Real estate development and rental

With more than 50 years of experience in consulting and auditing property development and property rental in the bag, we have great expertise in the field. We continuously develop our audit methods, and constantly focus on achieving the best possible basis for our audit conclusion, while we will be competitive on the advice and service we provide to you. 

The real estate development industry is characterized by large economic fluctuations as demand fluctuates with the national economy. In addition, there may be large fluctuations locally in supply and demand. 

There are many financial considerations that must be taken into account in connection with the initiation of development projects. Among other things, we advise our customers on the following matters:

• Preparation of construction budget and follow-up on liquidity 
• Examination of VAT and tax conditions for the individual project. There are rarely two projects that are alike
• Ownership struture and preparation of change of ownership
• Preparation of accounts and tax return

Quick overview of Danish real estate 

Rental income and capital gains of Danish real estate

Rental income

Individuals

Introduction

Rental income is taxed as part of a taxpayer’s annual income using a progressive tax rate up to approx. 56,5% income tax.

Individuals can also use a special tax scheme. To use the special tax scheme a tax balance with assets and liabilities related to the property (real estate business) must be prepared. Individuals using the special tax scheme only pay 22% tax on income provided the income is not withdrawn from the balance related to the real estate business. When the income is withdrawn from the real estate business and transferred to the individuals private balance, the remaining tax up to approx. 56,5% is paid. The final tax rate depends on the total income.

Tax liability

Rental income received by individuals is subject to personal income tax.

Tax basis

Rental income with deduction of operating costs will be taxed with the personal income tax up to approx. 56,5%. Further, it is possible to deduct tax depreciations on certain types of buildings. For example, buildings with retail stores, warehouses, or industry. The annual tax depreciation is calculated as 4% of the building’s cost price. However, the tax depreciation rate is only 3 % on buildings acquired on 1 January 2023 or later. It is not possible to make tax depreciations on residential property or office property.

Companies

Introduction

Rental income is taxed as business income.

Tax liability

Rental income earned by companies is business income subject to corporate income tax.

Tax basis

Rental income after deduction of operating costs is taxed at the flat corporate tax rate of 22%.

It is possible to deduct tax depreciations on certain types of buildings. For example, buildings with retail stores, warehouses, or industry. The annual tax depreciation is calculated as 4% of the cost price of the building. However, the tax depreciation rate is only 3 % on buildings acquired on 1 January 2023 or later.

It is not possible to make tax depreciations on residential property or office property.

Capital gains

Individuals

Introduction

Capital gains are taxed as part of a taxpayer’s annual income. Depending on tax scheme and total income, the capital gains are taxed at a tax rate of approximately 40% and up to approx. 56,5%.

Tax liability

Capital gains received by individuals are subject to personal income tax. 

Tax basis

The profit is calculated as the sales price minus a real estate agent’s fee and other sales costs minus purchase price, hereunder purchase costs, and minus improvement costs. Further regulations may be available under the Danish Property Gains Taxations Act. 

Companies

Introduction

Capital gains are taxed as business income.

Tax liability

Sales of land and buildings are subject to corporate income tax.

Tax basis

The profit is calculated as the sales price minus a real estate agent’s fee and other sales costs minus purchase price, hereunder purchase costs, and minus improvement costs. Further regulations may be available under the Danish Property Gains Taxations Act

Danish VAT & transfer taxes

Value Added Tax

Individuals

Introduction

Denmark applies the system of value-added tax (VAT) established by the EU. Denmark imposes VAT on imports and taxable deliveries of goods and services, unless specially exempted, at a standard rate of 25%.

Liability to VAT

Generally, the lease of a property is exempted form VAT and can be voluntarily registered for VAT, unless it is a rental for residential purposes.

Each rental property must be individual 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, and VAT on expenses can be deducted.

Generally, the sale of a property is exempted form VAT. However, the sale of new buildings and building plots are subject to VAT.

There are special rules for VAT on purchase and sale of rental properties.

Companies

The same rules as for individuals apply.

Transfer Taxes

Individuals

Introduction

All transactions on land and buildings are subject to stamp duty. The buyer of the property is liable to pay the tax.

Liability to tax

A transfer of ownership is in general subject to stamp duty.

Basis of tax

Stamp duty is based on the purchase price. The tax rate is 0,6%. Special rules apply for the calculation of stamp duty for transfers between related parties.

Exemptions

It is possible to avoid stamp duty for transfers when the transfer relates to a tax-free restructuring according to Danish tax regulation.

Companies

The same rules as for individuals apply.

Danish Local taxes

*The property tax % may increase when new public real estate appraisals have been issued by the authorities.

**Coverage tax is a tax you pay to the municipality on the land value. The tax rates vary from zero in some municipalities to respectively18 ‰ of the land value.

Introduction

Land tax (property tax) is a tax you pay to the municipality on your land value. The land value is the value of the land in undeveloped condition. Each municipality determines the rate and collects the tax twice a year.

Coverage tax must be paid on properties used for office, business, hotel, factory, retail stores and similar purposes.

Tax liability

The Property tax and the Coverage tax is paid in two annual installments. The owner of the property must pay the taxes.

Tax basis

The Property tax and the Coverage tax is based on the current public real estate appraisal. New rules applied in 2021 for setting public real estate value for commercial properties.

Danish Net Wealth/worth taxes

There is no net wealth/worth tax for individuals or companies owning commercial or rental properties in Denmark.

Entities for real estate business

Limited liability entities

Limited liability companies are the most common types of business entities in Denmark. A limited liability company can be either an A/S (Aktieselskab) or an ApS (Anpartsselskab). Both forms are regulated by The Limited Liability Companies Act. The act is based on the same principles as the EU's limited company legislation. The main difference between the two types of business entities is that ApS companies cannot be listed on the stock exchange.

The minimum capital requirement is DKK 40.000 for an ApS and DKK 400.000 for an A/S.

Net profits made by an A/S or an ApS are subject to the corporate income tax of 22%.

Individuals receiving dividend distributions from a Danish limited liability company are taxed at a tax rate of 27% for dividends below DKK 61,000 (2024) and at a tax rate of 42% for dividend above DKK 61,000. Dividends from limited liability companies in Denmark are taxed as Share Income. If the shareholder lives abroad the % may be lower under the relevant tax treaty with the shareholders homeland. If so, an application for a refund must be filed with the Danish tax authorities.

Unlimited Partnership

Investments in real estate can be made on a joint basis by some entities and/or individuals. For Danish tax purposes, there is no distinction between taxation of partnerships and joint ventures. The participants in the partnership/joint venture will be taxed on their proportionate part at a rate up to approx. 56,5%.

Foreign investors

Investments in real estate in Denmark will result in a permanent establishment (P/E) and income from the activity will be taxed in Denmark. The net profit of a foreign limited liability company’s real estate located in Denmark (the P/E) is subject to 22% corporate income tax. If the investment in Danish real estate (the P/E) is made directly by a foreign individual, the individual will be taxed on the net profit at a rate up to approx. 56,5%.