VAT on property rentals

Voluntary VAT registration

One advantage of voluntary VAT registration is landlords gain access to VAT deductions for costs related to their rental business, e.g. running costs, administration, maintenance, repairs, etc.

To obtain a voluntary VAT registration for property rental and thus the ability to charge VAT on the rent, the following criteria must be met:

• The rental is not used for residential purposes, and
• A voluntary VAT registration for commercial rentals must be applied for and obtained

We have learnt that the Danish Tax Agency contacts VAT-registered companies with rental activities, and we advise that VAT registration is not sufficient if you want to obtain VAT deductions for a rental property in the form of construction, maintenance, operation, repairs, administration, etc. The Danish Tax Agency points out that VAT deductions for these types of expenses require a company having voluntary VAT registration.

Stricter enforcement of the rules

We believe that there is an overwhelming likelihood that the Danish Tax Agency will enforce the rules more restrictively in the future than has previously been the case. Until now, the Danish Tax Agency's practice has been that if you have acted as if you were covered by voluntary VAT registration and thus charged VAT on rent, it was possible to maintain your right to VAT deductions and obtain voluntary VAT registration with retroactive effect.

We therefore recommend that you review your rental activities and ensure that leases where VAT is charged are also covered by voluntary VAT registration. Please note that the rental activity requires separate voluntary VAT registration and separate VAT registration must be made for each individual property/lease.

Risks if you fail to register

The risks of having charged VAT for a lease where there is no separate voluntary VAT registration is a specific assessment, but in our opinion, the Danish Tax Agency has indicated that they will tighten their practice in this area. It is therefore crucial that you have the right registrations in place to avoid the risk of losing the right to deduct VAT in the absence of voluntary VAT registration.

Azets can help

If you need advice or assistance in reviewing your rental activities or applying for a voluntary VAT registration, please reach out and we will be happy to help.