Dealing with the trades of individual stocks can lead to quick profits and considerable losses. You need to read the rise and fall of prices in the market with a keen eye. Timing your trade is the most important when it comes to stock markets.

In this article, we will discuss the taxes levied on stock trades in Europe.

Tax Rates in Europe

The tax rates on profits procured through stock trading are different throughout the world. The US and UK have their system of taxing the income on stock exchange profits, such as dividends and capital gains.

They are not taxed the same as net wage income. If you buy shares in a company for a low price and gain profit on its sale, a tax rate will be levied on that profit.

Suppose you bought a percentage of a company for 200 Euros and sold it for 250 Euros, according to the inflation in the market. You will have to pay a certain tax rateon that 50-Euro income, depending on your country.

Denmark

In the case of Denmark, you are supposed to pay 27% in tax if your capital gain through stock trading is around 57,200 Danish Krone. This tax is levied on the initial income from the shares you sold.

If your capital gain is above the figure mentioned earlier, you must pay a heavy tax of 42% on your income from stock trading. The income here includes the increment received from the company where you have shares, and the profit garnered from the sale of the shares.

The amount is double 57,200 Danish Krone if you are married. The income is taken together and should be two times 57,200 for the tax rates to apply (still 27% for the initial income and 42% for more than the average income).

For example, if you have invested in a company to rely on their dividends for your income, and BNP Paribas is about to go ex-dividend in a few days, you should not miss the date. If you miss it, you will not receive the dividend.

The tax rates in Poland are levied on your income from sales of your company shares and also the dividends you receive from them in a long-term investment.

Poland

In Poland, the tax rates are based on your residential status in the country. If you are a non-resident, you are supposed to pay a limited percentage of tax to the government through the sale of your shares in Polish companies.

For permanent or local residents, their total worldwide income is taxable. In other words, it means that they are subject to unlimited tax liability.

For non-residents, let us take an example of a company in Polish real estate. If a non-resident has a share in that company and has at least 50% of its asset value, they are liable to pay 19% of their income tax rate.

This is applicable only to non-residents with a 50% share in Polish companies that are directly or indirectly connected to Polish real estate.

Spain

In Spain, the dividends and other income that are acquired through the sales of shares in companies are included in PIT saving income. They are taxed at a 19% tax rate in the initial income of 6000 Euros.

The increase from 6000 Euros to 50000 Euros will see an increase in the tax rates up to 21%, which will go up to 23% if the income crosses from 50000 to 200000 Euros. Any income above 200000 Euros through company shares sold in Spain will be taxed at 26%.

For non-resident persons in Spain, the tax rate is flat at 19%.

Short-Term Capital Gains vs. Long-Term Capital Gains

For freshers looking to invest in stocks, you need to understand the basics first. To make you understand stock trading, we will discuss the difference between short-term and long-term capital gains.

In simple terms, a capital gain is a profit you receive from selling an asset. The difference between short-term and long-term is the period of time you invest in assets like bonds, stocks, real estate, etc.

·        Short-term Capital Gains

Short-term stock trading refers to the purchase and sale of stock shares in an asset within a single trading day. Short-term stock traders use high amounts of leverage and trading tactics to gain ground on minute price movements in the market.

However, you should understand the market’s fundamentals before you decide to trade in stocks for short-term profits. If you do so without adequate knowledge, you can stand to lose a lot of money.

Even if you invest in assets to gain quick profit, you should do it using the money you can afford to lose. To deal with short-term trades, you must have access to a considerable amount of capital with you, as any sudden shift in the market may require big-margin calls on short notice.

·        Long-term Capital Gains

Long-term capital gains refer to the profit from selling an asset that is a year or older. People that invest in long-term assets do so because the tax rates are much lower than short-term capital gains.

In long-term capital gains, you purchase an asset for the current price, and you wait for a year or two till you sell it off for a higher price. However, the extra income you procure from the sale (selling price minus the purchasing cost) is not how you calculate profit in long-term gains.

To determine the capital gains, you should consider the cost of buying the asset, the selling price, and the cost inflation index. One key advantage of long-term capital gains is that the tax rates are slightly lower than short-term gains.

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Unlike some other business structures, with LLC incorporation, you can choose from 3 taxation systems. Factors,  such as the number of participants, size of business, financial plans, are usually taken into consideration to make a considered decision. Some tax systems are available by default, while others require certain forms and requirements to be filed.

Is the standard tax status suitable for you, or is it more advantageous to be taxed as a corporation? In this article, we will explore this question in a little more detail.

What is an LLC?

A Limited Liability Company is a legal entity formed to conduct business in its own name. It combines the aspects of sole proprietorships, corporations, and partnerships to provide the most favorable conditions for businesses.

LLC incorporation is popular because of a number of factors. First and foremost, of course, is the protection of limited liability, which partnerships and sole proprietorships do not have. As in the case of the establishment of a corporation, by choosing an LLC business structure, you will be able to conduct business without worrying about your property (your house, bills, car, etc). 

Also, many entrepreneurs are attracted by the possibility of cheap LLC formation and simple maintenance requirements, which distinguishes it from a corporation. In addition, to save time and effort, you can hire one of the affordable company formation services such as MyСompanyWorks or ZenBusiness.

Another reason for choosing an LLC is the flexibility that allows you to set up your work with maximum efficiency. This applies both to the internal structure, which can be easily adapted to the needs of the business, and such an important aspect as taxation.

What is the Default Tax Classification Assigned with LLC Formation?

Unless otherwise specified by the owners during LLC incorporation, the company is treated by the IRS as a “pass-through” taxing unit. Most LLCs adhere to this particular system, which effectively helps avoid double taxation. 

