Denmark Crypto Tax

Denmark is considered one of the better jurisdictions from an income tax perspective because it offers tax incentives, has an extraordinary network of international tax agreements, and control mechanisms to avoid shortcuts which save the economy while businesses can also grow in a way that will allow innovation.

The strongest authority in respect of national tax rules and timely collecting of taxes from individuals and businesses is the The Danish Tax Agency. It combats fraud, provides explanations regarding the taxation rules, and cooperates with foreign tax authorities to prevent international tax evasion and provide fairness within taxation. Furthermore, it has already managed to publish the rules for crypto taxation.

They do not consider virtual currencies as fiat money; hence, they categorize them as speculative assets, and depending on specific activities regarding them, those very well might trigger a taxable event. The taxes will depend on the type of investments made, the profits earned, and the municipality in which the crypto businesses are based. To make the calculation as exact and proper as possible, it is relevant to keep a record and document all crypto transactions.

The following information should be provided when requested by the authority:

• Details of the crypto wallet service provider, contract, and public key
• Documentation of cryptocurrency holdings and transactions
• Bank statements that show purchases and sales of cryptocurrency
• Proof of ownership for the declared cryptocurrencies
• Emails and other messages regarding crypto activities
• Records of orders, payments, purchases, and sales made in cryptocurrencies

Advantages of the Danish Tax System

It may be noted that with over 80 international agreements on the avoidance of double taxation, Denmark offers an attractive regime that tries to protect businesses and persons operating economic activities in many countries from being obliged to pay tax on the same income twice. Their further aim is to avoid tax evasion and enhance transparency. These agreements do not provide detailed taxation rules for each and every taxable event but establish which country has a right to tax a taxpayer within the national taxation framework.

Denmark also has many tax incentives that crypto businesses may be entitled to. As a business expense, for instance, the R&D expenses may be written off immediately, or a business may decide to take tax depreciation in the same year and the succeeding four years on the basis of straight-line depreciation. Although loss-making businesses cannot directly write off the R&D expenses, they will still have the opportunity to claim an advantage through an application for payment that corresponds to the Corporate Income Tax value of negative taxable income. The payment cannot exceed 5.5 mill. DKK – approx. 737,000 EUR – which corresponds to a tax loss associated with R&D expenses of 25 mill. DKK (3 mill. EUR).

The current percentage for tax deduction of R&D expenses is 108%, which should reach 110% by the year 2026. On the other hand, only actually incurred R&D expenses may be included in the request for the cash payment from the Danish Tax Agency. The excess of such deduction over 100% shall be negative taxable income that increases the net operating loss, carried forward.

Another important advantage is the fact that some crypto-activities are taxed, while quite a few of them are exempt from taxes, including but not limited to the following:

• Buying cryptocurrencies with fiat currencies
• Holding of cryptocurrencies
• Transferring of cryptocurrencies between wallets belonging to one owner
• Giving of cryptocurrencies to charities approved by Danish Authorities
• Hard forking

Notwithstanding exemptions, the taxpayers have to maintain books for the transactions, as there would be requirements to calculate gains and losses, for example, post-sales of cryptocurrencies or any other event leading to a tax liability. Secondly, some crypto economic activities are yet to be clarified, and keeping records may be useful in consulting with professional tax advisors. If you want to get specific feedback, please contact our dedicated team here at Regulated United Europe (RUE).

Corporate Income Tax

The standard Corporate Income Tax rate is 22%. Danish resident companies are taxed on income earned worldwide; however, they are exempt from tax on income derived through permanent establishments and real estate situated abroad. Non-resident companies are obliged to pay the tax only from the income derived in Denmark. A company is considered a tax resident in Denmark when it is established according to Danish legislation and registered with the Register of Companies or has its place of effective management in Denmark. Taxable income is defined as the result of the subtraction of business expenses, such as interest and depreciation, from the results of the business operation. The income taxation of crypto companies is based on general law.

Tax returns are electronically filed within six months after the close of the accounting year. Enterprises must pay Corporate Income Tax payable, on an actual basis in two installments, by the 20th of March and the 20th of November. The amount shall be computed at 50% of the average of the last three years’ final Corporate Income Tax. The final tax is due on the 20th of November of the next year.

Capital Gains Tax

Capital gains are taxed for companies at a 22% rate of Corporate Income Tax. Generally, capital gains from bonds and debts, and the sale of listed non-group or non-subsidiary shares are taxable, and generally, the sale of tangible and intangible assets is taxable.

No Capital Gains Tax applies to the following:

• The sale of unlisted shares by Danish corporate shareholders
• The sale of listed shares by a group or subsidiary
• The sale of the shares in a Danish company by foreign shareholders to a third party
• Liquidation and redemption proceeds provided a recipient meets the conditions

Capital gains are thus taxed at a 42% tax rate in the case of an individual. Sales and trades of cryptocurrencies, including stablecoins, are considered financial contracts, hence taxable. Once the sale has been executed, a profit or a loss needs to be calculated for each individual transaction, since one cannot deduct a loss incurred from one crypto transaction against the profit received from another crypto transaction. The exchange of one type of cryptocurrency for another type of cryptocurrency is also taxable because it’s treated as a sales transaction for tax purposes. The gains from multiple purchases are calculated by using the FIFO method, through which cryptocurrencies purchased first in line should be the first to sell.

