Depreciation Rate amended for Real Estate acquired after 1 January 2023

The depreciation rate has been amended from 4% to 3% for buildings etc. acquired after 1 January 2023

Just before Christmas last year, the Danish Parliament, Folketinget, passed a resolution amending the depreciation rate for buildings and installations purchased on 1 January 2023 and onwards from an annual 4% to 3%. The amendment means that the costs of the real estate investment must be written off over approx. 34 years instead of approx. 25 years.

The amendment of the annual depriciation rate also applies to extensions and renovations of buildings if the extension or the renovation is taken into use on 1 January 2023 and onwards.

As a result of the amendments, different depreciation rates may apply for the same building in the event that any extensions or renovations are made after 1 January 2023.

When considering the structure of real estate transactions in Denmark as either share or asset deals, it is relevant for the buyer to take the amendment of the annual depreciation rate into consideration.

If the transaction is structured as a share deal rather than an asset deal, the buyer can continue to write off 4% annually on existing buildings and installations in that no tax cession of the property is considered to happen under Danish tax law. Instead, the change of control happens in the property company who is the legal owner of the building.

The amendment to the depreciation rate has an impact only on the buyer’s liquidity as the amendment does not result in any increase in the total tax payable for the buyer (given that the company tax rate is not increased). Consequently, a higher tax is payable the first approx. 25 years, and a lower tax the following approx. nine years.

 

Moalem Weitemeyer is highly experienced in Real Estate M&A. If you have any questions or require further information regarding any of the above, please do not hesitate to contact us.