Gift tax in Denmark
If a parent/grandparent donates an asset (cash, shares etc.) to his/her child/grandchild, the Danish rules on gift tax apply if either the donor or donee has jurisdiction in Denmark at the time of the donation. A person has jurisdiction in Denmark if he/she is a resident in Denmark at the time of the gift being given.
Parents/grandparents are entitled to donate tax-free gifts to their children/grandchildren, provided that the total value within any one calendar year does not exceed a basic amount of DKK 69,500 per parent/grandparent (2022).
A 15 % gift tax is payable on gifts exceeding the basic amount. Tax is consequently paid on the value of the gift which exceeds the tax-free basic amount.
A donation exceeding the basic amount must be reported and is subject to control by the Danish Tax Authorities. While it is easy to determine the value of a cash donation or shares in a listed company, the valuation of shares in an unlisted company, which is the case for most family businesses, can be trickier. Therefore, in such cases families must pay careful attention and consideration to the valuation of the gift when reporting to the Danish Tax Authorities.
A way of mitigating the risk of a higher valuation by the Danish Tax Authorities, and thus an increased gift tax, is to add a revocation/correction clause to the donation. This allows for the parties to either revoke the gift completely or alter the conditions, and hereby eliminate/reduce the increased gift tax. Such a revocation/correction clause must comply with certain conditions to be deemed valid and applicable by the Danish Tax Authorities.
The time limit for reporting and paying the gift tax to the Danish Tax Authorities is 1 May in the year after the donation. If the gift tax is reported and/or paid too late, interest becomes payable.
As a general rule, gift tax that has been paid abroad will be credited and thus reduce the payable amount in Denmark.
Both the donor and donee are liable for the gift tax to be paid. If the donor pays the tax, this payment does not constitute a further taxable gift.
In summary, it is highly recommendable with timely and appropriate planning before a donation is made from a parent (grandparent) to a child (grandchild) to avoid unpleasant surprises – especially if either one of them is resident in Denmark.
Björn Brügger is a Danish attorney at law and Senior Associate with Bech–Bruun Law Firm in Copenhagen and Aarhus. He specializes in estate planning advice regarding family-owned enterprises and assets as well as private client matters (e.g. marriage contracts, wills and enduring powers of attorney) and is part of Bech–Bruun‘s Family Business Succession Group and Private Client Group.