Owning rental property in Denmark comes with a specific set of tax rules that differ significantly from share or business income. This guide covers everything a Denmark-based property investor needs to know — from declaring rental income to calculating capital gains when you sell.
Rental Income: How It Is Taxed
Rental income from Danish property is classified as indkomst af ejendom (income from property) and is taxed at your marginal tax rate. For most high-income earners, this means a combined rate of up to 52.5% (top marginal tax of 52.5%, which includes the 8% labour market contribution, or AM-bidrag).
You must declare all rental income on your annual tax return, regardless of whether you live in Denmark or abroad. Rental income includes:
- Monthly rent received from tenants
- Any fees paid directly by tenants to you (e.g., for parking or storage)
- Compensation for early lease termination
Key Point
Even if you use a property management company, you are still responsible for declaring the income and paying tax on it.
Deductible Expenses
Denmark allows property investors to deduct a range of expenses against rental income, which can substantially reduce your tax bill. The main deductible items include:
Mortgage Interest (Rentefradrag)
Interest paid on loans secured against the rental property is fully deductible against rental income. This is one of the most significant deductions available to property investors. The benefit is especially valuable for newly purchased properties where interest payments are front-loaded.
Maintenance and Repairs
Reasonable costs for maintenance and repairs on the rental property are deductible. This includes:
- Plumbing and electrical repairs
- Painting and decorating between tenancies
- Roof repairs and gutter cleaning
- Replacing broken fixtures and fittings
Note: Improvements that add value to the property (e.g., adding an extension or installing a new kitchen) are generally not deductible as maintenance — they are added to the acquisition cost for capital gains purposes.
Property Management Fees
Fees paid to a property management company are fully deductible. This covers rent collection, tenant screening, handling maintenance requests, and managing legal compliance.
Insurance
Building insurance and landlord liability insurance premiums are deductible expenses.
Depreciation on Buildings
You can depreciate the building value (not the land) at up to 4% per year on a declining balance basis. This is a valuable deduction that reduces taxable rental income each year, even though it is a non-cash expense. Land cannot be depreciated — only the structure.
Capital Gains on Rental Property
When you sell a rental property at a profit, the gain is subject to ejendomsavancebeskatning (property capital gains tax) at a flat rate of 42%.
How the Gain Is Calculated
Gain = Sale Price − Acquisition Price (adjusted for indexation)
The acquisition price is adjusted based on the retail price index (forbrugerprisindex) from the year of purchase to the year of sale. This indexation accounts for inflation and can reduce the taxable gain, especially for properties held over a long period.
Example Calculation
| Item | Amount |
|---|---|
| Purchase price (2015) | DKK 3,000,000 |
| Index-adjusted acquisition cost | DKK 3,450,000 |
| Sale price (2026) | DKK 4,200,000 |
| Taxable gain | DKK 750,000 |
| Tax at 42% | DKK 315,000 |
Main Residence Exemption
If the property was your main residence (bolig) for part of the ownership period, the gain on that portion is tax-free. This is one of the most valuable tax exemptions in Denmark.
How It Works
- You must have lived in the property and used it as your primary residence for part of the time you owned it.
- The gain is apportioned based on the fraction of time the property was your main residence versus a rental or investment property.
- The exemption is only available for the period you actually lived there — you cannot claim it for a property you never occupied.
Example: If you owned a property for 10 years and lived there for 4 years, 40% of the gain is tax-free. The remaining 60% is taxed at 42%.
Summer House (Sommerhus)
A summer house is taxed at 42% on any gain when sold. The main residence exemption generally does not apply to summer houses unless you lived in it as your primary residence — which is rare.
Some owners use a summer house as a rental for part of the year. In this case:
- Rental income is taxed at your marginal rate
- Capital gains are taxed at 42%
- Deductible expenses are limited compared to a full rental property
Ejendomsværdiskat (Property Value Tax)
This is a tax on the assessed value of all property you own in Denmark. It is calculated as follows:
| Value Threshold | Rate |
|---|---|
| Up to DKK 3,040,000 | 0.92% |
| Above DKK 3,040,000 | 3% |
A DKK 700,000 reduction applies to your main residence, meaning the first DKK 700,000 of your primary home’s value is exempt.
For investment properties (where you do not live), no reduction applies — the full assessed value is subject to ejendomsværdiskat.
Ejendomsskyld (Property Tax to Municipality)
This is a separate property tax paid directly to your municipality. It is based on the property’s vurdering (assessment value) set by the Danish Tax Agency (SKAT). Rates vary by municipality but are generally lower than ejendomsværdiskat.
Ejendomsskyld is deductible against rental income, unlike ejendomsværdiskat which is not.
Letbolig (Leased Land)
Letbolig refers to a property where you own the building but lease the land underneath from a landowner (often a municipality or private landlord). This arrangement is common in certain parts of Denmark.
