As time passes and society evolves, more and more people are heading abroad for a period and therefore need to be away from their homes, for example, due to an assignment.
In the period leading up to such a trip, there is naturally a lot to consider: Where will you live? Where will your children go to school? And what should happen to your home in Denmark?
The latter is something we see many people being uncertain about. What should you do? Should the home just stand empty, should you sell it, or perhaps rent it out?
Fortunately, in Denmark, you have the option to rent out your home for a limited period, allowing you to travel the world with a little extra money each month and return to your home when the trip is over.
But as with so many other things in life, you have to take the good with the bad.
Which in this context means that there are a few tax and rental rules and requirements you should be aware of before you can truly enjoy the benefits of renting out while you are on assignment.
We will do that in this blog post, and you will learn more about 4 essential topics:
- Fixed-term tenancy
- Setting the rent
- Rental agreement
- Tax rules and reporting
The latter is our specialty, and we have a tool that guides you safely to the finish line. It helps you calculate your tax, find your deductions, and tells you how to report to the tax authorities.
If you have any questions, please don't hesitate to call us or write to us in the chat.
Rules for renting out a home while on assignment
As the introduction suggests, we have many items on the agenda. To make it as clear as possible, we will start right from the top.
It is actually not as difficult to rent out a home while on assignment as many people think. However, there are just a few rules you should keep in mind to avoid making unnecessary mistakes that could end up costing you dearly.
Fixed-term tenancy
As mentioned in the introduction, the most optimal solution for most people being posted abroad is to rent out their home for a limited period.
Specifically, this means you can rent out your home for the exact duration of your posting, whether it is for a month or several years.
However, we should quickly point out that different rules apply to renting out a home during a posting if you are a tenant yourself.
Basically, the difference is not that significant, except that as a general rule, you may only sublease your home for up to 2 years.
You can read more about subleasing for limited-term rentals here.
Setting the rent
The next point is setting the rent, which can be a somewhat more complicated affair. What you can charge in rent depends on many different factors, such as the municipality where the property is located, when the property was built, and the area it is in. Don't be intimidated – we will take a closer look at it together!
A good rule of thumb in all this rent-setting confusion is that the rent amount must correspond to the value of the rental property.
This means you should compare the rent of other properties similar to yours in terms of location, type, size, quality, amenities, and maintenance condition.
Furthermore, the starting point is always that you and your tenant find a price that you both feel is reasonable.
However, you should be aware that if the price deviates from the value of the rental property, your tenant has the option to go to the Rent Control Board and demand a rent reduction.
In the vast majority of cases, it is sufficient to set the rent according to the value of the property. If you are interested in knowing more about the rules for setting rent, you can read more about it here.
Rental agreement
As the final step in the rental process during a posting, we would like to draw your attention to the rental agreement/lease contract between you and your future tenant.
It is extremely important that you ensure you create a clear and precise lease contract where all agreements and terms are highlighted. This is important for both your own and the tenant's sake, as well as for documentation should any disagreements arise along the way.
Most people recommend that you use a standard template to create the lease contract and add any individual agreements yourself.
Taxation of home rentals during international assignments
The final item on the agenda concerns the tax rules you need to be aware of as a landlord while on an international assignment.
As soon as you start earning money from your rental, the tax authorities require you to keep accounts of the income and expenses associated with the rental. You must be able to present these accounts to the tax authorities or other stakeholders if requested.
Even if you didn't expect it, you are effectively becoming the owner of your own small business – congratulations!
We know this can seem daunting, especially if it wasn't something you signed up for. But don't worry, it's not as bad as it sounds.
Let's take a closer look at the rules for bookkeeping and the tax return form.
Bookkeeping and tax return form
In your accounts, you must be able to provide an overview of your rental property's finances, including income and deductible expenses.
Rental income includes the full amount of rent you receive each month.
Expenses you can deduct in your accounts include:
- Property taxes
- Maintenance
- Water, sewage, and waste disposal fees
- Administration and accounting assistance for your records
- Property insurance
- Chimney sweeping, snow removal, and street sweeping
- Homeowners' association fees
- Depreciation of any connection fees
- Electricity, water, and heating
You can read much more about the financial statement here.
In the tax return form, you must report your personal income, which is the amount you are required to pay tax and labor market contributions on.
Limited tax liability as a landlord while on assignment
When you rent out your home while on assignment, you are classified as having limited tax liability.
In concrete terms, this means that you must pay tax on your income in Denmark, even if you are residing abroad. In other words, limited tax liability means that your income is taxed in the country where it originates.
Furthermore, as a person with limited tax liability in Denmark, you are entitled to deduct expenses related to your income in Denmark.
In your case, this could, for example, be travel deductions, travel expenses, or other costs associated with your rental.
Let us help you
As you can probably tell, there is a lot to keep track of when you rent out your home while on assignment.
At Reportability, we have fortunately helped many people like you prepare an annual financial statement and determine which figures need to be entered into the tax return form.
And even though it may seem like an overwhelming process, fear not!
By using our tool, you simply need to follow 5 easy steps before you have an annual financial statement and a tax return that you can use for your tax reporting.
We ensure that all requirements and regulations are met and that you receive the deductions you are entitled to.
Should you have any questions, please do not hesitate to write to us via chat or give us a call. We are ready to help you.
