1. Introduction
In recent years, with the rapid development of the cryptocurrency market and the increasing understanding of crypto assets within the international community, the attitudes of governments and financial institutions towards cryptocurrency have been evolving. Initially, the Danish central bank took a negative stance on cryptocurrencies, advising clients against investing in them to avoid facilitating money laundering and other financial crimes. However, over time, Denmark has gradually adopted a more accepting approach to cryptocurrency. Recently, the Danish Tax Law Committee proposed that starting from 2026, unrealized cryptocurrency gains and losses be included in the taxation system, with the aim of aligning the tax treatment of cryptocurrencies with that of other investment products such as stocks and bonds. This paper introduces Denmark’s cryptocurrency tax and regulatory framework, to help readers better understand Denmark’s current cryptocurrency policies and the background of its transformation.
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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 data from the Organisation for Economic Co-operation and Development (OECD), Denmark’s tax revenue as a percentage of its GDP ranks the highest among its member countries, reaching approximately 46.3%. In Denmark’s tax system, the legislative role is played by the Parliament, and all tax laws must be signed by the Queen and at least one Cabinet Minister before becoming effective and being published. The management of tax affairs is the responsibility of the Danish Tax Agency, which oversees several functional agencies, the National Tax Tribunal, and the National Tax Administration Center (SKAT). It is important to note that Denmark’s autonomous territories—Faroe Islands and Greenland—have independent tax systems that are not governed by Denmark’s mainland tax system.
Denmark’s tax system is similar to Italy’s, with both countries’ tax systems divided into two main categories: direct taxes and indirect taxes. In Denmark, direct taxes are levied directly on the taxpayer’s income and include corporate income tax, personal income tax, labor market taxes, church taxes, property assessment taxes, and wealth taxes. Indirect taxes are those paid by taxpayers when purchasing goods or services, primarily including value-added tax (VAT), customs duties, carbon taxes, and excise duties.
2.2 Major Types of Taxes in Denmark
2.2.1 Personal Income Tax
In Denmark, any individual who resides in the country for more than six months is required to pay taxes to the Danish government. Residents are subject to full tax liability. Generally, personal taxes include state taxes, municipal taxes, labor market taxes, and church taxes. Denmark employs a progressive tax rate system for both salary income and capital gains, and the tax rate may vary depending on the city of residence, with the highest rate reaching up to 52.07%.
(1) State Tax: A progressive tax system with minimum and maximum tax levels based on personal income. The minimum tax base is calculated as personal income plus positive net capital income. In 2024, the minimum tax rate for this tax base is 12.01%. For single individuals, the maximum tax base is also composed of personal income plus positive net capital income. However, the calculation of the maximum tax takes into account an 8% labor market tax, and a 15% tax is levied on income exceeding DKK 588,900 (2024 standard).
(2) Municipal Tax: Local income tax, also known as municipal tax, is calculated based on taxable income with a uniform tax rate, which varies depending on the city. In 2024, the average municipal tax rate across Denmark is 25.067%.
(3) Labor Market Tax: This tax is levied at a rate of 8% on personal income.
(4) Church Tax: The church tax is levied at a uniform rate, varying based on the city. In 2024, the average church tax rate across Denmark 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). Upon registration in Denmark, individuals must declare whether they are subject to church tax.
(5) Capital Gains Tax: According to Denmark’s rules for 2024, if capital gains from shares do not exceed DKK 122,000 (applicable to married couples), a 27% tax rate applies. If capital gains exceed this amount, the tax rate on the excess portion increases to 42%.
(6) Other Taxes: This section primarily concerns foreign nationals. For example, scientists working in Denmark or sent to Denmark can apply for a unified tax rate of 27% on their total salary, with the benefit period lasting up to 84 months, though there are many eligibility conditions. Additionally, the 27% unified tax rate does not cover all income, and is calculated based on cash wages, taxable value of employer-provided phones/internet services, company cars, and taxable health insurance paid by the employer. All other income is taxed according to normal tax rules. It is worth noting that no deductions are allowed from income subject to the unified tax rate. After 84 months, income will no longer benefit from the unified tax rate and will be taxed at the regular tax rate.