Value-Added Tax

In Denmark, a 25% standard VAT is imposed, normally on all supplies of products and services supplied in Denmark. It is the suppliers who have to collect and report the VAT. Danish VAT is also levied on imports from non-EU territories, intra-Community acquisitions from EU member states, and purchases of most services from foreign suppliers.

Generally, taxable persons recover the VAT charged by their suppliers using the invoice/credit method, where the purchases related to the transactions are subject to VAT. VAT recovery is available either by way of deduction in the VAT payable or by submitting a separate application.

While most economic activities related to crypto are subjected to VAT, the crypto exchange activities are not subjected to VAT and are in line with the decision made by CJEU. In 2015 the court made a decision that exchange of cryptocurrencies for fiat money for the purpose of VAT should be treated as financial service and hence was VAT-free just like legal tenders.

Withholding Tax

In Denmark, the withholding tax standard rate is 22% and is usually applied to royalties, dividends as well as interest. Most often, it can be reduced under a double taxation agreement applicable if the paying company qualifies.

The Withholding Tax is either eliminated or reduced in the following cases:

• Excluded are dividends paid to a parent company resident in another EU country or a country with which Denmark has a double taxation agreement, when the EU’s Parent-Subsidiary Directive applies
• Interest paid to a company that is a tax resident in the EU or a country with which Denmark has a double taxation agreement does not constitute an income.
• If the portfolio shareholder is resident in a country with which Denmark has a tax information exchange agreement, the rate is reduced correspondingly, and the difference between the higher rate and the lower rate is reclaimable.

Gift Tax

In Denmark, the Gift Tax rate amounts to 15%. Gifts transferred to children, grandchildren, or parents and not exceeding the annual threshold of 71,500 DKK (approx. 10,000 EUR), or transferred to spouses of children and not exceeding 25,000 DKK (approx. 3000 EUR) are exempt from tax. The same principles apply to crypto gifts.

How do I pay taxes on crypto in Denmark in 2024?

The Danish Tax Agency, SKAT, follows and develops rules and approaches concerning the value added tax treatment of cryptocurrencies. This is an attempt to make the process as fair as possible with regard to ensuring fair taxation of the income that can be achieved from trading and investing in such currencies, while at the same time ensuring that the process fosters and does not hamper innovation and further development of the market. Taxation of cryptocurrency in Denmark is provided for by SKAT – the Danish Tax Agency – through guidance and laid-down rules for taxpayers. This article will clearly outline how Denmark will tax cryptocurrency income in 2024.

Understanding Tax Liabilities

In Denmark, income from cryptocurrencies has been classified as either “personal income” or “capital income,” based on the nature of the activity engaged in by the investor. This classification is critical for determining the rate at which such an income should be taxed and how it needs to be declared.

Taxation of Personal Income

Where the trading of cryptocurrency or otherwise dealing with cryptocurrency is of a private nature, the revenues gained from these transactions are subject to income taxation as private income. The rates of taxation may vary but are generally high given that this is how it occurs with other types of private income.

Taxation of capital gains

Where the cryptocurrencies’ incomes are viewed as capital gains, such as in the case of a long-term investment, such gains are usually subjected to a different, mostly lower rate compared to the one on personal income.

Steps to Pay the Tax

Important points

• Legislative changes: Be updated on the latest changes in Danish tax legislation concerning cryptocurrencies, as the rules may change.
• Software Usage: Employ the use of any particular software for recording cryptocurrency transactions. This may help in the preparation of your taxes easily.
• Professional Consultations: If your case sounds complicated or when you have doubts about how you are supposed to show your income with cryptocurrency for tax purposes, consult a taxation professional expert for advice.

Conclusion

Taxation of cryptocurrencies in Denmark needs to be followed closely, and it is essential to understand the local tax rules. Neat documentation and by following the recommendations of SKAT, investors/traders would be in a position to be tax-compliant and avoid all possible penalties resulting from incorrect income declaration.

Table with the main tax rates in Denmark

If you want to have your specific business case reviewed and your taxes optimized in Denmark, then the team of dedicated and quality-focused legal consultants here at Regulated United Europe (RUE) will be more than glad to offer you tailored, value-added support in structuring your taxes in compliance with both Danish and international regulations. We also provide services in setting up a Danish crypto company, crypto-licensing, and financial accounting. Now, reach out to us to schedule a private consultation and build a foothold for a successful crypto business.

In addition, Regulated United Europe lawyers can provide legal support for crypto projects, assist in adaptation to MICA regulations.