Danish Exit Tax - Guide for Expats planning to move abroad (Now or later)

What is the Exit Tax in Denmark?

Denmark’s exit tax, also known as "fraflytningsskat," applies to individuals moving abroad who own taxable assets like shares, securities, and other financial investments. It aims to prevent tax avoidance by taxing unrealized capital gains before residents leave the country. If you’ve lived in Denmark for at least 7 out of the last 10 years, you may be liable for this tax if your investments exceed DKK 100,000.

Who needs to pay the Exit Tax?

The exit tax applies to Danish residents who meet the following criteria

• Own shares, securities, or similar financial assets.

• Have unrealized gains (profits that haven’t been cashed out) on their assets.

• Plan to move abroad after residing in Denmark for 7 years out of the last 10.

The exit tax does not apply to all assets. Pension savings and certain types of business-related assets may be exempt, depending on the situation.

How much exit tax should you pay if you leave?

The amount of exit tax you’ll need to pay when leaving Denmark depends on the unrealized capital gains of your assets. The unrealized capital gains are calculated based on the difference between the purchase price and the market value of your assets at the time you leave. If the value of your investments has increased, that gain is subject to taxation.

Example:

You purchased shares for DKK 100,000 during your time in Denmark, and their market value is DKK 300,000 when you decide to move abroad. Your unrealized capital gain is DKK 200,000, and this is the amount subject to exit tax.

Using the tax rates (2024) you should pay:

• The first DKK 61,000 of your gain would be taxed at 27%, resulting in DKK 16,470 in tax.

• The remaining DKK 139,000 would be taxed at 42%, resulting in DKK 58,380 in tax.

• Your total exit tax liability would be DKK 75,420.

However, in you don’t always have to pay the exit tax immediately. In some cases, you can defer payment until the assets are actually sold. This is financially attractive because you the interest on interest impact will be bigger.

How can expat defer their Exit Tax?

As an expat, you may be eligible if your case follow below conditions:

• If you and your assets move to another country member of EU/EØS

• If you report it in time when you leave (within the year you leave the country)

• If you do a yearly update on what has happened to the assets

Regardless of where you move, it's critical to maintain proper reporting of your assets to avoid penalties or early tax collection.

Exit Tax Exemptions for Expats

While the exit tax covers most types of financial investments, there are some exceptions. For example:

• Pension funds and certain retirement savings are not subject to the exit tax.

• Business-related assets may have different rules, especially if you’re moving abroad as part of a corporate relocation.

It’s vital to get a full understanding of your asset portfolio and how each component is treated under Danish tax law.

Tax planning tips for Expats

Here are a few tips on how you can manage your tax obligations:

1. Consider selling some of your investments or shares before moving out to minimize the tax impact

2. Report the value of your investments the day you move in - When moving to Denmark you have the option to report the value of your investments on the day of arrival in Denmark, this is highly recommended. Otherwise, you might end up paying double-tax on your winners.

3. Understand Deferral Options: If you plan to hold onto your assets, explore deferment options to avoid immediate tax liabilities and spread out payments over time to make the best out of interest on interest.