Taxation on unrealized gains is a method for taxing increases and decreases in the value of a portfolio of assets, such as securities, where the tax is calculated annually based on the change in the asset’s value, regardless of whether the asset has been sold.
This differs from realization-based taxation, where tax is only paid when the asset is actually sold.
Frequently Asked Questions About Taxation on unrealized gains
What does taxation on unrealized gains mean?
Taxation on unrealized gains means that value increases and decreases on an asset are included in the taxable income on an ongoing basis, based on the asset’s value at the end of the income year.
This means that each year you compare the market value of the asset at the beginning and at the end of the year, and the difference – positive or negative – is included for tax purposes.
When is the unrealized gains principle used in Denmark?
The unrealized gains principle is used in Denmark for, among other things:
- Investment fund units in accumulating funds
- Financial contracts and derivatives
- Forwards, options, etc., which are taxed on an ongoing basis under the unrealized gains principle
- Companies, which must generally use the unrealized gains principle for portfolio shares
How is gain or loss calculated under taxation on unrealized gains?
Gain or loss for an income year is calculated as the difference between the value of the shares at the end of the year and at the beginning of the year.
If shares are acquired during the year, the acquisition cost is used instead of the value at the beginning of the year.
If shares are disposed of during the year, the disposal amount is used instead of the value at the end of the year.
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.
