Living in Denmark: tips, challenges and questions

[Eureka]

Thanks all and sorry for my tone.

I guess I must stop talking about things I have no clue about and move to a place where the tax rules are simpler

[lolxor]

a strange special case with regards to capital gains

Hi all. Late to the party but I've discussed this exact issue with a few other Danes in the past. The weird application of the standard deduction when you only have stock income is indeed weird

What it means though is that if you can indeed get by on less than approx 40,000 kr per year then you can get that completely tax free by structuring your investments to pay out as capital gains (bonds or ETF's generally). If you need 40-83,000 kr then you can start adding stock income and still keep your effective tax at about 15%. If you are above 83,000 kr then it doesn't matter much if you utilize income from stocks or capital gains since you will be able to utilize your standard deduction either way

If you play for enough time with entering numbers into their (cumbersome) website

I found it cumbersome too since you had to reenter your birthday every time as well as membership of the church and municipality. I did what any of us nerds would do and created a spreadsheet to calculate the tax myself It's embedded on this site: Simple tax estimates

You can play around with it there. I think you should be able to download it too but if not just let me know and I'll put a downloadable copy up here or there.

[herp]

@lolxor

What a great site you've put together. I really like the content available on firedk.com!

[lolxor]

@lolxor

What a great site you've put together. I really like the content available on firedk.com!

Thanks a ton & glad you like it! I'm working on putting more up, but am pretty busy at my job and some courses at the moment.

[Rabie]

@lolxor cool site!

Reading the comments section of http://firedk.com/blog/2017/03/why-redu ... -can-make/ post cleared some of my questions regarding the tax system

[herp]

Looks like there's quite a few upcoming changes to our retirement system. What stood out to me was a significant degradation of aldersopsparing, capping the contributions at 5k yearly (down from roughly 30k now) unless you are 5 years from retirement, in which case you can contribute up to 50k yearly.

There's a handful of changes to folkepension as well as other things. I guess we will have the full picture once the agreement text is public.

EDIT: Here's the full text https://www.fm.dk/~/media/files/nyheder ... kedet.ashx

[Eureka]

OMG, this country seems like a huge control freak. So much regulation to try to force people to work more. And to stay within the country all their lives.

I wonder if we will see an increased number of people who take charge of their own lives and themselves decide when and where and how much they work - or if they just follow orders and do as told.

[FBeyer]

OMG, this country seems like a huge control freak. So much regulation to try to force people to work more. And to stay within the country all their lives.

I wonder if we will see an increased number of people who take charge of their own lives and themselves decide when and where and how much they work - or if they just follow orders and do as told.

What I fear the most out of all catastrophic scenarios is what happens when the government finds out that it is indeed possible to become FI in Denmark.
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...

[jacob]

As far as I understand the rules (which are constantly changing), I already fall between the cracks in terms of location freedom insofar I desire any pension payments. I'm not really counting on any but I will accept free money if available.

• I've earned enough points to get a pension (social security) in the US. However, by various treaties, the US pension payments (as a Danish citizen) is available to me IF AND ONLY IF I live in either Denmark or the US. (Unlike if I was Swedish or Norwegian in which case I could live in almost any country, different treaty. BTW, Denmark is one of just a few countries that has the worst treaty with the US for pension payments, Belgium is another one.)
• Since I haven't lived in Denmark since I was 24 and since I will not be able to live in any EU country for at least 30 years between now (I'm 41) and the official retirement age, the only way to get a Danish pension would be for me to move to Denmark and stay there for 3 years to qualify. This option is currently impossible due to the "greater attachment"-rule for familiesammenfoering as DW would not qualify for a resident visa. The alternative is to go to another EU country and work [and pay into the system] there for 3 years. (It's conceivable that being a gradstudent in Switzerland for 4 years would qualify as a break here.)

All this will probably change again some years from now.

However, it's quite clear that many [first-world] governments currently dislike "people from other countries" as well as people who don't depend on their systems.

I should note in that regard that while most countries offer a "fat cat"-visa for people who are worth $1M+, there are several countries that offer "retirement/pensionada"-visas or "person of independent means"-visas on a rollover basis for ERE sized net worths ($25-300k), e.g. Malta, Panama, Belize, Mexico, Thailand, Ecuador, ...

[Eureka]

Jacob, you are even worse off than that.

A new rule (found in the document herp linked to above) says that in order for you to quality for full Danish public pension, you must have stayed in Denmark 90% of the time between age 15 and your official (and ever increasing) pension age, which is currently 68. That is, you are only 'allowed' to leave our little paradise prison for max 5.3 years in total. Stays in other EU countries and Switzerland do not count towards Danish pension rights. There are no obligations what so ever to pay into anything, though, you just need to be here year in, year out.

[herp]

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]

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]

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]

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]

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]

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]

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

[thedollar]

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.

[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]

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.