Denmark is known among expats for two things that can fit into one sentence: It is a country of the happiest people in the world who pay the highest taxes.
It is the high taxes that determine the pattern of savings and investments of the Danes.
So, what do the Danes invest in?
First and foremost in pension: The whole 52 percent of the Danes’ savings are dedicated to pensions. The Danish pension consists of two parts: Public and private. The public pension is paid to each citizen of Denmark and is not dependent on the amount that you have saved during your working life. The private part of the pension is made from the investments, which people make through their employer or by themselves. The higher your salary has been, the more years you have worked, the greater your retirement savings will be. Pension savings are deducted from taxes, i.e. they are paid from salary before it is taxed. This method of savings makes therefore most sense for Danes in terms of taxes.
There are 24 pension funds and companies in Denmark. This is a huge financial industry in this small country of 5.7 million people. The savings in pension funds are mostly invested in securities, i.e., in stocks, bonds and investment fund certificates. That’s because you can get a maximum of 0.7% per annum on bank deposits in Denmark.
Expats in Denmark often doubt whether they should begin their retirement savings in Denmark if they are not yet sure whether they will remain here for the rest of their lives. But the savings in Denmark will continue to accumulate even after they leave the country. When the expats who left Denmark, reach the pension age, they will receive a Danish private pension in the country where they live at that moment.
Then in securities. Danes also invest their personal money in securities. Especially in the shares and investment funds. In August 2018, the Danes had 891 million DKK (= € 119 million) invested in securities. It is most profitable to buy shares of local companies directly, whereas Danes buy shares of foreign companies through investment funds. The explanation for this is the high costs of storing foreign shares in local banks.
When investing for personal income, the Danes pay full taxes on the capital income. The taxation of that is 27 percent from the first 52,900 DKK (= € 7,100) and 42 percent of the amount above 52,900 DKK. When investing in shares, these taxes are paid on dividends and on earnings of shares sold. Thus, if you are a long-term investor and do not engage in the frequent purchase and sale of securities, the payment of tax is postponed to the time when you sell your shares.
Danes remember savings for the children’s future as well. For contributions for the future of children in Denmark, there are several tax-efficient ways. The most obvious way is the børneopsparingskonto – child savings account – on which you can set aside a maximum of 6,000 kroons (= € 800) per year per child. All income, interest and dividends from this account are not taxed at all, and your child will receive all the deposits with interest upon reaching 14, 18 or 21 years.
Question from expats: What will happen if I open a child savings account, invest money in this account, and then move to another country?
The answer: The money in the account is assigned to your child and it will continue to generate income and will be paid out to the new foreign account of the child when he is 14, 18 or 21 y.o.
Like people in other countries, owning a home is the favourite type of investment for the Danes. Denmark has a very developed financial system, it is easy and very cheap to get a mortgage for financing a property. In 2018, one can get a 30-year mortgage loan at a fixed rate of only 2% per annum. 57% of Danes live in their own homes, and they regard their own real estate as an important part of their pension savings.
Note for expats: Foreigners in Denmark have the right to purchase housing after they have lived here for five years. If they buy a home before the five years, they need to ask for permission from the Ministry of Justice. This, however, is a simple procedure and the Ministry approves most foreigners for the purchase of housing.
Elena Kabatchenko is the founder and CEO of the company Finance Guide which provides education and consulting services on the financial matters to the internationals in Denmark.
Elena has moved in Denmark in 2000 when she was 19 years. She got her education as MSc in Finance from Aarhus University and has been working in large financial organisations such as the Danish Central Bank, Danske Bank and EKF – the Danish Export Credit Agency.