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

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cascadian
Posts: 34
Joined: Tue Dec 14, 2021 6:30 pm

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

Post by cascadian »

Has anyone handled 529 plans in Denmark? Curious how these would be taxed on the investments (mutual funds & CITs are only options in CA state plan) since I'd like my kids to have a choice of higher education later in life as EU/US dual citizens.
cascadian
Posts: 34
Joined: Tue Dec 14, 2021 6:30 pm

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

Post by cascadian »

Cashews wrote: Tue Dec 26, 2023 3:55 pm Direct Indexing seems to be an elegant solution, but it’s not clear to me how complicated that would be for Danish taxes.

Taking Direct Indexing off the table for now, I’ve listed below what I would pick if I were constrained to just 20 stocks. I actually listed just 18 names and have left 10% open for two names to be suggested by others — to balance out the portfolio. Obviously, this involves some stock picking. Hopefully people on this board will go against their Boglehead and participate.

Thanks for playing!

Conglomerates: 45%
Berkshire - 42%
Danaher - 3%

Tech: 20% 
Microsoft - 6%
Google, Amazon, Nvidia, Meta- 3% each
Adobe - 2%

Pharma: 15%
Eli Lilly, JNJ, MercK, Abbvie, Gilead, Novo Nordisk - 2.5% each

Alts Mgrs + Bank: 10%
Blackstone, KKR, Apollo - 2.5% each
JPMorgan - 2.5%  

Other 10%
2 names to be added
Great question! I'd consider taking a look at a few actively managed global equity strategies with longer track records & limited turnover. One that comes to mind is Walter Scott, which has a couple of global and international concentrated (25-50 companies) strategies. Perhaps double up on the Danish based Novo Nordisk.
TedSwippet
Posts: 5279
Joined: Mon Jun 04, 2007 4:19 pm
Location: The rainy island next to France

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

Post by TedSwippet »

international001 wrote: Tue Dec 26, 2023 6:09 pm But the difference is that if you move to the US you can sell before all your European. ETFs and start investing in US ETFs. The other way around (in Denmark) it would be more difficult if you are a US citizen.
Perhaps not without facing a huge tax bill in your home (pre-US) country.
international001 wrote: Tue Dec 26, 2023 6:09 pm How is 1291 useful? I thought mark-to-market was the less bad of all the options
I believe that's what I wrote.
international001
Posts: 2793
Joined: Thu Feb 15, 2018 6:31 pm

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

Post by international001 »

TedSwippet wrote: Wed Dec 27, 2023 5:09 pm Perhaps not without facing a huge tax bill in your home (pre-US) country.
Of course, but at least you have the rest of your life to make for it. How US citizens are squeezed in Europe by both sides it seems just sadistic.
TedSwippet wrote: Wed Dec 27, 2023 5:09 pm I believe that's what I wrote.
I think so, I was surprised that 'Claudia Whitten' was scandalized by it ;-)
international001
Posts: 2793
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Re: Not so happy in Denmark... individual stocks better than index funds? [US ex-pat]

Post by international001 »

cascadian wrote: Wed Dec 27, 2023 11:56 am Has anyone handled 529 plans in Denmark? Curious how these would be taxed on the investments (mutual funds & CITs are only options in CA state plan) since I'd like my kids to have a choice of higher education later in life as EU/US dual citizens.
Tax treaties typically deal with pension funds, I would assume 529 have a worse treatment.

By why posters keep insisting on college payment. E.g. If you bring your kins to Denmark when they are 16, won't they get free college? I don't think this happens in the rest of Europe.

What about the complains about pensions. If you go to Denmark in your 40s, won't you get a government pension? Doesn't Denmark have totalization agreements?
Cashews
Posts: 22
Joined: Tue Jul 04, 2023 6:26 am

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

Post by Cashews »

ShadowCat wrote: Tue Aug 31, 2021 1:31 pm
rickswus wrote: Fri Aug 20, 2021 9:26 am Spoke with my big 4 tax people in Denmark this morning. It seems that the original view of taxation on unrealized gains is fact. Here are a few points:
1 - The Denmark/US tax treaty does apply to all pension schemes (401k, IRA, Roths) and the US tax treatment would apply to distributions. Distributions is the operative word.
2 - The unrealized gains taxation seems to be more related to the type of money that is used. If it is after tax money, as in a Roth, then the unrealized gains are taxed each year. If it is pre-tax money, as in an IRA or 401k (non Roth), then it is only taxed at distribution.
3 - In non-pension scheme after tax accounts (normal brokerage accounts) the mutual funds, ETFs, Bonds are taxed annually on unrealized gains. Individual securities with capital gains are only taxed as realized.

