Taxed according to the realization principle means that the tax on a gain or income is only levied when the asset is sold, and the gain is realized.
Frequently asked questions about realization taxation in Denmark
What does realization taxation mean?
Realization taxation means that you are only taxed when a gain or a loss is actually realized – that is, when an asset is sold, exchanged or otherwise disposed of. The tax is therefore not triggered while you still own the asset, even if the value may increase along the way. This form of taxation is used, for example, when selling shares, properties or cryptocurrency, and the purpose is to ensure that you are only taxed on gains that you have actually disposed of.
What is the difference between realization taxation and taxation on unrealized gains?
The difference between realization taxation and taxation on unrealized gains lies in the time of taxation.
How is the gain calculated?
The gain is calculated as the difference between the selling price and the acquisition sum (the purchase price plus any trading costs). If the selling sum is higher than the acquisition sum, a gain arises, which must be taxed. If it is lower, a loss arises.
For example: If you buy shares for DKK 100,000 and later sell them for DKK 150,000, the gain is DKK 50,000, which is taxed as share income. Conversely, if they are sold for DKK 80,000, there is a loss of DKK 20,000, which may possibly be deducted in other share gains.
When is the tax paid?
The tax is paid in the income year in which the gain is realized. This means that you only have to state the gain in the annual tax assessment for the year in which the sale has taken place. The taxation takes place at the time of the actual economic gain, regardless of when the money may possibly be paid out.
How does realization taxation work in connection with inheritance and gifts?
In connection with inheritance and gifts, special rules apply for realization-taxed assets, as an ordinary sale does not necessarily take place.
Gift: When a realization-taxed asset is transferred as a gift, it is as a starting point considered for tax purposes to have been disposed of at the market value at the time of transfer. This means that:
In certain cases, however, succession can be chosen in connection with a gift, where the recipient steps into the giver’s tax position, and the taxation is deferred.
Inheritance: In connection with inheritance, the taxation depends on whether tax succession is used:
Is cryptocurrency taxed according to the realization principle in Denmark?
Yes, cryptocurrency is as a starting point taxed according to the realization principle in Denmark. This means that you are only taxed when you have actually sold, exchanged or used your cryptocurrency, and thereby have achieved a gain or suffered a loss.
Realization taxation applies both when selling against traditional currencies (such as kroner or euro) and when exchanging between different cryptocurrencies – e.g. if you exchange Bitcoin to Ethereum. Each such transaction is considered a realization, where you must calculate the difference between the value at the time of sale and your original acquisition price.
However, there are a few exceptions. Certain stablecoins and special investment products with cryptocurrency can instead be taxed on unrealized gains, because they more resemble financial instruments, where the value is continuously calculated.
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.