Wealth tax on foreign situated real property

28 maj 2014

Danish resident individuals must pay Danish wealth tax on both Danish and foreign situated real property.

Danish resident individuals and non-residents pay wealth tax on Danish real property.

As a main rule, the tax is calculated as 1 pct. of the value of the real property up to DKK 3,040,000 and 3 pct. of any exceeding amount. The lowest value of the following can be used when calculating the tax:

  • The official assessment value as of October 1 in the income year 
  • The official assessment value as of January 1, 2001 increased by 5 pct. 
  • The official assessment value as of January 1, 2002

Danish resident individuals must also pay wealth tax on foreign situated real property. Basically, the wealth tax is levied at the same the percentages (1 pct. and 3 pct.) applying to Danish real property.

However, special rules apply for calculating the taxable value of foreign real property and the Danish tax authorities have issued guidelines in this regard.

Foreign official assessment value If a foreign official assessment value exists which is comparable to Danish official assessment values, the wealth tax on foreign situated real property may be calculated according to the same rules that apply for Danish real property. However it is a condition that the Danish tax authorities have approved the foreign assessment for this purpose. Currently, only the Swedish assessments for 2001 and 2002 have been approved by the Danish tax authorities.

Indexation of acquisition price When no official foreign assessment exists, a point of reference must be taken in the acquisition price of the real property. The acquisition price must be indexed back from the acquisition year to 2001 and 2002 respectively. In this way, the market price can be fixed for these income years and the year with the lowest value can be determined.

The actual acquisition price of the real property is indexed back to the relevant years according to the following order of preference:

  1. A recognized foreign price index
  2. The OECD index for development in housing prices
  3. The Danish summer cottage index

Adjustment of the indexed acquisition price As the wealth tax on Danish real property is calculated based on the official assessment value which is generally lower than the market price, foreign calculated market prices must be reduced by a similar discrepancy. This way, the foreign calculated market prices are made comparable to Danish official assessment values.

Tax return The calculated market price according to the above rules may be used when preparing the tax return for the income year 2013. The tax return must be filed no later than July 1, 2014.

The above article is taken from tax:watch, our electronic English newsletter on Danish Tax and VAT matters. tax:watch is issued on the last Friday of each month and is free of charge.