The Ministry will abolish the schematic rent rates for the purpose of valuation of the market rent for full or partial free residence for employees. The abolition of the rates will come into force on 1 January 2013. No changes will be made in the statutory, special rules applying to principal shareholders, executives, etc. or to official residence.

Schematic rates

For many years, the schematic rates have been applied when fixing the rental value of a permanent residence made available in full or in part to an employee by his employer. The employee has then paid tax on the difference between the rent paid and the market rent according to the schematic rates. Each year, SKAT has published a guideline on the valuation of the market rent based on location, the type of residence and m². If the residence has been subject to a duty to vacate the premises in case of termination of the employment, a reduction of 10 % has been granted when fixing the value. If the residence has been subject to a duty to both reside at and vacate the premises, the reduction has been 30 %.

The reason for the abolition

The reason for the abolition of the rates is that, in many cases, the rates do not reflect the actual market value which was the intention. Section 16 of the Tax Assessment Act assumes that the employee is taxed on the financial advantage obtained in relation to the market rent, but as the yearly schematic rates have in fact developed in a direction which has in many cases made them unqualified for reflecting the market rent, the Ministry has now decided to abolish the rates.

Taxation of the actual market rent as at 1 January 2013

As from 1 January 2013, taxation of free permanent residence must be based on the market value.

As from 1 January 2013, taxation of free permanent residence must be based on the market value.

If the employer has leased the residence made available to the employee, the taxation will be based on the rent provided that the lease is entered into between two independent parties (actual market rent). If the employee pays a share of the rent, the basis of taxation is reduced accordingly.

If the employer does not pay the rent, e.g. if the employer owns the residence, the market rent is fixed based on the rent of similar residences in the area. For the purpose of the employee's taxation, the employer must make an individual assessment of the leasing value of the residence. The employee is subject to taxation if the rent paid is lower than the market rent. In this case, the employee is subject to taxation on the difference of the leasing value (market rent) and the rent fixed.


Abolition of the schematic rates may result in a higher rent on which the employee will be taxed. It is therefore important that companies providing free residence to their employees review the contractual basis, including the contracts of employment to secure clarity with respect to the handling of the tax implications of a change of the rent.

With this abolition, the employers will be given the tasks of valuing the lease.

The content of this Newsletter is not, and should not replace, legal advice.


Marianne Lage