Not good news for Expats. Still exploring other options.
That's extremely frustrating. It appears the US-Danish tax treaty does not, to my glance, have any clause prohibiting taxation prior to distribution. A lot of other US tax treaties prevent taxation by either country until distribution to avoid this situation. I guess the US-Danish tax treaty does not hence why Denmark is able to be in compliance with the treaty: they don't tax the distribution, just the gain prior to distribution :oops:

Thanks for sharing and sorry you have to deal with this.
I read "2" above to say that at least regular IRA's (i.e., non-ROTH) are only taxed upon distribution --- i.e., they avoid the mark-to-market tax on unrealized gains. Am I misreading this?
**Disclaimer:** The information provided in this message may not be accurate and should not be relied upon. It is not intended to replace professional consultation or guidance.
ShadowCat
Posts: 259
Joined: Thu Nov 05, 2015 4:02 pm

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

Post by ShadowCat »

Cashews wrote: Mon Jan 01, 2024 11:49 am
ShadowCat wrote: Tue Aug 31, 2021 1:31 pm
rickswus wrote: Fri Aug 20, 2021 9:26 am Spoke with my big 4 tax people in Denmark this morning. It seems that the original view of taxation on unrealized gains is fact. Here are a few points:
1 - The Denmark/US tax treaty does apply to all pension schemes (401k, IRA, Roths) and the US tax treatment would apply to distributions. Distributions is the operative word.
2 - The unrealized gains taxation seems to be more related to the type of money that is used. If it is after tax money, as in a Roth, then the unrealized gains are taxed each year. If it is pre-tax money, as in an IRA or 401k (non Roth), then it is only taxed at distribution.
3 - In non-pension scheme after tax accounts (normal brokerage accounts) the mutual funds, ETFs, Bonds are taxed annually on unrealized gains. Individual securities with capital gains are only taxed as realized.

Not good news for Expats. Still exploring other options.
That's extremely frustrating. It appears the US-Danish tax treaty does not, to my glance, have any clause prohibiting taxation prior to distribution. A lot of other US tax treaties prevent taxation by either country until distribution to avoid this situation. I guess the US-Danish tax treaty does not hence why Denmark is able to be in compliance with the treaty: they don't tax the distribution, just the gain prior to distribution :oops:

Thanks for sharing and sorry you have to deal with this.
I read "2" above to say that at least regular IRA's (i.e., non-ROTH) are only taxed upon distribution --- i.e., they avoid the mark-to-market tax on unrealized gains. Am I misreading this?
That may very well be the case, but that would be due to domestic Danish law and not the treaty.

My point was that the US-Denmark tax treaty is written in such a way that the treaty does not in fact prevent taxation on gains in the account prior to distribution. This is surprising since nearly every other tax treaty the US has signed has an explicit clause stating that retirement accounts may not be taxed by either country until an actual distribution has occurred, followed by rules on who gets to tax the distribution. But the US-Denmark treaty is totally silent on taxation of gains, unrealized or otherwise, in retirement accounts prior to distribution. Consequently, Denmark could just tax the accounts into oblivion *prior* to distribution and still be in total compliance with the treaty since the treaty only has rules on taxation of distributions themselves. It seems Denmark has chosen not to do that for pre-tax/traditional retirement accounts, but that's purely a choice Denmark has voluntarily made instead of being required by the treaty.

Such a strangely worded treaty. Very unique as far as US tax treaties go.
wutangfinancial
Posts: 1
Joined: Mon Feb 05, 2024 4:15 pm

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

Post by wutangfinancial »

cascadian wrote: Wed Dec 27, 2023 12:14 pm
Cashews wrote: Tue Dec 26, 2023 3:55 pm Direct Indexing seems to be an elegant solution, but it’s not clear to me how complicated that would be for Danish taxes.

Taking Direct Indexing off the table for now, I’ve listed below what I would pick if I were constrained to just 20 stocks. I actually listed just 18 names and have left 10% open for two names to be suggested by others — to balance out the portfolio. Obviously, this involves some stock picking. Hopefully people on this board will go against their Boglehead and participate.

Thanks for playing!

