This article will introduce Denmark's cryptocurrency tax and regulatory system, aiming to help readers better understand Denmark's current cryptocurrency asset policies and their transformation background.

Written by: TaxDAO

1. Introduction

In recent years, with the rapid development of the cryptocurrency market and the deepening understanding of cryptocurrencies by the international community, the attitudes of governments and financial institutions towards cryptocurrencies have gradually evolved. Initially, the Danish Bank held a negative stance on cryptocurrencies, advising customers against engaging in cryptocurrency investments to avoid facilitating money laundering and other financial illegal activities. However, over time, Denmark has gradually shown a more accepting attitude towards cryptocurrencies.

The Danish Tax Law Committee recently proposed that starting in 2026, unrealized cryptocurrency gains and losses will be included in the tax category, aiming to align the cryptocurrency tax system with the existing regulations for other investment products such as stocks and bonds. This article will introduce Denmark's cryptocurrency tax and regulatory system to help readers better understand Denmark's current cryptocurrency asset policies and their transformation background.

2. Overview of Denmark's Basic Tax System

2.1 Denmark's Tax System

Denmark is a typical high-tax, high-welfare developed country. According to statistics from the Organisation for Economic Co-operation and Development (OECD), Denmark has the highest tax-to-GDP ratio among member countries, reaching approximately 46.3%. The Danish Parliament plays a legislative role in the tax system, and all tax laws must be officially enacted and published after receiving the signatures of the Queen and at least one cabinet minister. The Danish Tax Ministry is responsible for tax administration, overseeing several functional agencies, the National Tax Tribunal, and the National Tax Administration Center (SKAT). It is noteworthy that Denmark's autonomous territories—Faroe Islands and Greenland—have independent tax systems and are not subject to the Danish mainland tax system.

Denmark's tax system is similar to the Italian tax system we previously discussed, with both systems primarily divided into two categories: direct taxes and indirect taxes. In Denmark, direct taxes refer to taxes deducted directly from taxpayers' income, including corporate income tax, personal income tax, labor market supplementary tax, church tax, property assessment tax, and property tax. Indirect taxes are taxes paid by taxpayers when purchasing goods or services, mainly including value-added tax, customs duties, carbon emissions tax, and excise taxes.

2.2 Main Types of Taxes in Denmark

2.2.1 Personal Income Tax

In Denmark, any individual residing for more than 6 months is required to fulfill tax obligations to the Danish government. For individuals residing in Denmark, they bear comprehensive tax responsibilities. Generally, the types of taxes individuals must pay include state tax, municipal tax, labor market tax, and church tax. Denmark implements a progressive tax rate system for personal salary income and capital gains, and this rate may vary depending on the city of residence, with the highest tax rate reaching 52.07%.

(1) State Tax: A progressive tax system is applied, divided into minimum and maximum tax levels, assessed based on individual income. The calculation of the minimum tax base is based on personal income plus positive net capital income. In 2024, the minimum tax rate corresponding to this tax base is 12.01%. For single individuals, the maximum tax base is similarly composed of personal income plus positive net capital income. However, when calculating the maximum tax, an 8% labor market tax is deducted first, and then a 15% tax rate is applied to the portion exceeding 588,900 Danish kroner (2024 standard).

(2) Municipal Tax: Local income tax, also known as municipal tax, is calculated based on taxable income and uses a uniform tax rate, which varies depending on the city. According to 2024 data, the average municipal tax rate nationwide is 25.067%.

(3) Labor Market Tax: The tax rate is 8% of personal income.

(4) Church Tax: Church tax is levied at a uniform tax rate, which varies depending on the city. The average church tax across Denmark in 2024 is approximately 0.65%. This tax is collected by municipal authorities but only applies to members of the Danish National Church (i.e., the Lutheran Church). When registering in Denmark, each individual must clearly indicate whether they should be included in the church tax collection.

