Not so happy in Denmark... individual stocks better than index funds? [US ex-pat]

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Ionchamp99
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Not so happy in Denmark... individual stocks better than index funds? [US ex-pat]

Post by Ionchamp99 » Sun Sep 15, 2019 4:37 am

Hi Boglehead friends,

My wife and I are Americans living and working in Denmark. We've just learned some unfortunate things about how the Danish tax system handles foreign investments that poses a huge problem for our simple 4 fund investment strategy.

Here are some bad things about how the Danish tax authority handles foreign (USA) investments:
-Any yearly gain from mutual funds, bond funds, or ETFs is taxed as capital income in Denmark, whether you sell or not.
-Danish tax on capital income is 37.7% for the first ~$6600, and then 42.7% above that! Ouch.
-Any yearly loss from mutual funds, bond funds, or ETFs is ignored by Denmark... so it always ratchets in their favor.
-However, individual stocks (as long as they do not pay dividends) and individual bonds are NOT taxed in Denmark, until they are sold.

We plan to be here in Denmark another 2-3 years, and save around $40,000 USD/year towards retirement.

So it seems to me that the most tax efficient thing for us to do in our situation is buy and hold a bunch of individual stocks, and a bunch of individual bonds via our US bank (Schwab). Not simple! Is there anything I'm missing here?

I also am a newbie and don't know how to pick them. Is there a way for us to buy a bunch of individual bonds and stocks that will approximate the performance of mutual/bond funds?

Thanks in advance for any advice you have about tax optimizing our expat conundrum!

bberris
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Re: Not so happy in Denmark... individual stocks better than index funds?

Post by bberris » Sun Sep 15, 2019 5:24 am

Don't you get a tax credit against your US taxes for taxes paid to Denmark?

I'm not an expert on Denmark or US taxes but I'll try to answer your questions.
Bonds are easy. Just buy US treasuries. There's no need for diversification there.

You could probably get good correlation with SP500 by buying the 20 biggest market caps in proportion to their market cap. Then add a small cap value etf (or some of its components) to balance it out.

DJN
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Re: Not so happy in Denmark... individual stocks better than index funds?

Post by DJN » Sun Sep 15, 2019 5:30 am

Hi,
this is not my area but start by having a look here, I know others with better information will get back to you later: https://www.bogleheads.org/wiki/Taxatio ... ing_abroad
There are many pitfalls not least of which are US tax laws.
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Re: Not so happy in Denmark... individual stocks better than index funds?

Post by student » Sun Sep 15, 2019 6:34 am

Ionchamp99 wrote:
Sun Sep 15, 2019 4:37 am
Here are some bad things about how the Danish tax authority handles foreign (USA) investments:
-Any yearly gain from mutual funds, bond funds, or ETFs is taxed as capital income in Denmark, whether you sell or not.
-Any yearly loss from mutual funds, bond funds, or ETFs is ignored by Denmark... so it always ratchets in their favor.
I don't understand how this is logical. Are you saying the following.
At the end of year 0, you buy a ETF at $1000.
At the end of year 1, it is now worth $500. There is no deduction.
At the end of year 2, it is now worth $1000 and there is a yearly gain of $500. So you have to pay tax on $500.

Are you sure you can't take losses? https://www.ey.com/Publication/vwLUAsse ... 0funds.pdf

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beyou
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Re: Not so happy in Denmark... individual stocks better than index funds?

Post by beyou » Sun Sep 15, 2019 6:58 am

https://www.folioinvesting.com/folioinv ... es/folios/

You can get help buying stocks in baskets rather than one at a time, to approximate a fund.

US Tsy bonds

Do you have a US address to open a new such acct ?

Would you have large cap gains to be taxed in the US if you sell your funds ? Not sure if that is reduced/eliminated by the foreign taxes you will pay regardless of selling.

aristotelian
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Re: Not so happy in Denmark... individual stocks better than index funds?

Post by aristotelian » Sun Sep 15, 2019 7:27 am

That's crazy. Check out M1 Finance. You should be able to do what you want and make your own index.

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Re: Not so happy in Denmark... individual stocks better than index funds? [US ex-pat]

Post by LadyGeek » Sun Sep 15, 2019 7:30 am

This thread is now in the Non-US Investing forum (ex-pat). This forum is better focused to handle investments and taxations for ex-pat (multiple country) situations.
Wiki To some, the glass is half full. To others, the glass is half empty. To an engineer, it's twice the size it needs to be.

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Re: Not so happy in Denmark... individual stocks better than index funds?

Post by TedSwippet » Sun Sep 15, 2019 10:34 am

Dude2 wrote:
Sun Sep 15, 2019 5:22 am
I'm utterly dumbfounded that Denmark would get to know anything about your US based investments.
I am not. Not even remotely.

