Living in Denmark: tips, challenges and questions

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herp
Posts: 171
Joined: Sat Apr 08, 2017 1:11 pm

Re: Living in Denmark: tips, challenges and questions

Post by herp »

FBeyer wrote:
Wed Jun 21, 2017 9:40 am
There is almost no doubt in my mind that we are going to be labelled as traitors and leeches and someone will come up with a way of removing the personfradrag for everyone who only has investment income.

Just you wait...
That would be pretty annoying, but at least you could do a small amount of part time work to offset it.

FBeyer
Posts: 1069
Joined: Tue Oct 27, 2015 3:25 am

Re: Living in Denmark: tips, challenges and questions

Post by FBeyer »

Nah, theyll scale it in relation to the number of hours you actually work so that you HAVE to work full time to get the full deduction. Just you wait and see...

Be quiet about FI in Denmark, be very very quiet...

thedollar
Posts: 257
Joined: Tue Feb 21, 2017 4:07 am

Re: Living in Denmark: tips, challenges and questions

Post by thedollar »

Seems like the ERE people of Denmark will be given a small gift this year in form of a tax advantaged 'aktieopsparings' account.

Stats:
500,000 DKK limit (amounts to around $80,000)
Taxed 1.25% of total amount each year (this is low btw)

Assuming a 5% return this would be the equivalent of a lagerbeskatning of 25%. Well, not so much an advantage after all... Only if you already pay well above 25% in stock taxes. Maybe they will allow the 500k to be invested in ETFs? That would be awesome.

Advantages:
- Taxes could be lower if you already pay a higher stock tax rate than 25%
- You won't have to pay taxes on the gains when selling the stock or when dividend is received
- You might be able to buy ETFs

thedollar
Posts: 257
Joined: Tue Feb 21, 2017 4:07 am

Re: Living in Denmark: tips, challenges and questions

Post by thedollar »

Even better news today!

They now want to double the low stock tax cap to 100,000 DKK around $16,000. Also, no cap for the beskæftigelses-deduction ?

This stuff is perfect for danish EREs. Let's hope they pull through.

BadHorse
Posts: 55
Joined: Sun Jun 05, 2016 4:17 am

Re: Living in Denmark: tips, challenges and questions

Post by BadHorse »

Yeah, those changes would def be good for EREs.. but let's see how it goes once it's been through the parliamentary mills!

lolxor
Posts: 8
Joined: Mon Mar 27, 2017 4:22 am
Location: Denmark
Contact:

Re: Living in Denmark: tips, challenges and questions

Post by lolxor »

It's great. Check point 6 too - we might get ETF's taxed the same as Danish funds. That'd save a ton in fees with no real loss for the government.

The Wolf
Posts: 6
Joined: Thu Jun 15, 2017 4:14 am

Re: Living in Denmark: tips, challenges and questions

Post by The Wolf »

Fingers crossed that the Government will find a majority backing these proposals!

thedollar
Posts: 257
Joined: Tue Feb 21, 2017 4:07 am

Re: Living in Denmark: tips, challenges and questions

Post by thedollar »

lolxor wrote:
Wed Aug 30, 2017 8:54 am
It's great. Check point 6 too - we might get ETF's taxed the same as Danish funds. That'd save a ton in fees with no real loss for the government.
That would be a dream scenario.

However, how would they tax accumulating index funds? They’d miss out on a whole lot of dividend tax and we’d have another great advantage. Seems this has been the problem in the first place. :roll:

The Wolf
Posts: 6
Joined: Thu Jun 15, 2017 4:14 am

Re: Living in Denmark: tips, challenges and questions

Post by The Wolf »

On element that I find really annoying about Danish (tax) politics is the propensity to add extra complexity. It's always about adding new schemes, subisidies and fees. One big social enginering experiment with immense unintended consequenses. Denmark is really well-functioning in so many ways but this social engineering ideology is one big costly obstacle. If our Government wanno incentivize private stock investing then why not simple lower the 27%/42% tax levels? Rant over :-)

cbroenning
Posts: 27
Joined: Sat May 21, 2016 3:14 pm
Location: Copenhagen, Denmark

Re: Living in Denmark: tips, challenges and questions

Post by cbroenning »

I don't really see the "aktieopsparingskonto" as a viable solution, especially for buy and hold-portfolios. Yes, it makes it easier to buy and sell for people whose only interest is the shares themselves, since they can leave the tax implications of selling out of the equation. But for anyone with a slight understanding of Danish tax law, it does not make sence to utilize the aktieopsparing.