Conglomerates: 45%
Berkshire - 42%
Danaher - 3%

Tech: 20% 
Microsoft - 6%
Google, Amazon, Nvidia, Meta- 3% each
Adobe - 2%

Pharma: 15%
Eli Lilly, JNJ, MercK, Abbvie, Gilead, Novo Nordisk - 2.5% each

Alts Mgrs + Bank: 10%
Blackstone, KKR, Apollo - 2.5% each
JPMorgan - 2.5%  

Other 10%
2 names to be added
Great question! I'd consider taking a look at a few actively managed global equity strategies with longer track records & limited turnover. One that comes to mind is Walter Scott, which has a couple of global and international concentrated (25-50 companies) strategies. Perhaps double up on the Danish based Novo Nordisk.
So...If I'm understanding correctly, one could theoretically do the following which is completely in compliance with Danish tax law:

1. Be a US citizen living and working outside of Denmark
2. Open one of those trading accounts that services US expats (I think Charles Schwab has one with min. $25k)
3. Invest into a few single-name securities
4. Relocate to Denmark and work there for 2-3 years [not touching the aforementioned brokerage account throughout this period]
5. Leave Denmark, moving back to the US
6. Sell securities and realize whatever gains result, whilst having not paid anything to Danish tax authorities

Is that right?
Cashews
Posts: 22
Joined: Tue Jul 04, 2023 6:26 am

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

Post by Cashews »

I’m not an expert on Danish taxes (just interested in the topic), but my understanding is that is correct, save the dividend income which would be taxable. Also, if you weren’t going to sell any shares, then you might as well do Direct Indexing for something like the S&P 500. Without any stock sales, I assume the number of holdings doesn’t complicate the Danish taxes. When you return to the US, you’d have to decide whether you want to keep the Direct Indexing (or portfolio of single names) or pay tax on realized gains to collapse the positions and buy a broad based ETF/mutual fund.

EDIT: to add, if you stay in Denmark for 7 years, you are subject to an exit tax on gains… so your “2 to 3 year” horizon is key.
**Disclaimer:** The information provided in this message may not be accurate and should not be relied upon. It is not intended to replace professional consultation or guidance.
DoctorE
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Joined: Thu Feb 13, 2014 2:11 am

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

Post by DoctorE »

Cashews wrote: Mon Feb 05, 2024 6:10 pm I’m not an expert on Danish taxes (just interested in the topic), but my understanding is that is correct, save the dividend income which would be taxable. Also, if you weren’t going to sell any shares, then you might as well do Direct Indexing for something like the S&P 500. Without any stock sales, I assume the number of holdings doesn’t complicate the Danish taxes. When you return to the US, you’d have to decide whether you want to keep the Direct Indexing (or portfolio of single names) or pay tax on realized gains to collapse the positions and buy a broad based ETF/mutual fund.

EDIT: to add, if you stay in Denmark for 7 years, you are subject to an exit tax on gains… so your “2 to 3 year” horizon is key.
Any clarification on what they mean with:

https://skat.dk/en-us/individuals/share ... ve-denmark
"You cannot have your tax postponed on gains on shares and investment fund shares that have been issued by an investment company and are therefore subject to taxation of unrealised capital gains."

Does this mean an exit tax is payable on ETFs despite staying shorter than 7 years in Denmark?
CloakAndSpider
Posts: 1
Joined: Mon Mar 11, 2024 3:17 pm

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

Post by CloakAndSpider »

I wonder if any of the US taxpayers who are currently tax residents in Denmark could speak to whether the Danish taxes paid on the mark-to-market of funds/ETFs is creditable on their US tax returns. I believe New Zealand has a similar mark-to-market tax and I recall hearing that it may not be creditable in the US, because it is not an "income tax."
I'm hoping someone has an answer to this. I'm an American living in Denmark and my big question that I have not found an answer to is: How do I write off US paid taxes for an ETF? I owe taxes to Denmark from growth in my US ETF's last year. Eventually I will sell those ETF's and also owe taxes to the US. If I performed that sale this year, could I write that off from my Danish taxes somehow? Or could the taxes I pay this year be part of my foreign tax credit to the US? Or am I doomed to pay full taxes to both countries on it?
Last edited by CloakAndSpider on Mon Mar 11, 2024 3:53 pm, edited 1 time in total.
DoctorE
Posts: 223
Joined: Thu Feb 13, 2014 2:11 am

