Bonds are debt instruments issued by governments, corporations, or other entities to raise capital. By purchasing a bond, the investor lends money to the issuer, who undertakes to pay an interest rate over a specified period and repay the principal at the maturity of the bond. The bond may lose its entire value if the issuer goes bankrupt and cannot repay the obligation.
Frequently asked questions about bonds
What is a bond?
A bond is a debt instrument where an investor lends money to an issuer (e.g. the state, mortgage credit institutions or companies) against an agreed interest rate. The investor receives ongoing interest income (coupon) and normally receives the principal back at maturity. Bonds are used by private investors, companies and institutions to place capital with a relatively low risk compared to shares.
What types of bonds exist in Denmark?
There are several types of bonds, which differ by issuer, risk and purpose:
How are bonds taxed in Denmark?
Taxation of bonds takes place under the Capital Gains on Debt Claims Act (LBK no. 918 of 18/09/2012):
Private individuals:
Private individuals:
Companies:
Companies:
Exceptions:
Exceptions:
What is the difference between the realization principle and the unrealized gains principle?
The realization principle: Gain or loss is taxed only when the bond is sold or redeemed.
The unrealized gains principle: Gain or loss is taxed continuously, based on the change in the quoted value at the end of the year.
Private individuals are typically taxed according to the realization principle for unlisted bonds, while companies must always use the unrealized gains principle.
How should bonds be recognized in the accounts?
Under the Danish Financial Statements Act (LBK no. 763 of 23 June 2023 with later amendments), bonds must be recognized as financial assets. As a starting point, they are measured at fair value with adjustment through the income statement (ÅRL §§ 37–38).
What are the advantages and risks of bonds?
Advantages: Bonds typically provide a stable return through interest, lower price risk than shares and can be used for risk diversification in portfolios.
Risks: Price fluctuations as a result of interest rate changes, credit risk (if the issuer cannot pay) as well as inflation risk, where rising prices reduce the real value of the return.
How can we help with bonds?
We help with correct tax treatment of bonds – including calculation according to the unrealized gains or realization principle, reporting on the tax return and optimization of capital income. We also assist with accounting recognition and measurement of bonds in the annual report.
As audit and tax consultants, we ensure that your investments in bonds are handled correctly – both for tax and accounting purposes.