How to deduct your home office from your taxable income in Denmark in 2023
By calculating the cost of using your home office for your business and then deducting this cost from the profit of your business you can lower the profit of your business thus lowering your tax. But the tax rules in Denmark regarding home offices are pretty strict, and not everyone is able to apply the rules. This blog covers how to deduct your home office from your taxable income in Denmark in 2023.
How to deduct your home office from your taxable income in Denmark in 2023
In this blog, we cover how to deduct your home office from your taxable income in Denmark in 2023.
By calculating the cost of using your home office for your business and then deducting this cost from the profit of your business, you can lower the profit of your business, thus lowering your taxable income.
But the tax rules regarding home offices are pretty strict, and not everyone can apply the rules.
Change the appearance of the home office
First, to deduct the cost of using your home office for your business and thereby lower your tax, you must change the physical appearance of the room used as your home office.
For example, if you have a three-room apartment and use one of the rooms for a home office, the room used for the home office must be physically changed to receive a deduction of your tax.
If the home office’s physical appearance has not changed, then as a general rule, you cannot take a tax deduction.
However, there is no 100% clear definition of the physical changes you must make to the appearance of the home office.
From the tax court, we know that simply putting in a desk, office chair, bookshelf and similar related to the business in the home office is not enough to change the physical appearance of a room.
Machines or unique furniture not used in a typical private residence could be considered a physical change.
It could also be actual installations you need to make – like in a mechanic workshop – that can change the room’s physical appearance.
However, this is seldom the case.
Therefore, our experience is that most clients cannot comply with the rules.
Use of the home office
In addition, you must use the home office for a significant portion of your working day for the deduction to be approved. It’s not enough that you spend a couple of evenings a week in the office. Although there isn’t a 100% clear definition, 5-8 hours per day should be sufficient.
If you are renting your home
Your tax deduction will differ from renting your apartment/house to owning it. If you rent, we look at the surface area of your lease and then calculate how much percentage of this area is used for the business. To calculate this, you can make a drawing of your lease and mark off how much of the space is used as an office to determine how much to deduct. For instance, if you’re renting a 100 square-meter apartment and 10 square meters are used for the office, 10% of your lease is used for the business.
Monthly rent & utilities
To determine how much to deduct, we must then look at the costs (rent, electricity, heating, etc.) related to your apartment/house. In the example above (with a 100-square-meter apartment and a 10-square-meter home office), you can deduct 10% of the total cost from your taxable income, lowering your income tax. You can also deduct VAT (10% of the VAT) if the home office is 10% of the leased area. If your home office is more prominent, your deduction will also increase. For instance, if you use 25% of your home for business, then you may also deduct 25% of the electricity bill, 25% of the heating bill, and 25% of the VAT, e.g. The deduction is always relative to the business usage of your apartment/house.
Water is another expense that may only be approved for deduction if its use directly relates to the business. For instance, a hairdresser might use the home office to cut a client’s hair, so water usage would typically be approved in this scenario. Once you’ve gathered all the relevant bills, you must deduct the percentage of the home office from the total expenses; in our example from above, 10%.
If you own your home
When you own a property in Denmark, you pay a mortgage and interest on that mortgage to the bank. Regarding these costs relating to the mortgage itself, you cannot make any deductions for your home office, as the mortgage and interest are considered private costs. However, the mortgage interests are deducted from your tax already.
In addition to the mortgage, you also pay a property tax as an owner, called “Ejendomsskat”, in Danish. You usually have two instalments to pay annually. Regarding property tax, if you use less than 10% of your property for the business, you’re not allowed a deduction. Using 25% (and above) of the property, like a home office, you can deduct the property tax you’ve paid in your company as a cost. For example, if you’ve paid 10.000 DKK in property tax and use 25% of your property for a home office, you can deduct 25% of the 10.000 DKK, which is 2.500 DKK (this will be a cost for your company then).
Read more about rules relating to a home office on the tax office website
The tricky part is if you use 10-24% of your property for a home office, then you can only deduct this part of the property tax as a capital gain deduction. This deduction is not given in your personal income or business profit but rather as a capital gain deduction, a particular field on the tax declaration.
In Denmark, you don’t get a 100% deduction when you make this capital gain deduction. Still, more like a third, so if you pay 50% in tax and deduct 1.500 DKK as a capital gain deduction, you won’t get 750 DKK in a tax refund because the 1.500 DKK will not have that much power as a tax deduction. It’s only measured at around a third, so the 1.500 DKK becomes a tax deduction of around 500 DKK. If you use 15% of your property as a home office and pay 50% in tax, you receive a tax discount of 250 DKK.
Property value tax
Another tax you pay in Denmark for your property is called property value tax – “Ejendomsværdiskat” in Danish. You do not pay this individually; it’s included in your regular income tax. You can always deduct a partial amount of property value tax if you have a home office; even if you use only 5% of your home as a home office, you can still receive a 5% partial deduction for this tax.
On the tax declaration, you must write the percentage of your home you use for a home office and how many days you’ve had it. When you do that, then you’ll automatically receive a tax deduction. Remember that if you’re only registered to own 50% of the property, your husband or wife should do the same because they’re also eligible to receive this discount.
If you’re an owner, the maintenance on your apartment or your house (painting, fixing a heater, etc.) is the next potentially relevant deduction. If you use less than 10% for business, then you’re not allowed to take any deductions on maintenance, but if you use more than 10%, you’re allowed to take a partial deduction equivalent to the usage for business. So if you use 20% of your property for business, for example, and you need to paint the office, then you can take a 20% deduction for both the VAT and the tax. You may take a partial deduction for everything related to maintenance.
We also deduct the utility bills (insurance on the house, chimney cleaner, etc.) as we would for rentals, according to the percentage used for business. However, as an owner, the tax office may only approve these deductions if you use around 25% or more of your home as your home office. Again, this depends on the inspector. Electricity and water have separate rules and are not included in this type of deduction.
For electricity, normally the tax office accepts a partial deduction, regardless of the percentage you’re using for business. So if you’re using 10% for business, usually they’ll approve a 10% tax deduction and VAT deduction of your electricity bill. No minimums here.
For water, the rules are similar to rentals. Usually, they’d like to see that you use water for your business, and the home office must be at least 10% of the property to deduct the water bill. You also receive a partial VAT deduction, and you can deduct a certain amount from every cubic meter of water you use (an extra VAT deduction). Until now, 6,37 DKK/cubic meter of water (2023 rate) was deducted directly from the VAT declaration. But this can change, so make sure you have the updated amounts.
You cannot deduct new installations for your business (new air conditioning unit, water heater, oven, etc.).
If you have a home office, chat with us about it. Very few clients fulfil the criteria of physically changing their apartment or house, which is the first challenge.
Would you like us to help determine if you can deduct your home office?
If you need our help, then you can find our pricing here for accounting services
(Last update of this blog: 4.3.2023)