(5) Capital Gains Tax: According to Denmark's regulations on capital gains in 2024, if the amount of capital gains does not exceed 122,000 Danish kroner (this standard applies to married couples), it is taxed at a rate of 27%. Once capital gains exceed this amount, the tax rate on the excess portion increases to 42%.

(6) Other Taxes: This mainly pertains to foreign nationals, such as scientists working in Denmark or dispatched to Denmark, who can apply for a unified tax rate of 27% on their total salary, with this preferential period lasting up to 84 months, although there are many conditions for qualification. Additionally, the 27% unified tax rate does not cover all income but is calculated based on cash salary, employer-provided telephone/internet services, the taxable value of company cars, and taxable health insurance paid by the employer. All other income outside of this will be taxed according to regular tax rules. It is important to note that no deductions are allowed from income subject to the unified tax rate. After exceeding 84 months, income will no longer enjoy the unified tax rate benefit and will be taxed at the ordinary tax rate.

2.2.2 Corporate Income Tax

According to Danish tax law, any company registered in Denmark is considered a Danish tax resident, meaning all its income is subject to taxation. The corporate income tax rate for ordinary businesses in Denmark is 22%, but only depreciation and expenses directly related to company operations are allowed to be deducted from taxable income. When determining taxable income, tax exemptions and tax depreciation must first be deducted from the company's total income. It is noteworthy that since operating costs and depreciation can be deducted from the tax base, the actual tax burden on businesses may be lower than the statutory 22% tax rate.

Additionally, according to Danish tax law, the tax treatment of permanent establishments (PE) and real estate located abroad follows the territorial principle. This means that Danish companies are not taxed on their income worldwide. Conversely, income from permanent establishments outside Denmark or foreign real estate is not included in Denmark's taxable income. For non-resident companies, only profits derived from income obtained within Denmark are subject to tax. The corporate income tax rate is a statutory 22%.

2.2.3 Value-Added Tax

Denmark levies value-added tax (VAT) on the sale and import of goods and services within its territory, with a standard tax rate of 25% on the pre-tax price of goods or services. However, exported goods and services are exempt from taxation. Additionally, Denmark has VAT exemption policies for certain specific services, covering finance, insurance, healthcare, education, and passenger transport.

For businesses engaged in VAT-exempt activities, they are not required to register for VAT or pay VAT, but correspondingly, they cannot apply for VAT refunds on raw materials or services purchased for such activities. For businesses engaged in zero-rated activities, they must register for VAT but are not required to actually pay VAT and do not need to include VAT in the pricing of goods or services. At the same time, these businesses have the right to apply for refunds of VAT included in the goods or services provided by their suppliers.

2.2.4 Excise Tax

In Denmark, excise tax is only payable when goods are sold or brought into the country. Any company importing goods into Denmark or producing goods within Denmark must first register with the Danish tax authorities to fulfill the obligation to pay excise tax. Excise tax is levied on specific goods, including but not limited to petroleum products, certain types of packaging materials, alcoholic beverages, tobacco, chocolate and candy, and coffee.

The excise tax rates in Denmark vary based on the type of goods. For alcoholic beverages, the tax rate is divided into two tiers: spirits with an alcohol content exceeding 22% are taxed at 100%, while alcoholic beverages with an alcohol content below 22% are taxed at 50%. For tobacco products, the tax rate also varies by type. It is noteworthy that the excise tax on tobacco products in Denmark is levied at the production stage.

3. Denmark's Cryptocurrency Tax Policy

3.1 Denmark's Classification of Cryptocurrencies

In Denmark, the Financial Supervisory Authority issued a statement in December 2013 confirming that Bitcoin (and other cryptocurrencies) is not considered currency, and in March 2014, the Danish central bank issued its own statement announcing a similar conclusion. The Danish Tax Council ultimately ruled in early 2018 that profits from cryptocurrency trading are taxable, meaning that cryptocurrencies are regarded as speculative assets, and thus cryptocurrencies are seen as a high-risk investment tool in Denmark, lacking a clear regulatory framework, with no official regulatory body managing and regulating them, leaving investors to bear the investment risks themselves.