If the situation were reversed, the US would relentlessly and ruthlessly tax all Danish and any other non-US investments held by a non-US citizen living temporarily or permanently in the US. And it would generally do so using PFIC, one of the harshest tax rules in its armoury.

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Re: Not so happy in Denmark... individual stocks better than index funds?

Post by bgreat » Sun Sep 15, 2019 11:31 am

[ quoted post removed by admin LadyGeek]

You are affectively advocating lying to tax authorities in the OP's country of residence?

Where you live is the country that taxes you. Their country, their laws, respect it. (US taxes on non-resident citizens are just a bonus.)


But regarding OP's stock question: individual stocks are indeed an option, but only if you're willing to get clued up on proper company valuation - not something that's fast or easy. But another option is Berkshire Hathaway - close enough to having index performance that it might be OK as a pseudo-index. Not ideal, but perhaps better than nothing.

// Edit: from a quick search, it looks like some aspects of the Danish tax regime may be changing next year - not hugely better, but still enough to warrant some investigation:
https://home.kpmg/lu/en/home/insights/2 ... funds.html

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Re: Not so happy in Denmark... individual stocks better than index funds? [US ex-pat]

Post by DJN » Sun Sep 15, 2019 11:48 am

Hi,
if you are keen to look at alternatives to funds / etfs, then you might check if closed ended funds are categorised in Denmark as shares. If so then there are a selection of UK based investment trusts which can act as a proxy for total market to a large extent. They are actively managed and qualify as shares traded on the LSE and are available on most platforms. The OCR will be more than a passively managed ETF.
See: https://www.bogleheads.org/wiki/Investment_trusts
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Re: Not so happy in Denmark... individual stocks better than index funds? [US ex-pat]

Post by LadyGeek » Sun Sep 15, 2019 6:16 pm

Discussions of dishonest behavior or bypassing the law is totally unacceptable. I removed a post suggesting to not report US-based investment gains to the Danish tax authority (tax evasion).
Wiki To some, the glass is half full. To others, the glass is half empty. To an engineer, it's twice the size it needs to be.

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Re: Not so happy in Denmark... individual stocks better than index funds? [US ex-pat]

Post by Hyperborea » Sun Sep 15, 2019 6:52 pm

Whatever option you do end up picking make sure that it will work out ok in the longer term. As a US citizen (worldwide taxation), you will likely not get any opportunity to sell your "temporary" Denmark residence portfolio and re-invest in a portfolio more optimized for your future location without a tax cost. This may mean picking investments that are not maximized for any one particular location but are sort of not bad in all of the locations or instead picking ones that are optimized for the location that you spend the longest time in and taking a hit for the time that you are in the short term location.

Also, I would do some more research about the Danish capital gains taxation to verify. In just some simple web searching (https://lmgtfy.com/?q=denmark+capital+gains+tax) I came up with results from some of the large international accounting firms that contradict your assumptions.

https://home.kpmg/xx/en/home/insights/2 ... e-tax.html (emphasis added)
Gains or losses on shares are generally taxable and calculated as the difference between the market value in DKK at disposal and the market value in DKK at purchase. However, if the shares were acquired before the individual became resident in Denmark the market value of the shares at the time of arrival in Denmark is used as the purchase price for Danish tax purposes.
http://taxsummaries.pwc.com/ID/Denmark- ... ermination (emphasis added)
The taxable income of an individual subject to full tax liability includes interest, dividends, profits from gains on sale of shares, rents, royalties, professional fees, pensions, annuities, and alimony from all sources, wherever located, subject to any limitation that may be imposed under a tax treaty.
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Re: Not so happy in Denmark... individual stocks better than index funds?

Post by bpp » Sun Sep 15, 2019 7:41 pm

bgreat wrote:
Sun Sep 15, 2019 11:31 am
But regarding OP's stock question: individual stocks are indeed an option, but only if you're willing to get clued up on proper company valuation - not something that's fast or easy.
No need to learn about valuation, I’d argue. Please see the wiki page on Passively managing individual stocks:

“Note: if the Efficient Market Hypothesis holds, then reading balance sheets, shareholder reports and analyst recommendations is unnecessary and a complete waste of time. The strategy used for deciding which exact stocks to hold should not matter -- one can neither help nor hurt oneself through choice of strategy. Random selection is a perfectly valid strategy[...]”

...as is simply working one’s way down the list starting from the largest-cap stocks. Don’t overthink this.

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Re: Not so happy in Denmark... individual stocks better than index funds? [US ex-pat]

Post by typical.investor » Sun Sep 15, 2019 8:56 pm

Hyperborea wrote:
Sun Sep 15, 2019 6:52 pm

Also, I would do some more research about the Danish capital gains taxation to verify. In just some simple web searching (https://lmgtfy.com/?q=denmark+capital+gains+tax) I came up with results from some of the large international accounting firms that contradict your assumptions.
Understand that the OP as American needs to use US domiciled funds. Understand further that Danish funds may choose to be an investment fund with minimum taxation (IMB). However, Foreign investment funds (that have not elected IMB status) would typically qualify as “investment companies” (gains and dividends included as “capital income” and both realized and unrealized gains/losses included in accordance with a mark-to-market principle).