2.2.2 Corporate Income Tax
Under Danish tax law, any company registered in Denmark is considered a Danish tax resident, meaning that all its income is subject to taxation. The corporate income tax rate for ordinary businesses is 22%, but only depreciation and operating expenses directly related to the business are deductible from taxable income. In determining taxable income, tax reductions and tax depreciation must be subtracted from the company’s total revenue. It is important to note that since business 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, Denmark imposes a 25% tax rate on oil and gas companies, with restrictions on the ability to deduct losses from other income within the Danish oil and gas upstream activities.
In accordance with Danish Tax Law, permanent establishments (PE) and real estate located abroad are subject to tax treatment based on the territoriality principle. This means that Danish companies are not taxed on their global income. Instead, income derived from permanent establishments outside Denmark or foreign real estate is excluded from Denmark’s taxable income. For non-resident companies, only profits derived from activities within Denmark are subject to taxation. The corporate income tax rate is a statutory 22%.
2.2.3 Value-Added Tax (VAT)
Denmark levies VAT on the sale and import of goods and services within the country, with a standard rate of 25% on the net price of goods or services. However, exports of goods and services are exempt from VAT. Denmark also provides VAT exemptions for certain services, including finance, insurance, healthcare, education, and passenger transportation.
Businesses involved in exempt VAT activities are not required to register or pay VAT. However, they also cannot claim VAT refunds on the raw materials or services purchased for such activities. On the other hand, businesses engaged in zero-rated activities are required to register for VAT but do not actually pay VAT. These businesses are not required to include VAT in the pricing of goods or services, and they have the right to claim VAT refunds on goods or services provided by their suppliers.
2.2.4 Excise Taxes
Excise taxes in Denmark are levied only when goods are sold or brought into the country. Companies importing goods into Denmark or manufacturing goods within Denmark must register with the Danish Tax Agency to fulfill their excise tax obligations. Excise taxes are imposed on specific goods, including but not limited to petroleum products, certain types of packaging materials, alcoholic beverages, tobacco, chocolate and candies, and coffee.
Excise tax rates vary by product category. For alcoholic beverages, there are two tax brackets: spirits with an alcohol content above 22% are taxed at a rate of 100%, while alcoholic beverages with less than 22% alcohol are taxed at 50%. Tobacco products are also taxed at different rates depending on the type of product. Notably, excise tax on tobacco products is levied at the production stage.
3. Denmark’s Cryptocurrency Tax Policy
3.1 Classification of Cryptocurrencies in Denmark
In December 2013, the Danish Financial Supervisory Authority (FSA) issued a statement confirming that Bitcoin (and other cryptocurrencies) are not considered currency. In March 2014, the Danish central bank issued a similar statement. In early 2018, the Danish Tax Council ruled that profits from cryptocurrency trading are taxable, meaning that cryptocurrencies are considered speculative assets in Denmark. At that time, there was no clear regulatory framework, and no official regulatory body was responsible for managing or regulating cryptocurrencies. Investors were expected to bear the investment risks.
3.2 Current Status of Denmark’s Cryptocurrency Tax Policy
3.2.1 Overview of the Current Situation
The Danish government treats cryptocurrency gains as capital income and requires investors to evaluate their cryptocurrency portfolio annually. Additionally, Denmark allows investors to offset their gains with investment losses.
Furthermore, Denmark plans to incorporate cryptocurrencies into the same tax framework as traditional investment products, aiming to align the tax treatment of cryptocurrencies with that of stocks, bonds, and other investment types. For example, the “thin capitalization rule” in Denmark’s tax system prevents companies from reducing their taxable base by borrowing rather than using equity financing, thus preventing tax avoidance through capital thinning. Specifically, if a company’s debt-to-equity ratio is too high, the tax authority may adjust the tax treatment to ensure fairness. Similarly, the “controlled foreign company rule” applies to companies with control in Denmark that operate controlled foreign companies in other countries. If these companies fail to repatriate profits to Denmark, the Danish tax authority may treat these un-repatriated profits as income sourced from Denmark and tax them accordingly. These coordination rules are designed to strengthen Denmark’s control over the cryptocurrency industry and simplify the taxation of crypto assets.
In recent years, as the cryptocurrency market has developed rapidly, the Danish government has paid significant attention to the tax issues in this emerging field. As a result, the government has been actively and deeply researching the taxation system for the crypto industry. This series of efforts eventually led to the successful proposal of a tax on unrealized capital gains from crypto assets.
