Crypto Taxes in the Denmark: All You Need to Know!
The tax laws of Denmark apply to Danish tax residents trading cryptocurrency within and outside the country. Under Danish laws, cryptocurrencies are viewed as a payment system that enables unregulated transactions to be carried out. Based on this, SKAT (Denmark’s tax authority) rules that cryptocurrency cannot be subject to the country’s Tax Control Act.
Which Taxes Apply?
SKAT views cryptocurrency transactions as a personal matter which invariably means that all gains gotten from crypto assets are exempted from tax while the losses are not tax deductible. However, there are two exceptions where the gains are taxed and the losses deductible, and they are given as follows.
Trading in crypto assets
This applies if you obtained your digital coins as a speculative investment with the intent of reselling for profit at a later date. This exception applies to all private individuals mining or trading in cryptocurrencies. To determine if there was intent to resell, SKAT requires that an individual provides the following information for assessment:
- Time of cryptocurrency acquisition
- The purpose of the acquisition
- The amount used to purchase the cryptocurrency
- The academic interest and background of the person buying the cryptocurrency
- The pattern of trade
If you bought your digital coins as part of a for-profit business e.g. a large mining and trading business. Under Denmark’s taxation laws, the following factors must be assessed to know if a business qualifies for this exception:
- The frequency and number of cryptocurrencies traded
- The suitability of the cryptocurrencies to return a profit
- The professional and systematic features of the business
- External financing of the business through bank loans, leasing, trade credit, venture capitalists etc.
- The relative and total weight of the company in the taxpayer’s economy
- The professional and educational background of the taxpayer operating the business
To determine gains and losses on multiple transactions, SKAT recommends that you use the First In First Out (FIFO) Principle. According to FIFO, the cryptocurrencies you first buy are also the first ones you sell. Each transaction must also be calculated separately, which invariably means that you cannot use the profit from one transaction to offset the loss from another transaction.
How much tax do you have to pay on crypto?
Personal crypto trading
For individuals filing a personal income tax return, the tax on gains is approximately 56%, just like the country’s normal salary income, while the deductible losses are about 30%. The final taxation rate will depend on the local municipality tax rate and if one is liable to pay the top bracket tax.
Business crypto trading
If your crypto activities are registered as a company, your gains and losses will be taxed at the normal corporate income tax rate of 22%.
Cryptocurrencies received as a gift are deemed tax-free as SKAT believes that the taxpayer did not ask for the gift. Besides, the presence of other witnesses to the transfer of the gift is also a factor for the tax-exemption.
In the case of a hard fork, the new forks will be treated the same way as the original crypto asset.
Concerning airdrops, you are liable to pay taxes on only the value of the gifted cryptocurrency at the time it is awarded to you, assuming the value is not negligible. Nonetheless, a later increase in the value of the awarded cryptocurrency will not affect the calculation of your income.
Income on each cryptocurrency gotten through mining is subject to tax. The profit realised from the sale of the mined cryptocurrencies will also be taxed. However, this tax will only be applied on the difference between the value of the mined cryptocurrency and the costs incurred.
Denmark follows the ruling of the European Union on cryptocurrency that ruled that digital coins cannot be charged with VAT because they are only used as a means of exchange.
Tax for ICOs
ICOs are not under any tax regulations in Denmark. According to the Danish Financial Supervisory Authority (FSA), tokens which are typically offered in ICOs are not a transferable security and thus, cannot be seen as electronic money.
Which tax forms do you report crypto on?
Annual income and liability determine the amount of tax paid in Denmark. To report your crypto transactions, you will have to file taxes on either of these two forms:
- Personal income tax return form (for personal crypto transactions)
- Corporate income tax return form (for companies)
During cryptocurrency transactions, SKAT advises that individuals keep certain information that can be used to calculate one’s profit and loss when filing for taxes. These documents can be given in the following forms:
- Vouchers on payment, orders, sales, and purchases
- Information about wallet provider
- Documentation showing agreement with wallet provider
- Emails and any other correspondence detailing transactions
- Printout of entire cryptocurrency holdings
- Printout of transactions
- Public code or address of your wallet
- Documentation showing the type of agreement in place as at the time of acquisition and any other successive changes, such as; Bank account statements related to the selling and acquisition of cryptocurrencies and any other relevant documents of cryptocurrency transactions that could prove ownership
To evaluate whether the claims made by a company in its tax returns are correct, SKAT usually requests for the following documentation:
- Documentation of the calculated gains and losses
- Information detailing the creation of wallets
- Documentation showing the purpose of purchasing cryptocurrencies
- Information showing how a user profile is created on a crypto-exchange
- Documentation of the crypto-exchange terms and conditions
- A summary of all crypto-exchange transactions and the continued holding of crypto assets