So the OP would want to find a US domiciled fund that takes advantage of revised rules for 2020 allows foreign investment funds to classify as “equity-based investment companies” benefitting from the same tax rates as equity-based IMBs for Danish individual investors. No actual funds may exist.

I wonder how futures are taxed in Denmark or if it's just end up being capital gains that are realized yearly.

An alternative might be to use "direct indexing". As an EU resident though, they (US based investment firms) may or may not be able to accept you as a customer. Legally, your domicile is the US and thus your permanent place of residence is the US, so I don't think it's illegal to claim you are a US resident when applying.

Or simply pay capital gains for 2-3 years and then relocate.

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Re: Not so happy in Denmark... individual stocks better than index funds? [US ex-pat]

Post by wineandplaya » Sun Sep 15, 2019 10:10 pm

I assume your index funds aren't held in tax-advantaged accounts? Like 401(k)/IRA? If they were, I'd assume that the US-Denmark double taxation treaty and totalization agreement would apply.

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Re: Not so happy in Denmark... individual stocks better than index funds? [US ex-pat]

Post by typical.investor » Sun Sep 15, 2019 10:22 pm

wineandplaya wrote:
Sun Sep 15, 2019 10:10 pm
I assume your index funds aren't held in tax-advantaged accounts? Like 401(k)/IRA? If they were, I'd assume that the US-Denmark double taxation treaty and totalization agreement would apply.
Double taxation agreement can mean little. If the US doesn't tax the 401(k), that means Denmark can. It won't be double taxation. Whether the US and Denmark recognize each other's tax deferred accounts is another question.

Totalization agreements relate to social security.

Anyway, I wouldn't assume you are not liable for Danish tax on US tax sheltered accounts.
The United States has income tax treaties with many countries that allow for mutual deferral of taxation on certain types of retirement and pension accounts. However, there are also many countries that do not have a tax treaty with the USA, or where the tax treaty only applies to certain types of US tax-deferred accounts and not to others. In this case, your US tax-deferred account may not be tax-deferred in your country of residency.

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Re: Not so happy in Denmark... individual stocks better than index funds? [US ex-pat]

Post by Dude2 » Sun Sep 15, 2019 11:07 pm

I work in the UAE with, believe it or not, Danes. Often they buy nice cars here because there is something on the order of a 80% luxury tax which is tied into fuel efficiency in Denmark. These guys' strategy is to have a better quality of life here for a few critical years in which the wife can manage the kids, versus, in Denmark it would be a struggle to make ends meet in that situation. The point being -- they got out.

A person who is going to be an American ex-pat working in Denmark needs to go into it with eyes wide open. Thanks to the OP for putting this information out because it will likely help somebody making a life decision. This better be factored into the compensation equation.

I am not suggesting to anybody to do anything illegal or shady, but I still am surprised that the Danish authorities have the access to American mutual fund account information. Is this disclosure required to get an employment visa or bank account? We are told that it is the US that is such a terrible player in world banking -- that nobody in other countries wants to give us a bank account due to all of the paperwork and regulations that are imposed upon them. This is why I am surprised to hear that a small European country requires that same level of scrutiny to their immigrants.

I'm not saying the OP should have, but the question is if the brokerage account info was not disclosed, would they know about it? Is this an honor system type of thing?

If I was in this situation, I would try to keep my life as simple as possible. Horde cash, pay down debt.

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Re: Not so happy in Denmark... individual stocks better than index funds? [US ex-pat]

Post by typical.investor » Mon Sep 16, 2019 12:10 am

Dude2 wrote:
Sun Sep 15, 2019 11:07 pm
If I was in this situation, I would try to keep my life as simple as possible. Horde cash, pay down debt.
Horde cash?

Hmm? M1 finance lets you put up to 100 stocks into a pie.
iShares OEF is the top 100 of the S&P500.

Morningstar shows it’s pretty balanced sector wise. Light on REITs but better than cash I think.

Not sure if you can get international equity that way, having a easily tradable basket of 100 stocks isn’t the end of the world. Or add in some holdings from a midcap or small cap fund. Maybe get a subscription to Morningstar so you can watch your exposure (and make sure you don’t end up too much in tech for example).

There are probably similar offers - motif etc. not sure which would be the best but a basket seems easier to handle than trying individual stocks or not investing.

Or heck, just pay capital gains for a few years.