3.2.2 Tax on Unrealized Gains
The Danish government is undertaking an innovative attempt with the release of a tax proposal for cryptocurrency assets by the Danish Tax Council. The formal legislative process is expected to begin in early 2025, with the tax minister submitting the bill to Parliament. The proposal suggests that starting from January 1, 2026, a market price-based tax system will be implemented for cryptocurrencies, imposing taxes of up to 42% on unrealized gains from cryptocurrency assets. Notably, this proposal was made against the backdrop of Denmark’s rising cryptocurrency usage and aims to be retroactive to include crypto assets acquired since Bitcoin’s inception in 2009. The proposal also allows investors to offset losses against gains.
The proposal is comprehensively outlined in a detailed 93-page report, with the central goal of aligning the cryptocurrency tax system with traditional financial instruments while addressing the long-standing challenges in the crypto industry. Danish Tax Minister Rasmus Stoklund emphasized the necessity of this reform, pointing out the unfair tax burden faced by cryptocurrency investors under current regulations. Minister Stoklund stated, “In recent years, cryptocurrency investors in Denmark have often faced excessive taxation. The committee’s proposed recommendations will ensure fair and reasonable taxation of cryptocurrency investors’ gains and losses.”
4. Denmark’s Cryptocurrency Regulatory Framework
4.1 Financial Business Act
Under the Financial Business Act (lov om finansiel virksomhed), Denmark has established strict entry requirements for businesses entering the cryptocurrency market. Before offering cryptocurrency services, companies must obtain authorization and notify the Danish Financial Supervisory Authority (FSA) at least 40 working days before providing services. Furthermore, according to Chapter 9 and Section 181 of the Act, if a company operates as a financial holding company or a mixed holding company, it must follow a specific registration process. When amending the company’s bylaws, such financial firms must submit a date-stamped copy of the bylaws, which includes all revised content, to the Danish Business Authority, which will forward the copy to the Danish FSA. These stringent registration and authorization measures are designed to prevent potential risks from the outset, laying a solid foundation for the future development of the cryptocurrency sector.
Additionally, the Act emphasizes that if a company chooses to establish its headquarters or registered office in Denmark solely to avoid the legal oversight of its primary clients’ countries, the Danish FSA will refuse to grant authorization. This strict regulation effectively maintains the regulated development of Denmark’s cryptocurrency industry, reducing legal risks posed by foreign companies and ensuring robust protection for the legal rights of related businesses and employees.
To more efficiently and swiftly respond to risk management needs, the Act grants the Danish FSA (or other legally authorized Danish agencies) special powers to enter the premises of cryptocurrency service providers (excluding asset-backed tokens and electronic money tokens) without a court order. The FSA may require individuals involved in cryptocurrency transactions, the issuers of asset-backed tokens, the issuers of electronic money tokens, and cryptocurrency service providers to provide information and cooperate in necessary inspections. This measure aims to regulate the cryptocurrency industry more effectively and combat illegal activities, safeguarding the assets of cryptocurrency investors.
4.2 Danish Alternative Investment Fund Managers Act
While the Financial Business Act focuses on preventive measures and ongoing supervision, the Danish Alternative Investment Fund Managers Act (lov om forvaltere af alternative investeringsfonde) emphasizes the regulation of events that have already occurred and may harm cryptocurrency investors’ interests. According to this law, the Danish FSA has the authority to revoke all or part of an alternative investment fund manager’s license and even prohibit the marketing of the alternative investment fund managed by the company. These harsh measures apply in various circumstances, including but not limited to: obtaining a license based on false information or other fraudulent means, violating anti-money laundering laws, and failing to use the license within 12 months of obtaining it.
To prevent conflicts of interest, the law requires alternative investment fund managers to establish a risk management function that is functionally and structurally separate from the operating unit (including the portfolio management function) and capable of consistently and effectively identifying, measuring, managing, and monitoring all risks associated with the investment strategies, objectives, and risk profiles of each alternative investment fund under management.
If the management of an alternative investment fund fails to take necessary measures when significant losses occur or imminent risks of significant losses arise, they may face fines or imprisonment for up to 4 months, provided that they are not subject to higher penalties under other laws. Individuals associated with the fund manager who provide false or misleading information to public authorities, the public, legal entities, or investors in the alternative investment fund or fund manager, or who commit significant or repeated negligence leading to investor losses, may also face fines or imprisonment for up to 4 months.