Depending on the number of participants, there are 2 classification options:

• Single-Member LLC. If an LLC company is owned by a single member, it is taxed as a sole proprietorship. Such a business is not legally separated from the owner and in terms of tax law is an unreported tax unit. After Business formation, the owner states the LLC’s income and expenses on his or her own tax return. This is the simplest and most common option among small businesses. Another important benefit of choosing default taxation is that it saves time. This way, you can get to work right away instead of having to learn the requirements and fill out another form to switch to corporate mode. Although some of the best LLC services offer help with this, changing your taxation method takes time. Along with its advantages, the unaccounted for tax status has its disadvantages. The most significant of these is that the owner has to pay tax on all LLC company income, even if part of it is kept in a corporate account.

• Multi-Member LLC. If a company has 2 or more owners, the general rule is that the IRS treats it as a partnership. The company does not file its own return. Each owner reports his or her portion of the income and expenses from the business on the personal tax return. As with Single-Member LLC, this LLC incorporation option helps avoid double taxation. The disadvantages of default taxation for Multi-Member LLCs include the fact that this route can be inconvenient for passive participants. The tax liability arises whether or not they received a share in the distribution. This is one of the main reasons why investors prefer to invest in corporations rather than LLCs.

Because of its simplicity and efficiency, the tax status automatically assigned upon business formation is a great choice for aspiring LLC owners. However, you may want to consider corporate tax status if you:

• Are planning to keep significant amounts of money in a business account;
• Are interested in attracting investors and passive co-owners.

How and at what Stage of LLC Formation Can I Choose the S-corporation Tax System?

LLC members have the right to change their tax system once in 5 years. To do this, you should fill out the IRS Form 8832. It can be filed within 75 days after the date of incorporation or within 75 days of the following tax year.

However, the S-corporation system is not available to every company. The law establishes a number of requirements, which include the following items:

• All LLC members have to be resident-individuals, charities, or certain types of trusts;
• No more than 100 owners are allowed, each of whom has to agree to be taxed as an S-corporation;
• Identical property rights of the owners.

The advantages that an LLC company gets when choosing S-corporation type of tax treatment include the following:

• “Pass-through” taxation;
• The active participants, who manage the company, are considered to be its employees. In this case, the company pays tax on wages. The remaining funds can be distributed to the participants as dividends, resulting in a reduction of the owners’ overall tax liability.

The IRS makes sure that wages for participants are “reasonable.” Attempting to set the amount too high or too low will result in unwanted additional scrutiny.

The S-corporation tax system is not suitable for everyone. However, you should consider it after the LLC formation because, in some cases, it may provide certain benefits. If necessary, a professional service, like LegalZoom, can help with the paperwork. Because of their unparalleled reputation, this is one of the best LLC services in the industry.

How and at What Stage of LLC Formation Can I Choose the C-corporation Tax System?

The last available option of the LLC tax system is C-corporation. Unlike the others, such companies pay taxes and file income and expense tax returns on their behalf. The remaining profits are distributed to the participants in the form of dividends and are also subject to income tax. Such a situation is commonly known as double taxation.

Why is the C-corporation status attractive for the LLC company? First of all, unlike an S-corporation, they can have any number of participants without any restrictions on which entities are entitled to hold a share in the share capital.

Also, the active members of the C-corporation, according to the law, are its employees. This gives them medical and other benefits. Typically, such owners receive salary and non-dependent benefits, which they report on their personal tax returns.

Despite the double taxation, this system can be beneficial if used correctly. For example, if you are planning to attract investors after business incorporation.

Conclusion

Each tax system is unique. Choosing the right option is one of the key issues in the process of LLC incorporation, which requires careful consideration. If you are still in doubt as to which tax status best suits your company, then consult an expert. An experienced accountant or a tax lawyer can help you fully consider the specifics of your LLC, as well as provide helpful advice on taxes and fees.

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Portugal has a preferential tax systemthe first 10 years for foreigners who have a residence permit, the rates on tax payments are reduced.

In Malta, one of the advantages is the possibility of tax optimization. There are no taxes on inheritance, gift and some property, and on others the government provides incentives. For example, under the residence permit for investment tax on income received abroad and transferred to a Maltese account – 15%, for domestic income have to pay 20-35%. The minimum amount of tax is 15 000 €.

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The minimum tax is 250 thousand Swiss francs per year. It is fixed and does not change over time. In this case, it is important that this amount does not depend on your income, availability of funds in bank accounts or ownership of real estate outside of Switzerland. If you have any income in the country, it will also be taken into account in the taxation.

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In 2015, Cyprus introduced a special status for foreign investors “non-domiciled tax resident” (not permanently residing in the country). This status requires you to live in Cyprus for at least 60 days per year. Being in this status, you are exempt from paying several taxes:

• on dividends;
• on income from the sale of securities;
• on the interest from deposits;
• rental income;
• defense levy.

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If a tax resident receives income within Cyprus or Malta, he has to pay quite high taxes at domestic rates. For example, in Cyprus, the income tax on income within the country (or on funds introduced into its territory) is 20-35% depending on the income.

If, however, the resident received income outside Cyprus or Malta, it will not be taxed if this foreign income is not introduced into their territory.

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However, in some European countries the taxation system includes a special concept of Non-Habitual Resident. Domicile is determined by the permanent place of residence of a person. Non-Habitual Resident is someone who does not reside permanently in the territory of a given country.

But, for example, in Cyprus there is a legal possibility of becoming a tax resident in just 60 days. However, you must meet certain conditions, one of which is NOT to live 183 days in any other country, and therefore not to be its tax resident.

There is no residency requirement in Malta. Under the Malta residence permit program in order to become a tax resident, you must also NOT live 183 days a year in any other country and pay annual income tax at a rate of 15% of income received outside of Malta. The minimum annual tax is 15 thousand euro.

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