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

Post by DoctorE »

CloakAndSpider wrote: Mon Mar 11, 2024 3:21 pm
I wonder if any of the US taxpayers who are currently tax residents in Denmark could speak to whether the Danish taxes paid on the mark-to-market of funds/ETFs is creditable on their US tax returns. I believe New Zealand has a similar mark-to-market tax and I recall hearing that it may not be creditable in the US, because it is not an "income tax."
I owe taxes to Denmark from growth in my US ETF's last year.
Did you sell them to realize the gains?
I thought Denmark only taxed unrealized gains on ETFs if they are the accumulating style which don't really exist in the US.
marky2kk
Posts: 52
Joined: Tue Feb 11, 2020 9:53 am

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

Post by marky2kk »

CloakAndSpider wrote: Mon Mar 11, 2024 3:21 pm
I wonder if any of the US taxpayers who are currently tax residents in Denmark could speak to whether the Danish taxes paid on the mark-to-market of funds/ETFs is creditable on their US tax returns. I believe New Zealand has a similar mark-to-market tax and I recall hearing that it may not be creditable in the US, because it is not an "income tax."
I'm hoping someone has an answer to this. I'm an American living in Denmark and my big question that I have not found an answer to is: How do I write off US paid taxes for an ETF? I owe taxes to Denmark from growth in my US ETF's last year. Eventually I will sell those ETF's and also owe taxes to the US. If I performed that sale this year, could I write that off from my Danish taxes somehow? Or could the taxes I pay this year be part of my foreign tax credit to the US? Or am I doomed to pay full taxes to both countries on it?
The solution seems to be to buy and resell every year. In this case, you can certainly net off any taxes between Denmark and the US in a given year.

I am in this situation, which you do not want to get into. Suppose you buy an ETF while living in Denmark for 1000 DKK on Jan 1. On Dec 31, it is worth 1500 DKK, so you pay 27%/42% taxes on the unrealized 500 DKK gain. You never sell it. Then you move to a different country. Your cost basis is still 1000 DKK, so you still have an unrealized gain of 500 DKK, but most, if not all, countries will not recognize that you already paid taxes on the 500 DKK. They only do it if it is taxes paid to Denmark during the same year (but it's not, it's during previous years), that's why I recommend just buying and reselling every year.

Needless to say it's a crazy tax system.
Shaetan
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Joined: Mon Apr 22, 2024 12:34 am

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

Post by Shaetan »

marky2kk wrote: Sun Jun 09, 2024 1:30 pm
CloakAndSpider wrote: Mon Mar 11, 2024 3:21 pm
I wonder if any of the US taxpayers who are currently tax residents in Denmark could speak to whether the Danish taxes paid on the mark-to-market of funds/ETFs is creditable on their US tax returns. I believe New Zealand has a similar mark-to-market tax and I recall hearing that it may not be creditable in the US, because it is not an "income tax."
I'm hoping someone has an answer to this. I'm an American living in Denmark and my big question that I have not found an answer to is: How do I write off US paid taxes for an ETF? I owe taxes to Denmark from growth in my US ETF's last year. Eventually I will sell those ETF's and also owe taxes to the US. If I performed that sale this year, could I write that off from my Danish taxes somehow? Or could the taxes I pay this year be part of my foreign tax credit to the US? Or am I doomed to pay full taxes to both countries on it?
The solution seems to be to buy and resell every year. In this case, you can certainly net off any taxes between Denmark and the US in a given year.

I am in this situation, which you do not want to get into. Suppose you buy an ETF while living in Denmark for 1000 DKK on Jan 1. On Dec 31, it is worth 1500 DKK, so you pay 27%/42% taxes on the unrealized 500 DKK gain. You never sell it. Then you move to a different country. Your cost basis is still 1000 DKK, so you still have an unrealized gain of 500 DKK, but most, if not all, countries will not recognize that you already paid taxes on the 500 DKK. They only do it if it is taxes paid to Denmark during the same year (but it's not, it's during previous years), that's why I recommend just buying and reselling every year.

Needless to say it's a crazy tax system.
I don't believe selling to avoid a tax on unrealized gains works.

https://info.skat.dk/data.aspx?oid=1946253

Google translate:
For shares that have been surrendered during the income year, the surrender sum is used instead of the value at the end of the income year.

For shares acquired during the income year, the acquisition sum must be used instead of the value at the beginning of the income year.
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