From Rejection to Acceptance: Denmark's Major Shift in Crypto Policy
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From Rejection to Acceptance: Denmark's Major Shift in Crypto Policy
This article provides an overview of Denmark's cryptocurrency taxation and regulatory framework, aiming to help readers better understand the country's current crypto asset policies and their transformation context.
Navigating Web3 tides with focused insightsWritten by: TaxDAO
1. Introduction
In recent years, with the rapid development of the crypto asset market and deepening global understanding of cryptocurrencies, governments and financial institutions worldwide have gradually evolved their stance toward digital assets. Initially, Danish banks held a negative view of crypto assets, advising customers against investing in cryptocurrencies to avoid facilitating money laundering and other financial crimes. However, over time, Denmark has increasingly shown openness toward crypto assets.
The Danish Tax Council recently proposed that unrealized cryptocurrency gains and losses be included in taxation starting from 2026, aiming to align the tax treatment of crypto assets with existing rules for traditional investment products such as stocks and bonds. This article provides an overview of Denmark's cryptocurrency tax and regulatory framework, helping readers better understand current policies and the context behind this transition.
2. Overview of Denmark’s Basic Tax System
2.1 Denmark’s Tax Framework
Denmark is a typical high-tax, high-welfare developed country. According to statistics from the Organisation for Economic Co-operation and Development (OECD), Denmark ranks first among member countries in terms of tax revenue as a percentage of GDP—reaching approximately 46.3%. In Denmark’s tax system, legislation is enacted by Parliament, and all tax laws must be formally signed by the monarch and at least one cabinet minister before they become effective and are published. The Ministry of Taxation oversees tax administration and operates through various functional agencies, the National Tax Tribunal, and the central tax authority SKAT. Notably, Denmark's autonomous territories—the Faroe Islands and Greenland—maintain independent tax systems outside the jurisdiction of mainland Denmark.
Similar to the Italian tax system previously introduced by TechFlow, Denmark's taxation is primarily divided into two broad categories: direct and indirect taxes. Direct taxes are levied directly on taxpayers' income and include corporate income tax, personal income tax, labor market contributions, church tax, property valuation tax, and real estate tax. Indirect taxes are paid when purchasing goods or services and mainly consist of value-added tax (VAT), customs duties, carbon emissions tax, and excise duties.
2.2 Major Types of Taxes in Denmark
2.2.1 Personal Income Tax
In Denmark, individuals residing for more than six months are required to fulfill tax obligations to the Danish government. Residents face comprehensive tax liability, typically paying state tax, municipal tax, labor market contributions, and church tax. Denmark applies progressive tax rates to both wage income and capital gains, with rates varying depending on the city of residence, reaching a maximum marginal rate of up to 52.07%.
(1) State Tax: Denmark uses a progressive structure with low- and high-income brackets taxed accordingly. The base for the lowest tier is calculated as personal income plus positive net capital income. In 2024, the lowest rate applied was 12.01%. For single filers, the upper bracket also considers personal income plus positive net capital income. When calculating the higher rate, an 8% labor market contribution is deducted first, then a 15% rate applies to amounts exceeding DKK 588,900 (2024 threshold).
(2) Municipal Tax: Also known as local income tax, it is calculated based on taxable income using a flat rate that varies by municipality. As of 2024, the national average municipal tax rate stood at 25.067%.
(3) Labor Market Contribution: A fixed 8% tax on individual income.
(4) Church Tax: Levied at a flat rate that varies by location. The nationwide average church tax in Denmark was approximately 0.65% in 2024. Collected by municipal authorities, this tax applies only to members of the Church of Denmark (the Lutheran state church). Upon registration in Denmark, each individual must declare whether they should be subject to church tax.
(5) Share Income Tax: Under 2024 rules, share income up to DKK 122,000 (for married couples) is taxed at 27%. Any amount exceeding this threshold is taxed at 42%.
(6) Other Taxes: Primarily targeting foreign professionals, such as scientists working or assigned in Denmark, who may apply for a flat 27% tax rate on total salary. This preferential treatment can last up to 84 months but comes with strict eligibility criteria. Importantly, the 27% flat rate does not cover all forms of income; rather, it applies to cash wages, employer-provided phone/internet services, taxable value of company cars, and employer-paid health insurance premiums. All other income remains subject to standard taxation rules. No deductions are allowed from income taxed under the flat rate. After 84 months, individuals lose this benefit and revert to ordinary progressive taxation.
2.2.2 Corporate Income Tax
Under Danish tax law, companies incorporated in Denmark are considered tax residents and thus liable for tax on their worldwide income. The standard corporate income tax rate is 22%, allowing deductions only for depreciation and expenses directly related to business operations. To determine taxable income, tax allowances and tax depreciation must first be subtracted from total company revenue. Since operating costs and depreciation reduce the tax base, the effective tax burden may fall below the statutory 22% rate.