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Re: Not so happy in Denmark... individual stocks better than index funds? [US ex-pat]

Post by actuallyxy » Mon Sep 16, 2019 12:27 am

Invest in Berkshire Hathaway. It's one stock that doesn't pay dividends but it behaves like a mutual fund.

As somebody already suggested, British Investment Trusts may be an option too, but they pay dividends.

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Re: Not so happy in Denmark... individual stocks better than index funds? [US ex-pat]

Post by typical.investor » Mon Sep 16, 2019 12:34 am

actuallyxy wrote:
Mon Sep 16, 2019 12:27 am
Invest in Berkshire Hathaway. It's one stock that doesn't pay dividends but it behaves like a mutual fund.

As somebody already suggested, British Investment Trusts may be an option too, but they pay dividends.
From a US tax standpoint though, aren’t British Investment Trusts considered PFIC and subject to yearly mark-to-market taxation whether sold or not.

Both countries tax global holdings and both countries have a penalty for using other countries investment vehicles.

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Re: Not so happy in Denmark... individual stocks better than index funds? [US ex-pat]

Post by TedSwippet » Mon Sep 16, 2019 2:00 am

Dude2 wrote:
Sun Sep 15, 2019 11:07 pm
I'm not saying the OP should have, but the question is if the brokerage account info was not disclosed, would they know about it? Is this an honor system type of thing?
FATCA. From the US/Denmark IGA:
Whereas, the Government of the United States of America collects information regarding certain accounts maintained by U.S. financial institutions held by residents of Denmark and is committed to exchanging such information with the Government of the Kingdom of Denmark and pursuing equivalent levels of exchange, ...
...
2. The information to be obtained and exchanged is:
...
b) In the case of the United States, with respect to each Danish Reportable Account of each Reporting U.S. Financial Institution:
(1) the name, address, and Danish TIN of any person that is a resident of Denmark and is an Account Holder of the account;
(2) the account number (or the functional equivalent in the absence of an account number);
(3) the name and identifying number of the Reporting U.S. Financial Institution;
(4) the gross amount of interest paid on a Depository Account;
(5) the gross amount of U.S. source dividends paid or credited to the account; and
(6) the gross amount of other U.S. source income paid or credited to the account, to the extent subject to reporting under chapter 3 or 61 of subtitle A of the U.S. Internal Revenue Code.
Last edited by TedSwippet on Mon Sep 16, 2019 2:05 am, edited 1 time in total.

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Re: Not so happy in Denmark... individual stocks better than index funds? [US ex-pat]

Post by TedSwippet » Mon Sep 16, 2019 2:04 am

typical.investor wrote:
Mon Sep 16, 2019 12:34 am
From a US tax standpoint though, aren’t British Investment Trusts considered PFIC and subject to yearly mark-to-market taxation whether sold or not.
Almost certainly yes. Mark to market tax, or worse, from the US perspective.

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Re: Not so happy in Denmark... individual stocks better than index funds? [US ex-pat]

Post by typical.investor » Mon Sep 16, 2019 2:34 am

Ionchamp99 wrote:
Sun Sep 15, 2019 4:37 am

I also am a newbie and don't know how to pick them. Is there a way for us to buy a bunch of individual bonds and stocks that will approximate the performance of mutual/bond funds?
Ok, after much looking I would go with this. (Note: If you haven't heard of Interactive Brokers before - they are well known. The usual advice for expats is to get a Schwab International account if you can, and if not use Interactive Brokers. I didn't know they'd started direct indexing).

https://interactiveadvisors.com/smartbe ... -portfolio

BRM.IB™ : Broad Market Portfolio
AUM fee 0.08%

The portfolio targets an allocation of 1,000 long positions. The allocations are a blend of equal and capitalization weight. Because of the equal weight component, the portfolio has a larger proportion of smaller companies compared to a purely market capitalization weighted portfolio. The weight allocation in this portfolio makes it less prone to having concentration in bubble stocks that have experienced dramatic price appreciation.

The only catch is that you have to be a US resident, but as I explained earlier about domicile, perhaps you qualify.
Please note that currently only US residents can open Interactive Advisors Accounts. Your country of legal residence is the country where you maintain your permanent home or the country you plan to return to if you are living abroad for a short period.

