Deductions from taxable income for major investments in Denmark

There are two types of depreciation in Denmark:
1. The first relates to accounting rules.
2. The second relates to tax law, which must be followed when preparing a tax return containing the rules according to which both taxable income and depreciation must be calculated.

In Denmark, depreciation is applied in two different ways if a company makes a purchase of an asset for DKK 100,000. One way is tax depreciation, which is what you can deduct from your income before paying tax, e.g. if you have an income of DKK 2 million, you can make a purchase for DKK 2 million and your income will not be zero. However, there are three types of tax depreciation:

1. Equipment - refers to various pieces of equipment (cars, chairs, tables, software, kitchen appliances or computer systems), in this case, in order to calculate depreciation, you must add up your purchases during the year and deduct 25% of the balance from this total. This is not straight-line depreciation, but declining depreciation, as you have to depreciate 25% of the balance. Because it takes a very long time to get the tax deduction for equipment under the declining depreciation system, it is important to pay attention to cash flow when making large investments. An entrepreneur who has a minimum balance in his account does not have to comply with the 25% tax deduction rule for equipment. If you have a balance of DKK 13,500 plus VAT, you do not have to apply the 25% deduction for equipment. If the total balance of the equipment is below this amount, you can deduct everything once as an expense in the year of purchase of the equipment. If the minimum balance is exceeded, the principle of declining depreciation must be applied until the balance falls below DKK 13,500, after which the remaining amount must be deducted in full.

Depreciation should be split between what can be deducted as a business expense and what should be considered private, in the case of the purchase of mixed-use equipment - business and private, such as a car or computer.

In the case of the purchase of goodwill, i.e. the base of satisfied customers delivered with the purchase of, for example, a shop or a restaurant, the taxable income is calculated on the amount of the purchase of the business in question, which includes the value carried by the goodwill of satisfied customers. From this amount, one seventh of the price that the entrepreneur paid in the first year can be deducted, one seventh can also be deducted in the second year, and so on. (in straight-line depreciation for the first seven years of running the shop), and after the seventh year the entire goodwill is deducted.

2. Leasehold improvements, or indretningaflejedelokaler in Danish, refers to making improvements to the leased property, including carpeting or painting, i.e. everything that the entrepreneur would not be able to take with him if he moved. Once the improvements in question have been made, everything must be added together, including VAT, after which 20% of this sum can be deducted from the taxable income.

In Denmark, when buying, among other things, shops or restaurants, it is possible to take a mortgage from the seller, e.g. when buying a café for DKK 2 million, you can pay DKK 200,000 in cash and take a loan from the seller for the rest.In this case, you have to take into account the amount paid in cash and convert these mortgages into cash.