The way I see it, the biggest show-stopper is that the entire value of the account is taxed (at a rate of 1.25 pct.). I have never been a fan of "lagerbeskatning" (the taxation of unrealized as well as realized gains/losses in asset values) but even less so of "formuebeskatning" (the taxation of asset value as a whole), which this is similar to.

Since you are taxed on the value of the holdings you would be taxed even though your holdings had decreased in value over the income year. This is a cash tax, meaning a further decrease in invested capital. As the taxation occurs each year end, the impact of a loss on your return could be devastating, as you would not only lose value but also be taxed, requiring an even higher return the following year to offset the loss and tax. In my opinion, it is a no-go for buy and hold-portfolios.

Even if we assume a sustained return each year throughout the decades, the gain is insignificant compared to the current taxation. Especially considering the proposed increase of the 27 pct. tax bracked for equity income.

An example, assuming DKK 500,000 invested with a gain of 7 pct.:
  • 1.25 pct. of 535,000 = 6,687 in tax payable
  • 27 pct. of 35,000 = 9,450
Your net gain after taxes would be 5.6 pct. instead of 5.1 pct. - and this is while taking the risk of taxation in spite of losses.

The only upside is that you dont have to withdraw an amount above the 500,000 cap for deposits - meaning that you could leave the account alone throughout the years. You would have to pay the taxes in other ways, though.

cbroenning
Posts: 27
Joined: Sat May 21, 2016 3:14 pm
Location: Copenhagen, Denmark

Re: Living in Denmark: tips, challenges and questions

Post by cbroenning »

The increase in the lower tax bracket for equity income is fantastic, though! :)

herp
Posts: 171
Joined: Sat Apr 08, 2017 1:11 pm

Re: Living in Denmark: tips, challenges and questions

Post by herp »

I don't have high hopes for the lower tax bracket change going through, but let's cross our fingers. I could perhaps see a new 35% bracket in the DKK 50k - 100k range, but this is of course all speculative.

With respect to the "aktiesparekonto", I agree that those are valid concerns for buy and hold investors. The fact that the tax is applied annually has a quite significant effect in the long run. Under the current system, it is even possible to construct scenarios where it is more advantageous to hold equities in "frie midler" versus "aldersopsparing" due to the yearly taxation.

If anything, the "aktiesparekonto" as proposed promotes speculation, as one is incentivized to take high risk. It would be fantastic to have the same model as Sweden has implemented, though.

FBeyer
Posts: 1069
Joined: Tue Oct 27, 2015 3:25 am

Re: Living in Denmark: tips, challenges and questions

Post by FBeyer »

cbroenning wrote:
Thu Sep 07, 2017 3:59 am
The increase in the lower tax bracket for equity income is fantastic, though! :)
But that would be 'a tax break for all the rich people' so what are the odds that's going to pass? Don't you think it's just a tool for negotiation? I mean, it sounds way too good to be true to raise the high tax bracket like that, so it's definitely not true.

herp
Posts: 171
Joined: Sat Apr 08, 2017 1:11 pm

Re: Living in Denmark: tips, challenges and questions

Post by herp »

Shame that the increase in the lower tax bracket for equity income did not go through, although I didn't expect it to.

Looks like the final taxation model for the "aktiesparekonto" was changed such that it's now taxed according to the "lagerbeskatning" principle at 17% annually. I agree with cbroenning that for buy and hold investors, it doesn't appear that attractive.

On another note, the taxation of equity-based ETF's was changed from "kapitalindkomst" to "aktieindkomst". While a welcome change, for now the principle of "lagerbeskatning" is maintained, which is a bit of a bummer.

FBeyer
Posts: 1069
Joined: Tue Oct 27, 2015 3:25 am

Re: Living in Denmark: tips, challenges and questions

Post by FBeyer »

Actually thats a major bummer.

Once youre FI, what can you use your approx 45K personal deduction for?
IIRC you could use it for deductions for lagerbeskatning on ETF and for the high-percentage taxation of equity income.
Unless you have rentals, wages, or a shit-load of interest bearing investments you're not making use of a major tax deduction.

Overall, the less investments that can go into personal deduction, the harder it'll be to avoid paying most of your income in taxes.
What am I missing?

Eureka
Posts: 340
Joined: Fri Jun 10, 2016 11:03 am

Re: Living in Denmark: tips, challenges and questions

Post by Eureka »

Well, if you have a working spouse, you can let her use it ...

herp
Posts: 171
Joined: Sat Apr 08, 2017 1:11 pm

Re: Living in Denmark: tips, challenges and questions

Post by herp »

Looks like the tax cuts ended up being fairly modest.

I wonder how much more advantageous it will now be to contribute to "Ratepension" and "Livrente" with the added deductions.

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