Tax Treatment
- You can depreciate the building value, even though you do not own the land
- When you sell, the gain is taxed at 42% on the building only
- The lease payments (ground rent) may be deductible against rental income
- There is no ejendomsværdiskat on the land component since you do not own it
Letbolig can be a more tax-efficient way to hold property in some cases, but the lease terms (including annual rent adjustments and lease duration) must be carefully reviewed.
Udlejningsejendom (Rental Property) — Full Deductions
If you hold a property purely as a rental (udlejningsejendom), you can deduct all expenses against rental income, including:
- Mortgage interest
- Maintenance and repairs
- Property management fees
- Insurance
- Ejendomsskyld
- Depreciation on building value (not land)
Net rental income = Gross rent − All deductible expenses
This net amount is what you declare and pay tax on at your marginal rate.
Depreciation Strategy
Depreciating the building at 4% per year is a powerful tool. For a building valued at DKK 2,000,000, annual depreciation is DKK 80,000 — directly reducing taxable income by that amount each year.
Holding Property in an ApS (Limited Company)
For investors with multiple rental properties, holding them in an ApS (anpartsselskab, or limited company) can be tax-efficient. The corporate tax rate in Denmark is 22%, which is significantly lower than the marginal income tax rate of up to 52.5%.
Advantages of an ApS
- Lower tax rate (22% vs up to 52.5%)
- Retained profits can be reinvested without personal taxation
- Limited liability protects your personal assets
- Easier to transfer ownership or bring in investors
Disadvantages
- Setup and ongoing administration costs
- Must file separate corporate tax returns
- Dividends paid to you as shareholder are subject to 27%/42% shareholder tax
- More complex accounting and bookkeeping requirements
- Loan guarantees and related-party transactions have specific tax rules
When It Makes Sense
An ApS typically becomes worthwhile when you own multiple rental properties or when your total rental income pushes you into the higher marginal tax bracket. For a single property with modest income, the administrative burden may outweigh the tax savings.
Tips for Danish Property Investors
- Keep all receipts for maintenance, repairs, and improvements. These are essential for substantiating deductions and avoiding challenges from SKAT.
- Use building depreciation — it is one of the most underused deductions available to property investors.
- Track your indexation — ensure the acquisition cost is correctly adjusted for the retail price index when calculating capital gains.
- Consider an ApS if you plan to build a portfolio of multiple rental properties.
- Use a property management company — the fees are deductible and the professional management can help you stay compliant with Danish rental regulations.
- Separate personal and rental finances — keep a dedicated bank account for rental income and expenses to simplify bookkeeping.
- Review your mortgage — ensure you are maximising your rentefradrag by structuring loans efficiently.
- Declare everything — SKAT has access to rental contract data and will cross-reference. Non-declaration carries significant penalties.
Worked Example
Suppose you own a rental apartment in Copenhagen:
| Item | Amount |
|---|---|
| Purchase price | DKK 3,000,000 |
| Annual rent received | DKK 180,000 |
| Mortgage interest | DKK 120,000 |
| Maintenance costs | DKK 30,000 |
| Property management fees | DKK 18,000 |
| Net rental income | DKK 12,000 |
At a marginal tax rate of approximately 52%, the tax on DKK 12,000 is DKK 6,240.
However, the mortgage interest also qualifies for rentefradrag, which provides an additional tax benefit. The rentefradrag reduces the effective cost of borrowing, making the overall return on the property more attractive than the net income figure alone suggests.
Total Tax Benefit
- Tax on net rental income: DKK 6,240
- Rentefradrag benefit: Reduces your overall tax bill
- Depreciation (4% on building value, say DKK 2,000,000): DKK 80,000 deduction, saving approximately DKK 41,600 in tax at 52%
When you factor in depreciation, your effective tax position improves significantly — potentially resulting in a tax refund on the property even though you have a small net income.
Summary
| Item | Tax Treatment |
|---|---|
| Rental income | Marginal rate (up to 52.5%) |
| Deductible expenses | Mortgage interest, maintenance, management, insurance, depreciation |
| Capital gains | 42% (ejendomsavancebeskatning) |
| Main residence | Gain is tax-free if lived there |
| Summer house | 42% on gain, no exemption |
| Ejendomsværdiskat | 0.92% up to DKK 3,040,000; 3% above |
| Ejendomsskyld | Based on municipal assessment |
| Letbolig | Building depreciated; land is leased |
| ApS structure | 22% corporate tax rate |
Understanding Danish property tax rules is essential for making informed investment decisions. The combination of high marginal tax rates on rental income and relatively favourable capital gains treatment means that careful planning — including depreciation, expense tracking, and considering an ApS — can make a significant difference to your net returns.
This guide is for informational purposes only and does not constitute tax advice. Consult a qualified Danish tax advisor (skatterådgiver) for advice specific to your situation.