Personal Taxation and Tax Optimization When Investing in Securities

Abstract

Danes prefer to invest their available funds in securities rather than leaving them in the bank. There are multiple types of securities available for the Danes to invest in, and they each have their own different taxes. The focus of this thesis is to explore the different types of securities you can invest in, their individual tax treatments, and how private investors can optimize their returns due to tax optimization. Private investors in Denmark are subject to various tax treatments depending on the type of financial instruments they invest in such as stocks, bonds, investment funds and ETFs through normal account for investing. You can also be investing through a stock savings account which will give you a favorable taxation of your returns of only 17 percent in taxes. The stock investments will be taxed at rates of 27 percent or 42 percent based on gains in dividends or value increases/losses. Investments in bonds where you see a tax rate of approximately 37 percent or approximately 42 percent based on gains in interest or value increases/losses and whether you are top taxed or not. Investment in funds and the ETFs which are taxed in different ways. Stock based securities are taxed as stock income and bond-based securities are taxed according to capital income such as the bonds. A stock savings account operates within a closed tax system which isn’t included in the individual private persons income statement, thus unaffected by anything else in the income statement. Regular stock income is a part of the income statement but is not a part of the calculation as it is separately calculated and not influenced by anything else in the income statement. Capital income is a part of the income statement and is for that reason aƯected by other incomes and deductions. And for that reason, it has gotten a larger eƯect on the income statement regardless of tax bracket. Regardless of whether investors are being liable to top tax rate or not it is then beneficial to first utilize the low taxation on the stock savings account. then the progression threshold for stock income, which is taxed at the lower rate of 27%. Once this limit is reached you should be using capital income-taxed securities and positive capital income up to 50,500 DKK if you are in the top tax bracket. If you are not in the top tax bracket you can invest until you reach the top tax limit plus 50,500 DKK with a tax of approximately 37 percent. At the end after all those different ways then the remaining stock and capital income will be in the same tax bracket of 42 percent if you’re not a member of the Danish church, if you are a member of the Danish church then stocks will be taxed a little lower as the capital income taxes will be at 42 percent + the church taxes.