Deduction of VAT on capital goods

The period of adjustment is the number of years during which you are required to follow up on your ongoing use of the capital goods and where you may have to adjust and repay a share of the VAT deduction you were granted at the time of purchase. The period of adjustment for capital goods is:

• Five years for machinery, fittings and furniture and other operating equipment that have depreciated in value after the purchase if your purchase price exclusive of VAT exceeds DKK 100,000.
• Ten years for real property, including additions and renovations.
• Five years for repair and maintenance of real property at a total price of more than DKK 100,000 exclusive of VAT within a year. The amount applies to each individual property.

For machinery, fittings and furniture and other operating equipment, the year of purchase is counted as the first year in the period of adjustment. If, for example, you purchased a machine for DKK 120,000 exclusive of VAT in 2011 (and were granted the full deduction for the input VAT of DKK 30,000), you must assess your ongoing use of the machine each year up until and including 2015 and possibly adjust and repay a share of your VAT deduction to the Danish Tax Agency (Skattestyrelsen).

For properties, the first year in the period of adjustment is generally the year in which the property was used for the first time. If you construct a property with a view to renting it out subject to VAT, the first year in the period of adjustment is generally the year in which the first tenant moves in.  

When purchasing the capital goods, you must determine the size of your VAT deduction based on your deduction right at the time of purchase - full, partial or no VAT deduction. You must deduct the VAT deduction to which you are entitled as input VAT in your VAT declaration in the VAT period (i.e. the month, quarter or six months) in which the purchase was made. You must use the date stated in your purchase invoice.

After that you must follow up on your VAT deduction on the capital goods every year during the period of adjustment to ensure that your ongoing use of the goods correspond to the VAT deduction claimed. Imagine that you distribute the VAT deduction applied at the time of purchase onto each year during the period of adjustment for the capital goods. If, for example, you purchased a machine for DKK 120,000 exclusive of VAT in 2011 and were granted a full VAT deduction of DKK 30,000, you must distribute this over each year during the five-year period of adjustment as shown below.

Five-year period of adjustment

Price and VAT deduction	Amount
Purchase price exclusive of VAT in 2017:	DKK 120,000
VAT deduction at the time of purchase (full deduction right): 120,000 x 0.25 =	DKK 30,000
VAT deduction per year during the period of adjustment: 30,000/5 =	DKK 6,000

Your ongoing use of the goods (during the period of adjustment) may mean that, each year during the period of adjustment, you must adjust and possibly repay a share of the VAT deduction for the individual year; in this example DKK 6,000 per year.

If you have only used the machine for private purposes in, say, 2018 (as in this example), you must repay VAT of DKK 6,000 via your last VAT declaration for 2018. You must continue to assess your ongoing use of the machine in the following years up to and including 2015 (in this example) and possibly also repay VAT in these years.

You must adjust your VAT deduction if, during the period of adjustment, you:

• change your use of the capital goods and become entitled to either a smaller or larger VAT deduction than at the time of purchase. You are only required to adjust and repay VAT if your VAT deduction rate for the year deviates by more than 10% from the VAT deduction at the time of purchase. See examples 1 and 2 below.
• sell the capital goods (with output VAT) where a full VAT deduction was not possible for the asset at the time of purchase. In that case, you will be entitled to an additional VAT deduction on the capital goods. See example 1 below.
• sell a property where the sale ends up being exempt from VAT. In that case, you must repay a share of the VAT if you claimed a VAT deduction at the time of the construction, addition and renovation of the property or have spent more than DKK 100,000 on repair and maintenance of the property. See example 3 below.
• sell capital goods as part of a VAT-exempt business transfer. As a general rule, a VAT-exempt business transfer is when you resell to another business registered for VAT all the goods (machinery, fittings and furniture, inventory etc.) used by you while the business was operating. Generally, you are required to repay a share of the VAT deduction granted to you when you purchased the capital goods now being resold exclusive of VAT to the other business. See example 4 below.

Example 1: Purchase of a van for both purposes exempt from VAT and purposes subject to VAT

In 2015, you purchase a new van with a permitted total weight of more than three tonnes for both business activities that are exempt from VAT and business activities that are subject to VAT (mixed business). The price of the van is DKK 200,000 exclusive of VAT and registration tax. As the value of the vehicle is more than DKK 100,000, the capital goods rules apply.

If you use the vehicle for both purposes that are exempt from VAT and purposes that are subject to VAT, you must first calculate your business’s VAT deduction rate and then your partial VAT deduction in the year of purchase.

Calculating your VAT deduction rate (for mixed business) in the year of purchase

Your sales and VAT deduction	Amount/percentage
Your total sales of goods and services	DKK 1,000,000
Your sales of goods and services subject to VAT (exclusive of VAT)	DKK 600,000
Your sales of goods and services exempt from VAT	DKK 400,000
Your VAT deduction rate in the year of purchase: (600,000/1,000,000) x 100 =	60%

Your total sales are the sales subject to VAT and the sales exempt from VAT.
VAT should not be included in the sales subject to VAT.