3.2 Current Status of Denmark's Cryptocurrency Tax Policy

3.2.1 Overview of the Current Status

The Danish government views cryptocurrency gains as capital income and requires investors to assess their cryptocurrency asset portfolios annually. At the same time, Denmark allows investors to use investment losses to offset gains.

In addition, the Danish government plans to incorporate cryptocurrencies into the same tax rule system as traditional investment products, aiming to align the cryptocurrency tax system with existing rules for other investment types such as stocks and bonds. For example, the existing anti-thin capitalization rule in Denmark's tax system refers to limiting companies from reducing their tax base through borrowing rather than equity financing, thereby preventing tax avoidance through capital thinning. Specifically, if a company's debt-to-equity ratio is too high, the tax authorities may adjust its tax treatment to ensure tax fairness. Alternatively, the controlled foreign company rule applies to controlled foreign companies established by companies with control in Denmark in other countries. If these companies fail to repatriate profits to Denmark under certain circumstances, the Danish tax authorities may treat these unreturned profits as income sourced from Denmark and tax them. The coordination rules are primarily aimed at strengthening the Danish government's control over the cryptocurrency industry and reducing the original complexity of taxing cryptocurrency assets.

In recent years, against the backdrop of the rapid development of the cryptocurrency market, the Danish government has placed great importance on the tax issues of this emerging field. To this end, they have been actively and deeply researching the tax system for the cryptocurrency industry. This series of efforts ultimately led to the smooth introduction of the new proposal for taxing unrealized capital gains on cryptocurrency assets.

3.2.2 Tax on Unrealized Gains

The Danish government is undertaking an innovative attempt, with its tax law committee releasing a tax law proposal for cryptocurrency assets, with the formal legislative process expected to begin in early 2025, at which point the tax minister will submit the relevant bill to Parliament. The proposal suggests that starting from January 1, 2026, a market price-based tax system will be implemented for cryptocurrency assets, imposing a tax of up to 42% on unrealized gains from cryptocurrencies. It is noteworthy that this proposal was made against the backdrop of the increasing usage of cryptocurrencies in Denmark and plans to apply retroactively to cryptocurrency assets obtained since the birth of Bitcoin in 2009, while allowing investors to use investment losses to offset gains.

This proposal is comprehensively elaborated in a detailed 93-page report, with its core aim being to align the tax system for cryptocurrency assets with traditional financial instruments while addressing the long-standing challenges in the cryptocurrency industry. Danish Tax Minister Rasmus Stoklund emphasized the necessity of this reform and pointed out the unfair tax burden faced by cryptocurrency investors under current regulations. Minister Stoklund stated, "In recent years, cryptocurrency investors in Denmark have often suffered from heavy taxation. The committee's proposal can ensure a fairer and more reasonable taxation of the gains and losses of cryptocurrency investors."

4. Denmark's Cryptocurrency Regulatory Framework

4.1 Financial Business Act

Under the Financial Business Act (Danish: lov om finansiel virksomhed), Denmark has set strict entry requirements for companies entering the cryptocurrency asset market, requiring them to obtain authorization before providing cryptocurrency asset services and to notify the Danish Financial Supervisory Authority at least 40 working days before the first provision of services. Additionally, according to Chapter 9 and Section 181 of this regulation, if a company operates as a financial holding company or a mixed holding company, it must also follow specific registration procedures. When amending the company's articles of association, such financial enterprises must submit a dated copy of the articles of association to the Danish Business Authority, which should include all newly revised content. Subsequently, the Danish Business Authority will forward this copy to the Danish Financial Supervisory Authority. This series of strict registration and authorization control measures aims to prevent potential risks from the source and lays a solid foundation for the future development of the cryptocurrency asset industry.

