ETFs (Exchange Traded Funds) are investment funds that are traded on the stock exchange in the same way as stocks. An ETF typically tracks a specific index, commodity, bond, or basket of assets. ETFs give investors the opportunity to diversify their investments with a single trade and generally have lower costs than traditional investment funds.
Frequently Asked Questions About ETFs
What is an ETF?
An ETF is an exchange-traded investment fund that can be bought and sold continuously on a stock exchange like a stock. An ETF tracks the development of a specific index or market. This could be, for example, the American index S&P 500, which is an index of the 500 largest publicly traded companies in the USA. Instead of buying shares in all the companies included in the index, you can invest in an ETF that tracks this index.
How are foreign ETFs classified for tax purposes in Denmark?
Foreign ETFs are in practice often classified as investment certificates issued by investment companies. A distinction is then made between:
- UCITS ETFs (EU-harmonized): Generally taxed as investment companies under ABL §19
- Non-UCITS ETFs (e.g., US ETFs): May be taxed differently depending on structure and content
Quick checklist (ISIN-based):
- ISIN starting with IE, LU, FR, DE, etc.: Typically UCITS → investment company taxation
- ISIN starting with US: Often non-UCITS → individual assessment required
How are ETFs taxed in Denmark?
ETFs are generally taxed according to the Capital Gains Tax Act §19 (ABL §19).
Taxation method:
Income is calculated according to the inventory principle: The year's tax is calculated on the value as of December 31 minus the value as of January 1 (purchases/sales during the year are included with acquisition/disposal amounts).
What type of income do ETFs generate?
The income type follows the classification:
- Investment company (ABL §19): Capital income
- Stock-based content: Share income (potentially eligible for share income deduction)
- Bond-based content: Capital income
What about withholding tax on foreign ETFs?
For foreign ETFs, withholding tax may be withheld abroad according to the relevant double taxation treaty; relief (credit) can normally be granted in Denmark within the general framework.
Can ETFs be held in an Aktiesparekonto (ASK - Share Savings Account)?
Yes – if they are stock-based and are on the Danish Tax Agency's positive list. Bond-based ETFs cannot be placed in an ASK.
Can ETFs be included in the sole proprietorship scheme (virksomhedsordningen)?
Yes, to the extent that the investment fund is covered by ABL §19, they must be included in the sole proprietorship scheme. The important thing is that they are taxed on an inventory basis and taxed as an investment company according to ABL §19. Almost all UCITS ETFs are taxed as investment companies.
Disclaimer
As the above is for guidance purposes only, we accept no liability for decisions that may be made based on the above without prior individual advice. We accept no liability for errors and omissions.