Additionally, under Danish tax regulations, foreign permanent establishments (PEs) and real estate follow territorial principles. This means Denmark does not tax global income earned by its companies. Instead, profits derived from foreign PEs or overseas real estate are excluded from Danish taxable income. Non-resident companies are taxed only on profits attributable to activities conducted within Denmark. The statutory corporate income tax rate remains 22%.
2.2.3 Value-Added Tax (VAT)
Denmark imposes VAT on domestic sales and imports of goods and services at a standard rate of 25% of the price excluding tax. Exports of goods and services, however, are exempt from VAT. Additionally, certain specific services are VAT-exempt, including financial services, insurance, healthcare, education, and passenger transport.
Businesses engaged in VAT-exempt activities are not required to register for or pay VAT and cannot reclaim input VAT on purchases made for those activities. Conversely, businesses providing zero-rated supplies must register for VAT but do not charge VAT on transactions and are entitled to reclaim VAT paid on inputs from suppliers.
2.2.4 Excise Duties
In Denmark, excise duties are imposed only when goods are sold domestically or brought into the country. Companies importing goods into Denmark or manufacturing them locally must register with the Danish tax authorities to meet their excise duty obligations. These duties apply to specific goods, including petroleum products, certain packaging materials, alcoholic beverages, tobacco, chocolate and confectionery, coffee, and others.
Excise duty rates vary by product category. For alcohol, there are two tiers: spirits with alcohol content above 22% are taxed at 100%, while lower-strength alcoholic drinks (≤22%) are taxed at 50%. Tobacco products are subject to differentiated rates depending on type. Notably, excise duties on tobacco products are levied at the production stage.
3. Denmark’s Cryptocurrency Tax Policy
3.1 Classification of Cryptocurrencies in Denmark
In December 2013, Denmark's Financial Supervisory Authority stated that Bitcoin (and other cryptocurrencies) are not legal tender. In March 2014, the Danish Central Bank issued a similar statement. Ultimately, in early 2018, the Danish Tax Council ruled that profits from cryptocurrency trading are taxable, effectively classifying crypto assets as speculative investments. Thus, in Denmark, cryptocurrencies are treated as high-risk investment instruments. At that time, no clear regulatory framework existed, and no official body oversaw or regulated the sector, leaving investors solely responsible for managing their risks.
3.2 Current Status of Denmark’s Crypto Tax Policy
3.2.1 Overview
The Danish government treats cryptocurrency gains as capital income and requires investors to annually assess their crypto portfolios. Investors are permitted to offset capital losses against gains.
Furthermore, Denmark plans to integrate crypto assets into the same tax regime governing traditional investment vehicles like stocks and bonds, aiming to harmonize crypto taxation with existing rules. Examples include the thin capitalization rule, which limits companies’ ability to reduce taxable bases via excessive debt financing instead of equity, thereby preventing tax avoidance through capital weakening. If a company’s debt-to-equity ratio exceeds prescribed thresholds, tax authorities may adjust its tax treatment to ensure fairness. Another example is the controlled foreign company (CFC) rule, which applies to foreign subsidiaries controlled by Danish entities. If these offshore companies retain profits without repatriating them, Danish tax authorities may treat such retained earnings as Danish-source income and tax them accordingly. Harmonizing these rules aims to strengthen governmental oversight of the crypto industry and simplify the complex nature of crypto taxation.
In recent years, amid rapid growth in the cryptocurrency market, the Danish government has placed significant emphasis on taxation in this emerging sector. It has actively studied and analyzed the tax implications of crypto activities, culminating in the proposal to tax unrealized capital gains on crypto assets—a landmark initiative now moving forward.
3.2.2 Taxation of Unrealized Gains
The Danish government is undertaking an innovative approach: the Tax Council has released a legislative proposal specifically targeting cryptocurrency taxation. The formal legislative process is expected to begin in early 2025, when the Minister of Taxation will submit the bill to Parliament. If passed, the proposal would take effect on January 1, 2026, introducing a market-value-based taxation system that would impose taxes—up to a maximum rate of 42%—on unrealized gains in crypto holdings. Notably, the proposal comes amid rising cryptocurrency adoption in Denmark and would apply retroactively to crypto assets acquired since Bitcoin’s inception in 2009. However, investors would still be allowed to use capital losses to offset gains.
This proposal is detailed in a comprehensive 93-page report, whose primary goal is to align crypto asset taxation with that of traditional financial instruments while addressing long-standing challenges in the crypto space. Danish Tax Minister Rasmus Stoklund emphasized the necessity of reform, highlighting the inequitable tax burdens currently faced by crypto investors. He stated: “In recent years, Danish cryptocurrency investors have often suffered heavy tax burdens. The council’s recommendations will ensure a fairer and more reasonable taxation of gains and losses for crypto investors.”