Furthermore, the law emphasizes that if a company chooses to establish its headquarters or registered address in Denmark solely to evade the legal regulations of the country/region where its main clients are located, the Danish Financial Supervisory Authority will refuse its authorization application in accordance with the law. This strict regulation effectively maintains the normative development of Denmark's cryptocurrency industry, reduces legal risks that may arise from foreign enterprises, and provides a more solid and comprehensive guarantee for the legitimate rights and interests of relevant enterprises and employees.

To respond more efficiently and swiftly to risk management needs, this regulation grants the Danish Financial Supervisory Authority (or other Danish institutions authorized by law) special powers, allowing them to enter the business premises of cryptocurrency service providers at any time without a court order, except for asset-backed tokens and electronic money tokens, and to require individuals involved in cryptocurrency transactions (also excluding asset-backed tokens and electronic money tokens), issuers of asset-backed tokens, issuers of electronic money tokens, and cryptocurrency service providers to cooperate in providing information and conducting necessary inspections. This initiative aims to more effectively regulate the cryptocurrency asset industry, crack down on illegal activities, and ensure the safety of cryptocurrency investors' assets.

4.2 Danish Alternative Investment Fund Managers Act

If the Financial Business Act focuses on preventive measures and ongoing monitoring, the Danish Alternative Investment Fund Managers Act (Danish: lov om forvaltere af alternative investeringsfonde) places greater emphasis on regulating events that have already occurred and may harm the rights and interests of cryptocurrency investors. Under this law, the Danish Financial Supervisory Authority has the power to revoke all or part of the licenses of alternative investment fund managers and even prohibit the marketing activities of the alternative investment funds they manage. These severe measures apply to various situations, including but not limited to: obtaining a license based on false information or any other fraudulent means; violating the provisions of the Anti-Money Laundering Act; and failing to actually use the authorization within 12 months of obtaining it.

At the same time, to prevent conflicts of interest, this regulation requires alternative investment fund managers to establish risk management functions that are separate in function and hierarchical structure from the operating units (including portfolio management functions) and that can consistently and effectively identify, measure, manage, and monitor all risks related to the investment strategies, objectives, and risk conditions pursued by each alternative investment fund they manage.

If members of the management team of an alternative investment fund manager fail to take necessary measures in the event of significant losses or imminent significant loss risks, they will be subject to fines or a maximum of 4 months of imprisonment, provided that they should not be subject to higher penalties under other laws. Individuals associated with alternative investment fund managers who provide false or misleading information to public institutions, the public, any legal entity, or investors in the alternative investment funds managed by the manager, or who commit significant or repeated negligence that may cause losses to investors, may also be subject to fines or a maximum of 4 months of imprisonment.

It is evident that this regulation adopts a stricter attitude towards post-event handling. The severe penalties can effectively deter behaviors that harm the interests of cryptocurrency investors, help maintain good order in the cryptocurrency industry, strengthen the preventive role of the law, and further enhance government oversight of the cryptocurrency industry.

4.3 Anti-Money Laundering and Counter-Terrorism Financing Measures Act

The Anti-Money Laundering and Counter-Terrorism Financing Measures Act (Danish: lov om forebyggende foranstaltninger mod hvidvask og finansiering af terrorisme) stipulates that if a company or individual knows, suspects, or has reasonable grounds to suspect that a transaction, funds, or activity is related to money laundering or terrorist financing, they must immediately notify the Money Laundering Secretariat. This also applies to suspicions arising from inquiries made by potential clients attempting to conduct transactions or wishing to engage in transactions or activities. Cryptocurrency-related transactions and investment activities are also subject to regulation under the Anti-Money Laundering and Counter-Terrorism Financing Measures Act.

