Crowdfunding is a financing method where a large number of people (crowd) contribute small amounts to finance a project, a business, or an idea, typically via online platforms. It can be based on donations, reward-based contributions, loans (loan-based crowdfunding), or investments (equity-based crowdfunding).
Frequently Asked Questions About Crowdfunding
What is crowdfunding?
Crowdfunding is a form of financing where a company raises capital from a broad group of investors or contributors – typically via online platforms. This gives especially start-ups or smaller businesses the opportunity to obtain funds without going through banks or professional investors. How crowdfunding is taxed depends on which type of crowdfunding is involved (donation-based, reward-based, loan-based, or equity-based). As a recipient, you must generally pay tax on the amount you collect.
How is donation-based crowdfunding taxed?
With donation-based crowdfunding, contributions are considered gifts. The contributor does not have deduction rights for their contribution.
What are the tax obligations for the recipient of donation-based crowdfunding?
As a recipient, you must pay tax on the collected amount. It must be reported in both the preliminary income assessment or on the annual tax return.
What requirements must businesses meet when using donation-based crowdfunding?
Businesses that use donation-based crowdfunding must comply with the requirements set by the Fundraising Board (Indsamlingsnævnet).
How is reward-based crowdfunding taxed?
With reward-based crowdfunding, the contributor receives something in return (e.g., a product, a service, or tickets).
How should reward-based crowdfunding be reported for tax purposes?
For tax purposes, it is equated with the sale of goods or services, and the income must be reported as ordinary sales income.
What happens if the contribution exceeds the value of what is received?
If the contribution substantially exceeds the value of the delivered product or the service received, the excess part is considered a donation and must be treated as a gift.
Can I have a loss with reward-based crowdfunding?
If the value of the contribution is less than the value of the products or services you provide to obtain the contribution, you can have a loss.
How is loan-based crowdfunding taxed?
Loan-based crowdfunding is treated for tax purposes as an ordinary loan relationship.
How is equity-based crowdfunding taxed?
With equity-based crowdfunding, ownership shares in the business are sold.
Is the company taxed on equity-based crowdfunding?
The company does not become taxable on the amount if a capital contribution occurs through subscription of share capital.
What are the tax implications for investors in equity-based crowdfunding?
The investor, however, is taxable on any capital gains and dividends according to the rules for share income.
Is crowdfunding subject to VAT?
Yes, in certain cases. Especially if the contribution involves delivery of goods or services in exchange for payment (reward), it may be VAT-liable and thus trigger VAT.
When must I register for VAT?
As a general rule, you must be registered for VAT if your total turnover exceeds 50,000 DKK annually.
Are crowdfunding platforms subject to VAT?
Portals or platforms that facilitate crowdfunding may be VAT-exempt under certain conditions – for example, if they only facilitate without themselves being a party to the agreement.
Must crowdfunding be reported to the tax authorities?
Yes, regardless of which type of crowdfunding is involved, the recipient must report the amount in their preliminary income assessment and annual tax return.
How should different types of crowdfunding income be taxed?
Donations, gifts, and profits from crowdfunding must be taxed according to the rules that apply to the specific type of income.
Can I deduct losses from crowdfunding?
With reward-based crowdfunding, you can deduct losses in your income.
What if crowdfunding is a hobby?
If crowdfunding is a hobby or is not considered commercial business activity, expenses and losses normally cannot be deducted.
Disclaimer
As the above is for guidance purposes only, we accept no liability for decisions that may be made based on the above without prior individual advice. We accept no liability for errors and omissions.