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Re: Not so happy in Denmark... individual stocks better than index funds? [US ex-pat]

Post by international001 » Mon Sep 16, 2019 3:04 am

TedSwippet wrote:
Mon Sep 16, 2019 2:00 am
Dude2 wrote:
Sun Sep 15, 2019 11:07 pm
I'm not saying the OP should have, but the question is if the brokerage account info was not disclosed, would they know about it? Is this an honor system type of thing?
FATCA. From the US/Denmark IGA:
Whereas, the Government of the United States of America collects information regarding certain accounts maintained by U.S. financial institutions held by residents of Denmark and is committed to exchanging such information with the Government of the Kingdom of Denmark and pursuing equivalent levels of exchange, ...
...
2. The information to be obtained and exchanged is:
...
b) In the case of the United States, with respect to each Danish Reportable Account of each Reporting U.S. Financial Institution:
(1) the name, address, and Danish TIN of any person that is a resident of Denmark and is an Account Holder of the account;
(2) the account number (or the functional equivalent in the absence of an account number);
(3) the name and identifying number of the Reporting U.S. Financial Institution;
(4) the gross amount of interest paid on a Depository Account;
(5) the gross amount of U.S. source dividends paid or credited to the account; and
(6) the gross amount of other U.S. source income paid or credited to the account, to the extent subject to reporting under chapter 3 or 61 of subtitle A of the U.S. Internal Revenue Code.
Thanks for the pointer. So are we to expect to any country in this list to interchange financial information with the US?

https://www.treasury.gov/resource-cente ... 957adb2f31

Is the information actually being exchanged effectively today? I think all countries are asking for a your own declaration of assets. Is this just to "confirm"?

I thought the point of FATCA disallowing investment to US citizens was that it was too difficult doing the reporting

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Re: Not so happy in Denmark... individual stocks better than index funds? [US ex-pat]

Post by TedSwippet » Mon Sep 16, 2019 3:32 am

international001 wrote:
Mon Sep 16, 2019 3:04 am
Thanks for the pointer. So are we to expect to any country in this list to interchange financial information with the US?
Broadly, yes. Of course, as a resident of a country you should be following local tax law and reporting worldwide income (where required) anyway, so in theory this changes nothing for the law-abiding investor.
international001 wrote:
Mon Sep 16, 2019 3:04 am
Is the information actually being exchanged effectively today? I think all countries are asking for a your own declaration of assets. Is this just to "confirm"?
Current implementation can probably be described as 'patchy, but improving'.

Because the US wields the big stick here, the data flowing from other countries into the US is becoming relatively copious, although the actual quality of this information remains somewhat suspect; anecdotal evidence suggests as much as half of it may lack identifying information such as a US SSN, so potentially not useful, and also many false positives (that is, reports on folk who have 'US indicia' but for one reason or another are not actually 'US persons' for tax purposes).

In the other direction, the US is reported to be sending some information to some FATCA partner countries, but unlike the other countries, the US is under no threat for non-compliance -- even in the IGA it merely commits to making efforts to achieve reciprocity, a relatively weak statement. And the US refuses to sign up to CRS, a bilateral information exchange scheme (as opposed to FATCA, which is essentially unilateral, at least in terms of threats of sanctions for noncompliance).
international001 wrote:
Mon Sep 16, 2019 3:04 am
I thought the point of FATCA disallowing investment to US citizens was that it was too difficult doing the reporting
The IGA does not reduce the burden on non-US banks. All it does is change the reporting route, so that instead of sending information direct to the IRS and in likely conflict with local data privacy laws, the bank instead sends information to its own country's tax authorities, and they then pass it on to the IRS. In other words, IGAs are an end-run around the non-US country's own financial and data privacy regimes.

So for simplicity, risk reduction, and cost effectiveness, non-US banks are still motivated to refuse accounts for all 'US persons', including US citizens living in the same country as the bank. An IGA changes nothing about that dynamic.

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Re: Not so happy in Denmark... individual stocks better than index funds? [US ex-pat]

Post by wineandplaya » Mon Sep 16, 2019 2:27 pm

typical.investor wrote:
Sun Sep 15, 2019 10:22 pm
wineandplaya wrote:
Sun Sep 15, 2019 10:10 pm
I assume your index funds aren't held in tax-advantaged accounts? Like 401(k)/IRA? If they were, I'd assume that the US-Denmark double taxation treaty and totalization agreement would apply.
Double taxation agreement can mean little. If the US doesn't tax the 401(k), that means Denmark can. It won't be double taxation. Whether the US and Denmark recognize each other's tax deferred accounts is another question.
I don't know about Denmark, but for neighboring Sweden, tax authorities won't tax 401(k) gains if you leave them untouched. Same thing with IRAs. If you do things with them, like a rollover, it's a different thing. Tax authorities will view that as a withdrawal and tax it. For non-retirement accounts (529, HSA), there is no reason to expect gains to be left tax-deferred, however.

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Re: Not so happy in Denmark... individual stocks better than index funds? [US ex-pat]

Post by fm3040 » Mon Sep 16, 2019 2:42 pm

How about just buying Berkshire Hathaway ? No tax exposure and a conglomerate that gives you some diversification

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Re: Not so happy in Denmark... individual stocks better than index funds? [US ex-pat]

Post by inbox788 » Mon Sep 16, 2019 8:25 pm

Ionchamp99 wrote:
Sun Sep 15, 2019 4:37 am
We plan to be here in Denmark another 2-3 years, and save around $40,000 USD/year towards retirement.
That's not how I would expect the taxation to work, but if it is, it sucks! The risk/reward wouldn't be worth investing in such a high and uneven system.