Calculating your partial VAT deduction in the year of purchase

Input VAT and VAT deduction	Amount
Input VAT on the van: 200,000 x 0.25 =	DKK 50,000
VAT deduction in the year of purchase: 50,000 x 0.6 (your VAT deduction rate) =	DKK 30,000

As the van is classified as operating equipment, you must adjust the VAT in the following five years (including the year of purchase, 2015) if your use of the van changes or if you sell it.

In 2016 and 2017, the distribution of your sales exempt from VAT and your sales subject to VAT changes so that your VAT deduction rate will be 45% for 2016 and 65% in 2017 instead. This affects your partial VAT deduction and, as a general rule, you are required to adjust your VAT deduction for the two years.

In 2018, you sell the van for DKK 125,000 inclusive of VAT. In your sales invoice, you must charge VAT on your selling price exclusive of VAT (in this case, DKK 100,000). You must then pay and declare the VAT as output VAT in your ordinary VAT declaration for the VAT period (i.e. the month, quarter or six months) in which you sell the van. If, for example, you sell the van on 12 January 2018, you must pay and declare your output VAT in the VAT declaration comprising January 2018.

Calculating your output VAT

Output VAT	Amount
Output VAT on the van: 100,000 (selling price exclusive of VAT) x 0.25 =	DKK 25,000

In 2016, when your VAT deduction rate is 15% lower than in the year of purchase, the annual adjustment of your VAT deduction is DKK -1,500. This amount must be recorded in your VAT accounts and repaid to the Danish Tax Agency. This is done by declaring ’DKK -1,500’ in the input VAT field in your last VAT declaration for 2016 (i.e. offsetting the amount by reducing your VAT deduction for the period).

In 2017, when the deduction rate is 5% higher than in the year of purchase (2015), you may claim an additional VAT deduction of DKK 500. It is up to you to decide whether you want to claim the additional deduction when the deduction rate changes by less than 10%. You may record the DKK 500 as additional input VAT in your VAT accounts and declare this in the input VAT field in your last VAT declaration for 2017.

In terms of VAT, your sale of the van inclusive of VAT in 2018 will be regarded by us as if you only use the van for purposes that are subject to VAT in the remainder of the period of adjustment (i.e. 2018 and 2019). This will give you an additional VAT deduction for the remaining two years (2013 and 2014). If, for example, you sell the van on 12 January 2018, you must declare a total additional VAT deduction of DKK 4,000 + 4,000 = DKK 8,000 in the input VAT field in the VAT declaration comprising January 2018. The additional VAT deduction is thus included in the same VAT declaration in which the output VAT on the van sale is declared.

In order for you to claim the full additional VAT deduction of DKK 8,000, it is a condition that the output VAT on the sale (in this example DKK 25,000) is higher than the additional VAT deduction you may claim when reselling the van. In this example, you may claim the full additional VAT deduction of DKK 8,000 in 2018.

If, on the other hand, you sell the van for only DKK 30,000 exclusive of VAT, your output VAT is only DKK 7,500. This means that you can only claim an additional VAT deduction of DKK 7,500, not the full DKK 8,000.

Example 2: Construction of a property which you subsequently use partially for VAT-exempt purposes

In 2009, you construct a building and start using it for your business activities subject to VAT that same year. In this case, you may deduct the full VAT amount.

Calculating input VAT in the year of construction

Construction costs	Amount
Total construction costs, exclusive of VAT	DKK 3,200,000
Input VAT on construction: 3,200,000 x 0.25	DKK 800,000

You must regularly deduct VAT for the construction project as input VAT in your VAT declaration based on the date in your purchase invoices.

The period of adjustment is ten years for the construction of real property. Your period of adjustment for the property begins when you start using the property for the first time in 2009 and continues up to and including 2018. From 2014 and onwards, you choose to use 25% of the property for other purposes that do not concern your business activities subject to VAT, for example residential purposes (mixed use). This means that you will have to repay a share of the VAT deduction for 2014-2018 that was granted to you in the year of construction. The table shows the amount of VAT you must repay each year.

Even if you know that you will be using the building for mixed purposes from 2014 at a fixed VAT deduction rate of 75%, you must continue to adjust the VAT for the remaining years on a regular basis. As a result, you must repay VAT of DKK 20,000 for each year from 2014 to 2018. This is done by declaring ’DKK -20,000’ in the input VAT field in your last VAT declaration for each of the years from 20104 to 2018 (i.e. offsetting the amount by reducing your VAT deduction for the period).

