What is the tax situation when you invest? Do you have to pay tax on shares? And what about tax on investments in, for example, real estate? Find out here, where we go through the tax rules related to investing.
We will dive into different asset classes, taxation principles, tax types and applicable tax rates. This way, you should be well equipped to understand the taxation of shares and investments.
Asset classes refer to the different types of investments that exist. Depending on which asset class you invest in, you will be taxed differently.
Here's a list of typical asset classes you can invest in:
There are many more asset classes, with the above being a selection of typical and common examples of asset classes in Denmark.
Taxation principles refer to the different ways in which SKAT taxes your investments. Investments are taxed differently depending on what you have invested in, and you can use this knowledge to assess your investment strategies.
As an investor in Denmark, there are two taxation principles worth knowing about:
The first principle is capital gains taxation. Capital gains taxation means that you only pay tax once you have realized your investment - whether it's a gain or a loss.
If it is a gain, you pay a certain tax rate on the gain. For example, if you have invested DKK 10,000 and realized a gain of DKK 1,000, you will be taxed on the DKK 1,000. - and if the tax rate is e.g. 27%, you will have to pay 27% of DKK 1,000. In other words, DKK 270.
However, if you have realized a loss, you will be able to deduct the loss from other share gains. Let's say you had a loss of 270 kr. - In that case, you can deduct the loss from your gain, which resulted in a tax of DKK 270. All in all, you would pay €0 in tax.
Losses can be carried forward to future years. This way, if you have a bad year, you can reduce your tax burden in a future, more favorable year.
NOTE: Deducting losses from gains only applies to shares admitted to trading on a regulated market. For shares admitted to trading on an unregulated market, read more here.
You can read more about the principles for taxation of gains and losses on the sale of shares on SKAT's website.
The second taxation principle is stock taxation. Stock taxation means that you pay an ongoing tax on your investments every year, whether you have sold them during the year or not.
The rules for taxing gains and losses are the same as for capital gains tax. The main difference between the two is the question of paying tax once at the time of sale or ongoing tax once a year for as long as you own the shares.
Theoretically, capital gains tax will provide a greater opportunity to grow your wealth using the compound interest effect, as you have more capital to spend compound interest on without ongoing tax payments.
In practice, there can often be more important things to consider, as the real financial difference can be minimal, so it can be more rewarding to focus on other factors - such as the type of companies you invest in.
Typically, dividend-paying individual shares and Danish dividend-paying investment funds are subject to the realization principle.
Conversely, stock taxation typically applies to ETFs, index funds, mutual funds and the like, which do not pay out dividends.
You can therefore start by checking whether a share pays dividends or not. This gives a very good indication of which taxation principle applies.
In addition, you should also be able to examine the share's prospectus, where all relevant information for investors is gathered.
When it comes to taxation, there are different tax types. This means that your investments are taxed differently depending on the rules for the asset.
More specifically, a distinction can be made between where in your income the investment should be placed. For tax purposes, you have a number of different incomes, which imply different tax rules.
Relevant incomes in this context for you are the following:
Each of these income brackets has its own tax rate, which can be important for you to understand when planning your investment strategy. In the next section, we explain which tax rates apply to different incomes.
Tax rate for share income = 27% / 42%
You will be taxed at 27% on your share gains up to a so-called progression limit - if your gains exceed the limit, you will be taxed at 42% on the excess part of your gain.
Progression limit for 2023 = DKK 58,900
Progression limit for 2024 = DKK 61,000
Example: You have had a total share gain of DKK 70,000 during 2023.
You pay 27% tax on DKK 58,900. = DKK 15,903.
You then pay 42% tax on the remaining gain, which is DKK 11,100. = DKK 4,662.
Your total tax payment is therefore 20,565 kr. - and your total profit after tax is therefore DKK 49,435.
Tax rate for capital income = 37%-42%.
Capital income, together with your personal income, makes up your taxable income. This means that the amount of your investment income can have an impact on whether you have to pay top tax.
There is also a progression limit, or basic deduction, which in 2023 is DKK 48,800. This means that the first DKK 48,800 of positive capital income does not count towards your top tax threshold. You still pay tax on the positive income, but it is not included in the calculation of whether or not you have to pay top tax.
Positive capital income after the limit will thus count towards your top tax threshold in relation to your total taxable income.
The tax rate for the share savings account = 17%.
The Equity Savings Account is an isolated tax environment where your investments are taxed according to special rules and rates. For 2023, the tax rate is 17%, making the Equity Savings Account an attractive investment environment.
However, you can deposit a maximum of DKK 106,600 into the account as of January 1, 2023, and you can have a maximum of one share savings account. In addition, all assets in the equity savings account are taxed according to the principle of stock taxation.
Not all types of assets can be held in your equity savings account. It is generally only possible to invest in regulated individual shares as well as investment companies whose assets consist of at least 50% shares.
The tax rate for PAL tax = 15.3%.
The PAL tax is a tax rate that applies specifically to losses and gains in pension plans. PAL thus stands for the Pension Return Tax Act.
The pension plan as an investment environment is taxed on an ongoing basis according to the principle of stock taxation, and the tax rate is 15.3%.
Your pension savings consist of various investment assets, and they will continuously increase and decrease in value. You will have to pay tax on these increases and you will be allowed to deduct the losses from future gains.
As a general rule, purchases and sales of shares and securities must always be reported to SKAT. In some cases, the reporting of your investment is done automatically, but in others you have to correct your tax return so that you can get the correct result on your annual tax return and pay the correct tax on shares and other investments. In addition to tax on shares bought as individual shares, tax is also payable on investments in the following areas:
Perhaps you have chosen to invest your money in crowdfunding and are unsure about your tax situation. As with other forms of investment, taxes must be paid on your returns when investing through crowdfunding.
If you invest via a crowdlending platform, your investment will in some cases be reported to the tax authorities automatically, and you therefore do not need to do anything other than check that the figures are correct on your annual tax return - just as you do with your other income. In other cases, however, you will have to report yourself, and it is therefore a good idea to check how reporting to SKAT works in relation to your chosen platform.
If you invest in crowdlending outside of a platform, you must always report your return to SKAT yourself. You do this by entering the amount in the correct field on your tax return, so that the information can be included in the overall calculation that later becomes your annual statement with SKAT. You can read more about taxes on crowdlending here.
Also read about what negative interest is and what you need to be aware of.
We hope you now have a better understanding of how taxes on shares and taxes on other investments, including crowdfunding taxes, work. If you are interested in crowdlending, we at Fundbricks offer several different real estate investment opportunities based on crowdlending, and if you want to know more, please contact us with your questions.
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