A bill enabling higher tax depreciations on certain depreciable assets has been passed by the Danish Parliament as part of Denmark’s green tax reform plans.
To “kickstart” the investments in business, the bill includes three tax depreciation initiatives: immediate depreciation of operating assets costing no more than DKK 30,000, 116% depreciation basis for new operating assets and 130% deduction of R&D expenses until 31 December 2022.
Increase in immediate depreciation limit
Firstly, the bill increases the limit for immediate depreciation of minor assets from DKK 14,100 to DKK 30,000 (2020 rate). The increase is permanent and applies to assets acquired on 23 November 2020 or later.
116 % depreciation basis for new operating assets
Secondly, this element proposes a period from November 23, 2020 to December 31, 2022 in which 116% of the acquisition cost of the brand-new operating asset can be applied as basis for depreciation. It is a requirement that the asset is used for business purposes only.
The higher depreciation basis will be depreciated with up to 25 % per year according to a declining balance method, the same as depreciation rate as is also applicable to other operating assets.
The depreciation of the relevant assets must be done on a separate balance. In the event of a sale of the asset within this period, both the purchase value and the sales value must be increased with 16% on the balance. This prevents speculation with false tax losses and the opportunity of depreciation that follows.
As part of Denmark’s green tax reform, the new increased depreciation level of the bill does not include cars and machinery that runs on fossil fuel (with certain exceptions).
130 % deduction of R&D expenses until 31 December 2022
The opportunity of the 130% “super” deduction of R&D expenses has been effective in Danish law for income years 2020 and 2021. The bill, thus, prolongs the opportunity of the 130% deduction to include the income year of 2022.
The definition of deductible R&D expenses thus remains the same. The tax authorities in Denmark highlight that deductible R&D expenses must be used to create something new and creative, just as they have sought to apply other additional criteria as well to qualify for the super deduction, which has created a number of practical uncertainties regarding the applicability of the improved regime. The exact assessment of whether the R&D expenses are eligible for the super deduction regime awaits further clarification through relevant case law.