This regulatory framework takes a more stringent approach to post-event enforcement, effectively curbing behaviors that harm cryptocurrency investors’ interests. The severe penalties serve as a deterrent against potential violations, helping to maintain order in the cryptocurrency industry, reinforce the preventive role of the law, and further strengthen the government’s regulatory power over the industry.
4.3 Anti-Money Laundering and Terrorist Financing Prevention Act
The Anti-Money Laundering and Terrorist Financing Prevention Act (lov om forebyggende foranstaltninger mod hvidvask og finansiering af terrorisme) requires that if a company or individual knows, suspects, or has reasonable grounds to suspect that a transaction, fund, or activity is related to money laundering or terrorist financing, they must immediately notify the Anti-Money Laundering Secretariat. This also applies to potential customers who inquire about conducting transactions or activities. Cryptocurrency-related transactions and investment activities are subject to regulation under this law.
The Anti-Money Laundering Secretariat operates independently as the national central unit, with the following tasks: receiving and analyzing reports of suspicious transactions, as well as other information related to money laundering or terrorist financing; disseminating its analysis results and any other relevant information to the competent authorities, institutions, and organizations in cases of suspected money laundering or terrorist financing; and collaborating with other agencies to prepare and update the national risk assessment for anti-money laundering efforts, identifying, evaluating, understanding, and mitigating current money laundering risks.
This approach reflects Denmark’s firm determination and efficient execution in combating money laundering and terrorist financing. By requiring companies and individuals to promptly report suspicious activities, Denmark significantly enhances its ability to monitor and detect such crimes. The independence and professionalism of the Anti-Money Laundering Secretariat ensure that it handles related information impartially and accurately. Additionally, its close cooperation with other agencies helps form a comprehensive and effective anti-money laundering network, further enhancing the nation’s financial security. Overall, this approach plays a critical role in maintaining the nation’s financial order and social stability.
4.4 Other Regulatory Measures
The Danish government has officially announced that starting in 2027, it will initiate international efforts to exchange data related to Danish cryptocurrency investors. Additionally, a new bill is expected to be introduced in early 2025, requiring cryptocurrency service providers to report their clients’ transaction details to authorities. This move aims to strengthen oversight of the approximately 300,000 cryptocurrency investors in Denmark and curb potential tax evasion.
This decision demonstrates Denmark’s proactive and forward-thinking approach to maintaining cryptocurrency tax order and ensuring financial security. By engaging in international data exchanges, Denmark hopes to obtain a more comprehensive understanding of cryptocurrency investor transactions, providing more precise information for tax oversight. The requirement for service providers to report transaction details further strengthens regulatory efforts, enabling the detection and resolution of potential tax evasion issues. This is a significant step toward maintaining fairness in cryptocurrency taxation and ensuring financial stability in Denmark.
5. Conclusion and Outlook
Regarding tax policies, Denmark has innovatively proposed a tax on unrealized gains from cryptocurrency assets in its current tax system, while also allowing investors to offset losses against gains. This measure is aimed at potentially alleviating the perceived tax unfairness faced by cryptocurrency investors, but it could also lead to cash flow challenges and distort long-term investment decisions. Therefore, the Danish government must carefully balance various factors when implementing this proposal to ensure it effectively addresses tax fairness without causing unnecessary negative impacts on investors and the market. The actual results of this initiative are eagerly anticipated by various stakeholders.
In terms of regulatory measures, Denmark has taken a comprehensive and meticulous approach to the cryptocurrency industry, striving to create a healthy and orderly environment for its development. By strictly regulating company registration and authorization processes, Denmark ensures that all businesses in the cryptocurrency sector meet legal requirements, controlling industry quality from the outset. Additionally, Denmark has granted supervisory authorities the power to conduct flexible and timely inspections to ensure compliance during business operations. The country has implemented a tiered penalty system for violations. Minor infractions may result in service suspensions or fines as a warning, while severe violations can lead to license revocation or imprisonment. These measures effectively limit potential risks in the cryptocurrency industry and safeguard the stability and security of the nation’s financial system.
It is expected that Denmark will continue to strengthen and improve its tax and regulatory framework for cryptocurrency assets, which will be a key step in maturing the Danish cryptocurrency industry. The country will also refine its supervisory structure to enhance the efficiency of cryptocurrency regulation, ensuring financial market stability and market order. Through these ongoing efforts, Denmark is positioning itself to play a more active role in the global cryptocurrency arena, contributing to the industry’s standardization and growth.
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