‘Very difficult for founders’: Danish investors pushback on proposed wealth tax

A wave of unease is rippling through Denmark's startup and investment community following the announcement of a planned wealth tax on the rich.

The country’s prime minister, Mette Frederiksen, said her Social Democrat party would introduce a 0.5% wealth tax on fortunes exceeding 25 million Danish kroner (€2.3m) – if the party gets reelected in a snap election due later this month. Frederiksen said the measures were intended to reduce inequality, which has been steadily growing in Denmark in recent years.

The move has sparked widespread criticism from the country's startup ecosystem. A widely expressed concern among founders and investors is that the tax will extend to unrealised gains for business owners and their shareholders. Under that scenario, startup founders would be taxed on their business valuation, rather than what’s actually in the bank.

“This could make things very difficult for founders,” Thea Messel, founding partner at Copenhagen-based venture capital firm Unconventional Ventures, tells Impact Loop.

Investors like Messel fear that a wealth tax would stifle the growth of startups, especially in critical areas such as climate innovation, biotech, and health.

“Putting that kind of pressure on early-stage founders who are building the solutions that create jobs and move our society forward will be damaging – particularly for the green transition, where we rely so heavily on new innovation,” says Messel.

Stefan Maard, general partner at Climentum Capital, tells Impact Loop he thinks the proposal is a “terrible idea.”

Even though I support taxes and welfare, my objection is purely mathematical,” he explains. “This tax would lead to a net loss of revenue for Denmark over just a few years. At the same time, it would stifle investments in the next generation of innovation.”

Investors like Maard fear the wealth tax will trigger capital flight, causing Denmark to lose more in tax revenue than it would gain. It’s a fear with a fairly recent precedent.

Following Norway’s tax hikes on unrealised gains for businesses in 2022, dozens of wealthy entrepreneurs and businesses relocated out of the country.

Just this week, the chairman of shipping giant Maersk, Robert Mærsk Uggla, and Henrik Andersen, the CEO wind power firm Vestas, separately said that they would relocate out of Denmark if a wealth tax was introduced, according to news reports.

Sara Rywe, general partner at Sweden-based venture capital firm ByFounders, says that she is already witnessing the potential consequences of a wealth tax first hand.

In a social media post this week, the investor claimed to have received a text message from one of Denmark’s “next unicorns.” The message read: “We’ll have to move to the UK if this goes through.”

Despite the widespread concerns, a recent poll shows that over half of Danish voters are in support of a wealth tax.