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Copenhagen seeks to close taxation gaps with new rules on interest, capital gains, and withholding for nonresident companies
Denmark has unveiled sweeping tax reforms aimed at international real estate investors, proposing new rules that would significantly expand the country’s ability to tax interest and capital gains linked to Danish real estate regardless of whether a nonresident lender maintains a permanent establishment in the country.
In a draft bill published by the Danish Ministry of Taxation on 12 March 2025, the government proposes taxing nonresident companies on interest income and capital gains if such payments arise from controlled debt tied to property in Denmark. The bill also introduces new withholding tax obligations for foreign borrowers and affiliated entities.
A Shift in Cross-Border Real Estate Taxation
Nonresident creditors without a permanent establishment (PE) in Denmark are largely exempt from tax on interest and capital gains linked to Danish real estate. However, the proposed changes would subject such income to Danish taxation starting 1 July 2025 if the debt is used to finance, develop, or operate the property in the country and is between affiliated nonresident parties.
“This could fundamentally change how cross-border investments in Danish real estate are structured,” said a tax partner at a major European advisory firm. “The government is taxing offshore loans even where no PE exists.”
The draft legislation states that withholding obligations would now apply even if the debtor lacks a Danish legal forum—meaning that a broader range of entities would be responsible for ensuring compliance. Payments subject to the new withholding regime would include interest, capital gains, and royalties at a flat rate of 22%.
Targeted Carveouts and Exemptions
While expansive, the rules offer exemptions in line with EU directives and tax treaties. Relief is available where:
- The creditor is based in a jurisdiction that has a tax treaty with Denmark.
- The creditor is taxed at a rate of at least 16.5% (three-quarters of Denmark’s 22% corporate rate).
- The creditor is a PE in Denmark or falls under EU Interest and Royalty Directive exemptions.
Importantly, Danish parent companies and treaty-eligible parent entities subject to controlled-foreign-corporation (CFC) rules may also qualify for relief.
Wider Implications for Investors
The tax ministry emphasized that the proposals enhance fairness and eliminate aggressive tax planning through offshore structures. However, critics argue the measures risk complicating compliance and deterring foreign investment.
“Nonresident investors already face complexity navigating Denmark’s real estate market,” said an international tax counsel in Copenhagen. “This adds another layer, especially with the withholding liability being extended to third-party payors with Danish nexus.”
Parliament is expected to debate the bill in Q2 2025, and while passage is likely under the current coalition, lobbying from business groups could still shape the final version.
If adopted, the reforms would represent a bold attempt by Denmark to align real estate taxation with broader OECD and EU transparency goals at the potential cost of cross-border investment flows.
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