Would you be filing as a resident or non-resident? You might need to seek out expert advice.
https://www.artiopartners.com/country/e ... g-denmark/

Do you have any taxable assets or are you mainly dealing with the $40k you plan to save? If that's the whole amount, I'd just buy BRK and not sell until after I left. Would you have any liability after you returned to the states or went elsewhere? Isn't Denmark part of the EU? Such complications may follow you if you don't escape their grasp.

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Re: Not so happy in Denmark... individual stocks better than index funds? [US ex-pat]

Post by bpp » Mon Sep 16, 2019 9:09 pm

What is with all the recommendations for Berkshire Hathaway? It is a single company, headed by an aged CEO who is the source of much of its appeal. Before someone says it is diversified, so is GE. It is still a single stock.

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Re: Not so happy in Denmark... individual stocks better than index funds? [US ex-pat]

Post by alex_686 » Mon Sep 16, 2019 9:53 pm

actuallyxy wrote:
Mon Sep 16, 2019 12:27 am
Invest in Berkshire Hathaway. It's one stock that doesn't pay dividends but it behaves like a mutual fund.
Err - no. While it might look like a diversified conglomerate bottom up, it acts like a leveraged financial - not like a mutual fund.

Topic Author
Ionchamp99
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Re: Not so happy in Denmark... individual stocks better than index funds? [US ex-pat]

Post by Ionchamp99 » Tue Oct 01, 2019 9:22 am

Hi all,

Thanks very much for all the thoughtful advice. Sorry it’s taken a while to reply.

It seems that the recommendations fall into a few categories:

1. Just take the hit for a few years and invest the same as we would (e.g. 4 fund passive index portfolio) if we were in the US.
2. Simply buy BRK-B (Berkshire Hathaway class B) shares, since they have no dividend and sort of approximate the US market.
3. Independently, or with a tool like M1 Finance make a portfolio with 20+ or 100+ stocks, and try to avoid stocks with dividends.

Are there other good options that I’ve missed?

I’m leaning towards #2 because it’s easiest. But I’m also worried about what could happen if good old Warren does something drastic, or passes on.

In theory, it seems like option 3 could be best, but we have a lot to learn.

The other factor is that we will likely buy a house within a year of returning to USA, so that will be an opportunity to sell what’s out of our US investment strategy and move that money into real estate.

Thanks again for your good advice!

rich126
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Re: Not so happy in Denmark... individual stocks better than index funds? [US ex-pat]

Post by rich126 » Tue Oct 01, 2019 9:53 am

I don't know your situation but personally I would never take a job outside of my home country w/o doing some serious homework as to what I was getting into. Things like taxes, savings, COL, commute, medical care, if I moved there and something happens to the job or me medically would they relocate me back home, etc.

I briefly was talking to a company about relocating to Germany (which I've heard great things about, in terms of living there) but the contract was slow in being awarded and when I asked a few questions I didn't care for the lack of useful answers so I gave up on waiting.

In your case it is best to contact a tax expert.

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Ionchamp99
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Re: Not so happy in Denmark... individual stocks better than index funds? [US ex-pat]

Post by Ionchamp99 » Tue Oct 01, 2019 11:38 am

Just want to clarify: We have worked with tax experts here, and understand our situation. We have considered the trade-offs, and have decided that the benefits to living in Denmark outweigh the downsides, including these financial rules.

TedSwippet
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Location: UK

Re: Not so happy in Denmark... individual stocks better than index funds? [US ex-pat]

Post by TedSwippet » Tue Oct 01, 2019 12:37 pm

Ionchamp99 wrote:
Tue Oct 01, 2019 11:38 am
Just want to clarify: We have worked with tax experts here, and understand our situation. We have considered the trade-offs, and have decided that the benefits to living in Denmark outweigh the downsides, including these financial rules.
Right. Most of the problems here arise not so much from just living in Denmark as they do from being US citizens living in Denmark. That is, trying to invest at the intersection of normal domestic Danish tax law and the US's unique (among developed countries) and harsh extraterritorial tax regime.

People from countries other than the US living and working temporarily in Denmark will not have these issues.

elderwise
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Re: Not so happy in Denmark... individual stocks better than index funds? [US ex-pat]

Post by elderwise » Wed Oct 02, 2019 9:43 am

Are you also thinking of applying / becoming a Danish citizen eventually?

Would renouncing the USC at that time would it make sense?

Topic Author
Ionchamp99
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Re: Not so happy in Denmark... individual stocks better than index funds? [US ex-pat]

Post by Ionchamp99 » Wed Oct 02, 2019 10:55 am

No. We plan to return to the US to help elderly family at some point.

