Crypto taxation refers to the taxation of transactions and holdings of cryptocurrencies such as Bitcoin, Ethereum and other digital assets. Taxpayers in Denmark must normally report gains and losses from purchase, sale and trading of cryptocurrencies. Gains are as a starting point taxed as personal income and losses can give a deduction as a ligningsmæssigt deduction. There is rarely offsetting of losses against gains, but it can however occur in certain situations. There are also crypto contracts e.g. Stablecoins (USDT), which are considered financial contracts, which are taxed on unrealized gains.
Frequently asked questions about Crypto taxation
How is cryptocurrency taxed in Denmark?
In Denmark, cryptocurrency is taxed either according to the realization principle or according to the unrealized gains principle, depending on the type of cryptocurrency and its tax character.
For most cryptocurrencies, the realization principle is used with use of the FIFO principle (First In, First Out) when calculating gain and loss. This means that:
- When you sell or exchange cryptocurrency, the first purchased units are considered sold first.
- Gain or loss is calculated based on the acquisition price of the earliest purchased units.
- Taxation only takes place when realization occurs, e.g. by sale or exchange to another cryptocurrency or fiat currency.
Stablecoins (e.g. USDT and similar) are considered for tax purposes as financial contracts and are therefore taxed according to the unrealized gains principle. This means that:
- Gain or loss is calculated annually, regardless of whether you have sold your stablecoins or not.
- You are taxed continuously on the year’s increase in value.
- Losses can be deducted, but the deduction is source-category limited, which means that losses can only be offset against gains from other financial contracts and not against other income.
How is exchange between cryptocurrencies treated for tax purposes?
Exchange between cryptocurrencies, e.g. to exchange Bitcoin (BTC) to Ethereum (ETH), is considered for tax purposes first as a sale of the first-mentioned cryptocurrency and then a purchase of the last-mentioned. This has several tax consequences.
If you have bought several units of the same cryptocurrency at different times, the FIFO principle (First In, First Out) is used, which means that the first purchased units are considered sold first. Even though you do not realize cash in the process, both gain and loss must be included in your tax calculation, and it is important to be able to document date, amount and value in Danish kroner for each transaction.
In short, when you exchange cryptocurrency, it triggers a tax realization, where gain or loss is calculated on the basis of acquisition price and market value at the time of exchange.
When can you avoid taxation of cryptocurrency?
Only in very special cases, where the intention of speculation can be disproved, is sale of cryptocurrency tax-free. However, it is very difficult to document, and in practice almost all trades today are considered taxable.
What is the difference between crypto assets, stablecoins, staking and mining?
Crypto assets is a broad designation for digital assets, which are based on blockchain technology. This can be currencies such as Bitcoin and Ethereum, but also tokens that represent rights, shares or other values.
Stablecoins are a special type of crypto assets, where the value is stabilized in relation to an existing currency or asset, typically USD. For tax purposes taxed according to the unrealized gains principle.
Staking is about locking your crypto assets in a blockchain network to contribute to the network’s security and operation. In return, the one who stakes typically receives a form of reward in the same crypto asset. Staking can be seen as a way to generate return on your crypto assets, without them necessarily being sold, but for tax purposes the reward can trigger income, which must be included in the calculation.
Mining is the process where one “takes part in the work” of keeping a cryptocurrency’s network secure and updated. When people send cryptocurrency to each other, the transactions must be confirmed and added to the blockchain, which is a digital ledger. As a reward, the miner receives new cryptocurrency units or transaction fees. If it is done as a hobby, the reward is taxed as capital income, but if it is done systematically with profit in mind, it is considered business activity, and the income is taxed as business income.
Do foreign wallets also have to be reported in Denmark?
All cryptocurrencies, regardless of whether they are in Danish or foreign wallets or on foreign crypto platforms, must be reported to the Danish Tax Agency. This means that even if your coins are in a wallet abroad, or you use a foreign exchange for trading, you are still tax-wise obliged to state gains, losses and holdings in your Danish tax return.
The Danish Tax Agency requires that you can document transactions with date, currency, amount and value in Danish kroner at the time of each trade.
How is cryptocurrency handled in connection with inheritance and gifts?
Cryptocurrency is treated for tax purposes as an asset when it is included in inheritance or is given as a gift. This means that the value of the cryptocurrency must be stated at the time of the transfer in Danish kroner, and it is included in the estate or the gift base in the same way as other assets such as cash or shares.
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.