The Capital Return Scheme

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What is the capital return scheme?

‍The capital return scheme is a tax scheme for personally operated businesses, where you receive a standardised deduction (capital return) in personal income, based on the value of the business’s assets.

The capital return scheme is relevant for you if you want:

Lower personal income → less tax and labour market contribution
Less administration than under the business tax scheme
A flexible way to handle taxable profits

At SkatteInform, we assess whether the capital return scheme is suitable for your business’s finances.

When can the capital return scheme be worthwhile?The scheme is typically advantageous if your business’s capital return exceeds the interest expenses. This provides the best tax value of the capital return. If, on the other hand, your interest expenses are higher than the capital return, it may be less favourable to choose this scheme. In such cases, the business tax scheme should be considered as a more economical choice.

The capital return scheme for spousesIf both you and your spouse run a business, you can generally each choose your own tax scheme. However, if you want to allocate the result from one shared business under the capital return scheme (cf. KSL § 25 a, subsection 8), the following applies:

One combined capital return must be calculated
The combined capital return is allocated between you
You must make a joint decision on the use of the scheme

This requires correct handling in the tax assessment and documentation. SkatteInform helps with advice for married couples in business.

Frequently asked questions (FAQ)

What is the difference between the capital return scheme and the business tax scheme?

‍The capital return scheme is simpler, does not require separation of finances and has a lower administrative burden – but typically results in higher tax. The business tax scheme (VSO) provides better opportunities for saving at a lower tax rate, but requires more administration.

Can I switch between the business tax scheme (VSO) and the capital return scheme?

‍Yes, you choose the scheme each year in connection with income reporting. The choice applies for the entire year. You should be aware that if you opt out of the business tax scheme and opt into the capital return scheme, any retained profit will be taxed in the year of cessation.

What is cyclical equalisation?

‍Cyclical equalisation means that you can set aside profits for future years and thereby smooth your taxable income – useful in years with large fluctuations in results. If you choose the cyclical equalisation scheme, a bank account must be set up for depositing the set-aside profit. It can be a challenge to find a bank that will open a bank account for this purpose.