Becoming a Danish citizen takes 8+ years. After 7 years, they tax any investments held outside of Denmark. So there's an incentive to leave before our 7 years is up.

protagonist
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Re: Not so happy in Denmark... individual stocks better than index funds? [US ex-pat]

Post by protagonist » Wed Oct 02, 2019 11:04 am

Consider the benefits that you might receive living in Denmark (health, education, maternity leave, paid vacation, etc)....
Consider what those would cost you if you were living in the US.
Perhaps, in the long run, it all comes out in the wash...what you would be paying out of pocket in the US for services and insurance may be equal or more to what you are getting for your additional taxes in Denmark. In which case, maybe there is no reason for you to be unhappy.
It does seem odd that they would tax mutual funds and EFTs more onerously than individual stocks, but if that is the case, you might consider BRK. I know nothing about the Danish tax system, but you could look into these things.

international001
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Re: Not so happy in Denmark... individual stocks better than index funds? [US ex-pat]

Post by international001 » Thu Oct 03, 2019 5:22 am

protagonist wrote:
Wed Oct 02, 2019 11:04 am
Consider the benefits that you might receive living in Denmark (health, education, maternity leave, paid vacation, etc)....
Consider what those would cost you if you were living in the US.
Perhaps, in the long run, it all comes out in the wash...what you would be paying out of pocket in the US for services and insurance may be equal or more to what you are getting for your additional taxes in Denmark. In which case, maybe there is no reason for you to be unhappy.
It does seem odd that they would tax mutual funds and EFTs more onerously than individual stocks, but if that is the case, you might consider BRK. I know nothing about the Danish tax system, but you could look into these things.
If you have beyond the average income, you are likely to end up worse
Also, it's a mystery if the heavily social model of Scandinavian countries will hold over the next decades. At the bear minimum, you would need low immigration. You don't want the poor to come in or the rich to get out

international001
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Re: Not so happy in Denmark... individual stocks better than index funds? [US ex-pat]

Post by international001 » Thu Oct 03, 2019 5:26 am

Please, once you get financial update on Denmark update us. IF you have an ETF w/o dividends that increases value and you have to pay taxes on the appreciation, it would seem logical that you can deduct those taxes if later you sell it on US. Otherwise it would be double taxation, what I think treaties look to avoid. But this implies lots of record keeping by yourself

Also, if you know you are coming back, did anybody thought about buying futures?

protagonist
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Re: Not so happy in Denmark... individual stocks better than index funds? [US ex-pat]

Post by protagonist » Thu Oct 03, 2019 2:02 pm

international001 wrote:
Thu Oct 03, 2019 5:22 am
protagonist wrote:
Wed Oct 02, 2019 11:04 am
Consider the benefits that you might receive living in Denmark (health, education, maternity leave, paid vacation, etc)....
Consider what those would cost you if you were living in the US.
Perhaps, in the long run, it all comes out in the wash...what you would be paying out of pocket in the US for services and insurance may be equal or more to what you are getting for your additional taxes in Denmark. In which case, maybe there is no reason for you to be unhappy.
It does seem odd that they would tax mutual funds and EFTs more onerously than individual stocks, but if that is the case, you might consider BRK. I know nothing about the Danish tax system, but you could look into these things.
If you have beyond the average income, you are likely to end up worse
Also, it's a mystery if the heavily social model of Scandinavian countries will hold over the next decades. At the bear minimum, you would need low immigration. You don't want the poor to come in or the rich to get out
The "rich" in Scandinavia are not nearly as wealthy as the "rich " in the USA.
Based on the chart on page 12 in this study (admittedly the data is 10-20 years old),
90th/99th percentile net worth:
Sweden 151,000/456,000 euros
Finland 160,000/506,000 euros
USA 483.000/3,756,000 euros
(figures are in 2005 euros).

I would guess the discrepancy between the rich in the USA and Scandinavia is much greater today.
And according to the same chart, the bottom 25% of net worth was lower in Sweden, and only slightly higher in Finland, than in the USA.
(The study did not have figures for Denmark or Norway).

Despite being nearly as poor (Finland) or poorer (Sweden), and despite a higher cost of living in most of Scandinavia, the bottom 25% have a much better safety net in Scandinavian countries than in the USA.

The future is not predictable, though I would guess that the countries with a better educated and healthier population will ultimately fare best.
Last edited by protagonist on Thu Oct 03, 2019 3:34 pm, edited 2 times in total.

oogZoo
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Re: Not so happy in Denmark... individual stocks better than index funds? [US ex-pat]

Post by oogZoo » Thu Oct 03, 2019 2:34 pm

protagonist wrote:
Thu Oct 03, 2019 2:02 pm
Based on the chart on page 12 in this study (admittedly the data is 10-20 years old),
90th/99th percentile net worth:
Sweden 151,000/456,000 euros
Finland 160,000/506,000 euros
USA 483.000/3,756,000 euros
(figures are in 2005 euros).
More up to date year 2016 numbers:

Net worth P90/P99:

Finland 485 347 / 1 563 086 €
USA 1 182 390 / 9 458 908 €

Don't know about Sweden.