Example 3: Sale of property you have used for purposes that are subject to VAT

(The example continues from example 2)

You sell the property in 2014. The rules concerning VAT liability in respect of the sale of building plots and new buildings did not come into force until 1 January 2015. In connection with your sale of the property, you are therefore not required to charge VAT on the selling price in 2014.

Whether or not you are required to charge VAT when selling buildings and plots after 1 January 2015 depends on the specific circumstances of the sale. As a general rule, you are required to charge VAT on the sale of:

• New buildings where construction began on 1 January 2015 or later.
• Buildings which have undergone extensive additions or renovations which started on 1 January 2015 or later.
• Building plots sold on 1 January 2015 or later.

In the year of construction (2009), you deducted total input VAT of DKK 800,000. Example 2 shows that you must distribute the input VAT over a ten-year period. After your sale of the property in 2010, there are therefore still five years (2014-2018) for which you have not adjusted and repaid VAT.

Transition to non-deductible use

In terms of VAT, we will regard your sale of the property exclusive of VAT in 2014 as if you only use the property for non-deductible purposes in the remainder of the period of adjustment (2014-2018). This means that you must repay the VAT as if your VAT deduction rate for the remaining years (2014-2018) was zero. In this example, you must therefore repay the VAT deduction granted for 2014-2018.

Calculating the VAT owed to you

VAT deduction at time of purchase	Amount
Annual share of the VAT deduction you claimed at the time of purchase: DKK 80,000 x 5 years	DKK 400,000

You repay VAT by declaring ’DKK -400,000’ in the input VAT field in your last VAT declaration for 2014 (i.e. offsetting the amount by reducing your VAT deduction for the period).

Sale to another business subject to VAT

You can avoid having to repay the VAT of DKK 400,000 if you sell the property to another business subject to VAT. The following conditions must be met:

• The buyer must be a business subject to VAT with at least the same VAT deduction rate as enjoyed by your business at the time of purchase, i.e. in this example a full deduction right.
• The buyer must confirm through his/her signature that he/she will take over the adjustment obligation for the remaining part of your period of adjustment; in this example, 2014-2018.

The VAT amount which the buyer undertakes to adjust and repay, if necessary (if the buyer’s use of the asset changes), is referred to as the adjustment obligation in terms of VAT; in this case, the DKK 400,000.

If the buyer of your property wants to take over the adjustment obligation, you (seller and buyer) must provide us with a statement to this effect. You do this by completing and signing forms nos. 49.026 and 49.040. Please note that the forms are only available in Danish.

Form 49.026 Erklæring / Samlet opgørelse ved overdragelse

Form 49.040 Delskema ved overdragelse (Investeringsgoder)  

It is important that you make sure that the buyer is registered for VAT and has the same VAT deduction right as you have. If, for example, the buyer is not registered for VAT, the Danish Tax Agency may collect the VAT amount (in this example, DKK 400,000) from you even if the buyer has declared that he/she will take over the adjustment obligation.

Example 4: Sale of a machine as part of a business transfer

In 2014, you purchase a machine for DKK 200,000 exclusive of VAT for use in your business activities subject to VAT. In this case, you may deduct the full VAT amount.

Calculating your VAT in the year of purchase

Price and input VAT	Amount
Price of machine, exclusive of VAT	DKK 200,000
Input VAT: 200,000 x 0.25 =	DKK 50,000

You must deduct the full VAT amount as input VAT in your VAT declaration in the VAT period (i.e. the month, quarter or six months) in which the purchase was made. You must use the date stated in your purchase invoice.

If the machine (operating equipment) has a value exclusive of VAT of more than DKK 100,000, it is regarded as capital goods. You are therefore required to adjust the VAT deduction granted at the time of purchase if the use of the machine changes within five years (2014-2018), including the year in which you purchase the machine.

In 2016, you want to terminate your business activities, and you therefore sell the entire business to another business which is registered for VAT. Included in the sale are all the goods (machinery, fittings and furniture, inventory etc.) used while the business was operating.

Business transfer not subject to VAT

Whenever an entire business is sold (transferred) from one business registered for VAT to another, the transfer is generally exempt from VAT. This means that the seller is not required to charge VAT on the sale, and that the buyer is not entitled to a VAT deduction.

The machine in this example is used in your business subject to VAT in 2014 and 2015. In 2016 when you transfer your entire business exempt from VAT, there are still three years remaining of the period of adjustment for the machine (2016, 2017 and 2018).

Since you are not required to pay VAT on the transfer of your entire business, including the sale of the machine, you are generally required to pay the VAT adjustment amount for the machine (DKK 10,000 + 10,000 + 10,000 = DKK 30,000). You can avoid this if you sell to another business subject to VAT and also meet certain conditions, allowing the buyer to take over the adjustment obligation of DKK 30,000 (in this example). These rules are described in further detail in example 3 above.