Denmark is considered a favourable jurisdiction for tax purposes due to the available tax incentives, a considerable network of international tax agreements, and effective control mechanisms that safeguard the economy and allow businesses to grow sustainably but also in a way that fosters innovation.
The Danish Tax Agency is responsible for enforcing national tax regulations and the timely collection of taxes from individuals and businesses. Among many tasks, the authority tackles fraud, clarifies taxation rules, and cooperates with foreign tax authorities in order to prevent international tax evasion and ensure fair taxation. Also, it has already managed to publish rules for crypto taxation.
The tax authority doesn’t consider cryptocurrencies fiat money and instead classifies them as speculative assets, which means that certain activities related to cryptocurrencies can trigger taxable events. Taxes are calculated based on the nature of investments made, earned profits, and the municipality in which a crypto business is based. To ensure accurate and fair calculations, keeping track of and documenting all crypto transactions is of paramount importance.
The following information should be exposed upon the authority’s request:
- Information about the crypto wallet provider, including the agreement and the public key
- Records of the cryptocurrency holdings and transactions
- Bank statements displaying purchases and sales of cryptocurrencies
- Proof of ownership of reported cryptocurrencies
- Emails and other correspondence related to crypto activities
- Records of orders, payments, purchases, and sales involving cryptocurrencies
Advantages of the Danish Tax System
Denmark has over 80 international agreements on the elimination of double taxation. They’re designed to ensure that businesses and individuals engaged in economic activities in different countries are protected from having to pay taxes on the same income twice. Moreover, they seek to eliminate tax evasion and promote transparency. These agreements don’t specify detailed taxation rules for every taxable event and instead, they stipulate which country has the right to tax a taxpayer within the national taxation framework.
Denmark also has plenty of tax incentives that crypto businesses might be eligible for. For instance, research and development (R&D) expenses can be immediately written off or a business can choose to take tax depreciation in the same year and the following four years on the basis of straight-line depreciation. Although loss-making businesses can’t avail of an immediate write-off of R&D expenses, they can still find a way to benefit by applying for a payment equal to the Corporate Income Tax value of negative taxable income. The payment can’t exceed 5,5 mill. DKK (approx. 737,000 EUR), corresponding to a tax loss associated with R&D expenses of 25 mill. DKK (3 mill. EUR).
The tax deduction for R&D expenses is currently 108% and should reach 110% by the year 2026. However, only actually incurred R&D expenses can be included in the request for the cash payment from the Danish Tax Agency. The remainder of the deduction exceeding 100% is treated as negative taxable income that increases the net operating loss, which can be carried forward.
Another notable advantage is the taxation of certain crypto transactions as quite a few of them are tax-exempt, for instance:
- Purchasing cryptocurrencies with fiat money
- Holding cryptocurrencies
- Transferring cryptocurrencies between wallets owned by the same person
- Donating cryptocurrencies to charities approved by Danish authorities
- Hard forking
In spite of the exemptions, it’s still important to keep track of the transactions in case there is, for example, a need to calculate any gains or losses after the sales of cryptocurrencies or another taxable event. Also, certain crypto economic activities are yet to be clarified, and keeping records can be useful in consulting with professional tax advisors. Please reach out to our dedicated team here at Regulated United Europe (RUE) if you wish to receive detailed feedback.
Corporate Income Tax
The standard Corporate Income Tax rate is 22%. Danish resident companies are subject to tax on worldwide income but aren’t taxed on income sourced through permanent establishments and real estate located abroad. Non-resident companies are required to pay tax only on income sourced in Denmark. A company is considered a tax resident of Denmark if it’s established under Danish laws and registered with the Companies Register, or has a place of effective management in Denmark. Taxable income is calculated by subtracting such business expenses as interest and depreciation from the turnover of the business activities. Crypto companies are taxed in accordance with general law for income taxes.
Tax returns are submitted digitally within six months following the end of the accounting year. Companies must pay Corporate Income Tax due on a current-year basis in two equal instalments by the 20th of March and the 20th of November. The payment is calculated by taking 50% of the average of the last three years’ final Corporate Income Tax. The final tax bill is paid by the 20th of November in the following year.
Capital Gains Tax
For companies, capital gains are taxed at a 22% rate of Corporate Income Tax. 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 shares in a Danish company by foreign shareholders to a third party
- Liquidation and redemption proceeds provided that a recipient meets certain conditions
For individuals, capital gains are taxed at a 42% rate. Sales and trades of cryptocurrencies, including stablecoins, are treated as financial contracts and are therefore taxable. After the sale, it’s necessary to calculate a profit or a loss for each individual transaction, as it’s not possible to deduct a loss from one crypto transaction from a profit received from another crypto transaction. The exchange of one type of cryptocurrency for another type of cryptocurrency is also taxable, as it’s treated as a sales transaction for tax purposes. Multiple purchases are calculated by using the first-in-first-out (FIFO) method, which means that the cryptocurrencies that were bought first are the first ones to be sold.
In Denmark, the standard VAT rate is 25%, and it’s generally levied on all supplies of products and services provided in Denmark. Suppliers are responsible for the collection and reporting of 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.
Taxable persons can generally recover the VAT charged by their suppliers by using the invoice/credit method, provided that the purchases related to transactions are subject to VAT. VAT can be recovered either as a deduction in VAT payable or by submitting a separate application.
While many crypto-related economic activities are subject to VAT, crypto exchange activities are VAT-exempt, which is in line with the decision made by the Court of Justice of the European Union (CJEU). In 2015, the court ruled that the exchange of cryptocurrencies into fiat money should be treated as a financial service for VAT purposes and therefore should be VAT-exempt along with legal tender.
In Denmark, the standard Withholding Tax rate is 22% and is generally levied on royalties, dividends, and interest. Often the rate can be reduced in accordance with an applicable double taxation agreement if the paying company is eligible.
The Withholding Tax is either eliminated or reduced in the following cases:
- Dividends paid to a parent company in another EU country or a country with which Denmark has a double taxation agreement or when the EU’s Parent-Subsidiary Directive applies are exempt
- Interest paid to a company that is a tax resident in the EU or a country with which Denmark has a double taxation agreement is exempt
- If the portfolio shareholder is situated in a country with which Denmark has a tax information exchange agreement, the rate is reduced accordingly and the difference between the higher rate and the lower rate is reclaimable
In Denmark, the Gift Tax rate is 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.
If you wish to have your particular business case examined and optimise your taxes in Denmark, our team of dedicated and quality-focused legal consultants here at Regulated United Europe (RUE) will be delighted to provide you with tailored, value-added support in structuring your taxes in accordance with Danish and international regulations. We also offer Danish crypto company formation, crypto licensing, and financial accounting services. Contact us now to schedule a personalised consultation and set the stage for a successful crypto business.
At the moment, the main services of our company are legal and compliance solutions for FinTech projects. Our offices are located in Tallinn, Vilnius, Prague, and Warsaw. The legal team can assist with legal analysis, project structuring, and legal regulation.