Real estate investments – tax saving possibilities – in Denmark

03 February 2021

Arne Riis, Partner, Tax |

A foreign investor may invest directly in real estate in Denmark or through a Danish company. A direct investment involves that the foreign investor becomes liable to tax to Denmark but limited to income related to the investment.

Danish taxation

Companies - foreign or Danish - are in Denmark taxed at a flat rate of 22 % of their taxable income. In the computation of the taxable income interest expenses are - as a main rule - fully deductible. However, Danish tax legislation contains 3 rules which put limitations on the deductibility of interest. The debt/equity structure should therefore be carefully considered before entering the Danish market.

Acquisition costs and improvement costs must to a certain degree be added to the purchase price and can therefore not be deducted as operating costs.

A foreign group must for tax purposes consolidate all Danish activities (companies, permanent establishments and real estate) which entail the possibility to deduct losses in one entity against profits in another entity. The group structure should however be considered carefully due to the fact that certain group structures will not give access to consolidation.

Certain buildings can be depreciated for tax purposes by 4 % per year. Machinery and equipment, furniture and fixtures can be depreciated according to the declining balance method by 25 % per year. Maintenance costs are fully deductible whereas improvement costs to a certain level (5 % of depreciation base) may be treated as maintenance and the exceeding amount must be capitalized.

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