The Money Laundering Secretariat operates independently and autonomously, serving as the national central unit. Its tasks include: receiving and analyzing reports of suspicious transactions and other information related to money laundering, related upstream crimes, or terrorist financing; disseminating its analysis results and any other relevant information to competent authorities, institutions, and groups in cases of suspected money laundering, related upstream crimes, or terrorist financing; and collaborating with other institutions to prepare and update national risk assessments in the field of anti-money laundering to identify, assess, understand, and mitigate current money laundering risks.

This practice reflects Denmark's firm determination and efficient execution in combating money laundering and terrorist financing activities. By requiring companies and individuals to report suspicious situations promptly, it significantly enhances the monitoring and early warning capabilities against such criminal behaviors. Additionally, the independence and professionalism of the Money Laundering Secretariat ensure its impartiality and accuracy in handling relevant information. Furthermore, through close cooperation with other institutions, a more comprehensive and effective anti-money laundering network can be formed, further enhancing the country's financial security level. Overall, this practice is of great significance for maintaining national financial order and social stability.

4.4 Other Regulatory Measures

The Danish government has officially announced that starting in 2027, it will begin international data exchange concerning Danish cryptocurrency investors. Additionally, they expect to launch a new bill in early 2025 that will require cryptocurrency service providers to report customer transaction details to the authorities. This move aims to strengthen the regulation of approximately 300,000 cryptocurrency investors in Denmark and effectively curb potential tax evasion.

From this decision, it is evident that the Danish government is taking proactive and forward-looking measures to maintain the order of cryptocurrency taxation and ensure financial security. The Danish government hopes that through international data exchange, it can gain a more comprehensive understanding of the trading dynamics of cryptocurrency investors, providing more precise information support for tax regulation. At the same time, requiring service providers to report transaction details further strengthens the regulation of cryptocurrency transactions, helping to identify and address potential tax evasion issues in a timely manner, which is of great significance for maintaining fairness in Denmark's cryptocurrency taxation and financial stability.

5. Conclusion and Outlook

In terms of the tax system, Denmark has innovatively proposed a tax on unrealized gains from cryptocurrency assets within its current tax framework and clearly stipulated that cryptocurrency investors can use investment losses to offset gains. This measure aims to potentially alleviate the unfair tax issues currently faced by cryptocurrency investors, but it may lead to cash flow constraints for investors and distort long-term investment decisions. Therefore, the Danish government needs to carefully weigh various factors when implementing this proposal to ensure that it effectively addresses tax unfairness while avoiding unnecessary negative impacts on investors and the market, with its actual effectiveness being highly anticipated by various sectors of society.

In terms of the regulatory system, Denmark has adopted a series of detailed and comprehensive measures aimed at creating a healthy and orderly development environment for the cryptocurrency industry. First, by strictly regulating the company registration and authorization processes, Denmark strives to ensure that all enterprises engaged in cryptocurrency business meet legal requirements, controlling industry quality from the source. On this basis, the Danish government has also delegated regulatory powers, allowing relevant departments to flexibly conduct inspections at any time to ensure compliance during business operations. For violations of regulatory provisions, Denmark has implemented a tiered penalty mechanism. Minor violators may face service suspensions or fines as a warning, while serious violators may face license revocation or even imprisonment, effectively deterring potential illegal activities. Through this series of measures, Denmark has not only effectively limited various risks that may occur in the cryptocurrency industry but also maintained the stability and security of the national financial system.

We firmly believe that Denmark will continue to strengthen and improve the tax and legal framework for cryptocurrency assets in the future, which is a key step in driving the maturity of Denmark's cryptocurrency industry. At the same time, Denmark will continue to refine its regulatory framework, continuously enhancing the effectiveness of its oversight in the cryptocurrency field to safeguard the stability of financial markets and market order. Denmark is steadily moving towards building an environment conducive to the healthy growth of cryptocurrencies, and through this series of arrangements, Denmark is expected to play a more active role on the global cryptocurrency stage, contributing to the standardization and prosperity of the industry.

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