If you use the business tax scheme for your property rentals, you can choose to keep a portion of the year's profit within the business.

This is known as retained earnings.

You only pay 22% tax on the retained earnings if you leave the money in the account linked to your business (your rental property). The day you wish to withdraw the money for personal use, you must pay the remaining tax on the amount.

What is the advantage of retained earnings?

The biggest advantage is that you can choose when the money is paid out to you personally. This is not an option if you use other tax schemes, such as the personal income tax act or the capital return scheme.

The ability to retain earnings in the business tax scheme at a low tax rate provides greater flexibility and the opportunity to plan your finances over several years.

For some landlords, it can be an advantage to wait to withdraw the profit until a year when their personal income is lower, as this may help them avoid paying top-bracket tax.

What can the money be used for?

As long as the profit remains in the business, it can be used for business finances, for example:

• maintenance of the rental property
• financing renovations
• investing in additional rental properties
• strengthening the business's liquidity

This allows the business to grow without having to pay out the entire profit privately first.

Should you withdraw the profit?

That depends on your situation.

Some landlords need the money privately right away, while others choose to leave a portion of the profit in the business.

Especially if you pay top-bracket tax, it can sometimes be an advantage to plan when the profit is withdrawn.

What should you be aware of?

The business tax scheme offers more options than standard taxation, but it also places greater demands on calculations and reporting.

It is therefore important to keep track of, among other things:

• annual profit
• the deposit account
• the capital return base
• retained earnings

The various elements are interconnected and affect your overall taxation.

Get help with the business tax scheme

Reportability helps residential landlords calculate tax under the business tax scheme and keep track of items such as retained earnings.

The tool assists with calculations, reporting to the Danish Tax Agency, and provides a complete overview of your business finances. If you have questions along the way, you can also get help from our accountants.

In short

Retained earnings allow you to keep a portion of your profit in the business instead of withdrawing it immediately.

This can provide greater financial flexibility and make it easier to plan both investments and the timing of when profits should be withdrawn for personal use.