildings used for business activities, but not those used as offices or for financial business purposes, or for certain other specific activities. Property is depreciated on an individual basis. The depreciations are calculated at between 0% and 4% of the original purchase price.
Can land be depreciated?
No.
Can a participation in an SPV holding real estate be depreciated?
No.
E. VAT
Is the purchase of real estate assets subject to VAT?
The transfer of real estate is not subject to VAT.
F. LEVERAGE, THIN CAPITALISATION RULES
If interest payments are to be tax deductible, is it necessary for the financing to be taken out simultaneously with the purchase of the asset?
No, but mortgage tax relief can be obtained from the date of the first interest charge.
Are there rules which limit the deductibility of interest for third party (bank) financing?
Thin capitalisation rules limit the full deductibility of interest on loans guaranteed by "qualified shareholders or their related parties".
Are there thin capitalisation rules in Denmark and if so, how do they work?
Thin capitalisation rules apply in Denmark where the ratio of equity to debt is less than 1:4. Where thin capitalisation rules apply, part of the interest cost is not deductible against income taxed in Denmark.
Does Denmark apply any withholding taxes on interest paid to foreign financing banks or to foreign shareholders?
Withholding tax is not normally payable except where there is no double taxation agreement.
G. TAXATION OF CAPITAL GAINS
How are capital gains deriving from the sale of real estate assets taxed in Denmark?
Profit from the sale of investment property is taxed as a capital gain in Denmark. For corporate owners (resident or non-resident), tax is payable at a rate of 25%. For individuals, capital gains are taxed at rates of up to 59%.
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