Source https://www.stat.fi/til/vtutk/2016/vtut ... -05_fi.pdf page 25 and https://dqydj.com/net-worth-brackets-we ... e-percent/

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jose
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Re: Not so happy in Denmark... individual stocks better than index funds? [US ex-pat]

Post by jose » Thu Oct 03, 2019 3:23 pm

I think that abusive taxation of MF in Denmark mirrors the US doing the same for a long time: PFIC. It is a punitive tax that forces U.S. "persons" to invest only in U.S. domiciled instruments. When other countries like Denmark do the same thing the U.S. does, American expats get caught in a catch-22 where if they invest in European domiciled funds, they are punished by the U.S., and vice versa. I'm not an expert but I find a lot of people trying to get that of that conundrum, and consulting firms trying to help expats.

In general, expats are one of the most mistreated and discriminated against groups of people. For many years, US expats have been rejected by US banks and financial institutions, and because of US reporting requirements and fines, they were also rejected by foreign banks. That problem has more solutions today, but it is still there.

In addition, the U.S. has a number of tax treaties with other countries to eliminate unfair double taxation, but still are discriminatory because they subject expats to the highest tax of the two countries in each category, and must pay the difference to the other country. On top of that, US expats have to live with about 4 times as much tax reporting as a US resident (FATCA FBAR PFIC multiple tax filings, transactions, costs).

So, I am not an expert but looks like the problem might not be specific to Denmark, but of expats in general.

jose

international001
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Re: Not so happy in Denmark... individual stocks better than index funds? [US ex-pat]

Post by international001 » Thu Oct 03, 2019 6:44 pm

oogZoo wrote:
Thu Oct 03, 2019 2:34 pm
protagonist wrote:
Thu Oct 03, 2019 2:02 pm
Based on the chart on page 12 in this study (admittedly the data is 10-20 years old),
90th/99th percentile net worth:
Sweden 151,000/456,000 euros
Finland 160,000/506,000 euros
USA 483.000/3,756,000 euros
(figures are in 2005 euros).
More up to date year 2016 numbers:

Net worth P90/P99:

Finland 485 347 / 1 563 086 €
USA 1 182 390 / 9 458 908 €

Don't know about Sweden.

Source https://www.stat.fi/til/vtutk/2016/vtut ... -05_fi.pdf page 25 and https://dqydj.com/net-worth-brackets-we ... e-percent/

Probably this doesn't account for the value of SS equivalent (you could consider the value of annuity)

Still, if you are rich US citizen and you move to Denmark, your subjective wealth will be very high, no matter how much you are taxed, just because everybody around you is poorer.

international001
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Re: Not so happy in Denmark... individual stocks better than index funds? [US ex-pat]

Post by international001 » Thu Oct 03, 2019 6:49 pm

jose wrote:
Thu Oct 03, 2019 3:23 pm
I think that abusive taxation of MF in Denmark mirrors the US doing the same for a long time: PFIC. It is a punitive tax that forces U.S. "persons" to invest only in U.S. domiciled instruments. When other countries like Denmark do the same thing the U.S. does, American expats get caught in a catch-22 where if they invest in European domiciled funds, they are punished by the U.S., and vice versa. I'm not an expert but I find a lot of people trying to get that of that conundrum, and consulting firms trying to help expats.

In general, expats are one of the most mistreated and discriminated against groups of people. For many years, US expats have been rejected by US banks and financial institutions, and because of US reporting requirements and fines, they were also rejected by foreign banks. That problem has more solutions today, but it is still there.

In addition, the U.S. has a number of tax treaties with other countries to eliminate unfair double taxation, but still are discriminatory because they subject expats to the highest tax of the two countries in each category, and must pay the difference to the other country. On top of that, US expats have to live with about 4 times as much tax reporting as a US resident (FATCA FBAR PFIC multiple tax filings, transactions, costs).

So, I am not an expert but looks like the problem might not be specific to Denmark, but of expats in general.

jose
Denmark seems particularly bad (high rate on capital gains, no deduction on losses, ..).
Other countries seem not as bad. As long as you pay the higher of each country is (not too) unfair. PFIC doesn't follow those guidelines, but in general you can workaround it if you have your money in the US

Worse part in my opinion is the uncertainty, because the countries didn't agree on a partnership system. They made assumptions on the other countries, and when the models don't fit, you are caught between trying to give the more favorable interpretation to you, and risk that some judge will decide otherwise.

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