4. Denmark’s Cryptocurrency Regulatory Framework
4.1 The Financial Business Act
Under the Financial Business Act (Danish: *lov om finansiel virksomhed*), Denmark imposes strict entry requirements on companies entering the crypto market. Enterprises must obtain authorization before offering crypto-related services and notify the Danish Financial Supervisory Authority at least 40 working days prior to commencing service provision. Furthermore, under Chapter 9 and Section 181 of the Act, financial or mixed holding companies must follow specific registration procedures. When amending articles of association, such financial enterprises must submit a dated copy of the updated document—including all revisions—to the Danish Business Authority, which then forwards it to the Financial Supervisory Authority. These stringent registration and authorization controls aim to mitigate potential risks from the outset, laying a solid foundation for the sustainable development of the crypto industry.
Moreover, the law stipulates that if a company chooses Denmark as its headquarters or registered address solely to circumvent regulatory oversight in its primary market, the Danish Financial Supervisory Authority may legally reject its application. This strict provision safeguards the integrity of Denmark’s crypto sector, minimizing legal risks posed by foreign entities and enhancing protection for businesses and employees alike.
To respond swiftly and efficiently to risk management needs, the Act grants special powers to the Danish Financial Supervisory Authority (or other legally authorized bodies). They may enter the premises of crypto asset service providers—excluding those dealing with asset-referenced tokens and e-money tokens—without court orders. Authorities may also require individuals involved in crypto transactions (again excluding asset-referenced and e-money tokens), issuers of such tokens, and crypto service providers to furnish information and cooperate with inspections. These measures enhance regulatory effectiveness, combat illegal activities, and protect investor assets.
4.2 The Danish Alternative Investment Fund Managers Act
If the Financial Business Act focuses on prevention and ongoing monitoring, the Danish Alternative Investment Fund Managers Act (Danish: *lov om forvaltere af alternative investeringsfonde*) emphasizes post-event supervision, particularly regarding incidents that could harm crypto investors. Under this law, the Danish Financial Supervisory Authority has the power to fully or partially revoke licenses of alternative investment fund managers or prohibit marketing of their funds. Such penalties apply in cases including: obtaining licenses through false information or fraudulent means; violating anti-money laundering laws; or failing to actively use the license within 12 months of approval.
Additionally, to prevent conflicts of interest, the Act mandates that alternative investment fund managers establish dedicated risk management functions. These functions must operate independently—in both function and hierarchy—from operational units, including portfolio management, and must consistently and effectively identify, measure, manage, and monitor all risks associated with each fund’s investment strategy, objectives, and risk profile.
If members of a fund manager’s management team fail to take necessary actions during major losses or imminent serious loss risks, they may face fines or imprisonment of up to four months—unless subject to harsher penalties under other laws. Individuals affiliated with fund managers who provide false or misleading information to public authorities, the public, legal entities, or investors—or who commit gross or repeated negligence causing investor losses—may also face fines or up to four months’ imprisonment.
Clearly, this law adopts a stricter approach to post-incident enforcement. Harsh penalties serve to deter actions harmful to crypto investors, uphold industry order, reinforce preventive effects of the law, and further strengthen governmental oversight of the crypto sector.
4.3 The Anti-Money Laundering and Counter-Terrorist Financing Act
The Anti-Money Laundering and Counter-Terrorist Financing Act (Danish: *lov om forebyggende foranstaltninger mod hvidvask og finansiering af terrorisme*) mandates that any company or individual who knows, suspects, or has reasonable grounds to suspect that a transaction, fund, or activity relates to money laundering or terrorist financing must immediately report it to the Money Laundering Secretariat. This obligation extends to suspicions arising from client transaction attempts or inquiries from potential clients. Crypto-related transactions and investment activities fall squarely under the scope of this Act.
The Money Laundering Secretariat operates independently as the national central unit. Its responsibilities include: receiving and analyzing suspicious transaction reports and other information related to money laundering, underlying crimes, or terrorist financing; disseminating analytical findings and relevant data to competent authorities, agencies, and organizations when suspicions arise; and collaborating with other institutions to prepare and update national risk assessments in AML/CFT to identify, evaluate, understand, and mitigate current money laundering threats.
This framework reflects Denmark’s firm resolve and efficient execution in combating money laundering and terrorist financing. By requiring prompt reporting of suspicious activity, Denmark significantly enhances detection and early warning capabilities. The independence and professionalism of the Secretariat ensure impartiality and accuracy in handling sensitive information. Moreover, close inter-agency collaboration fosters a comprehensive and robust anti-money laundering network, elevating overall financial security. Overall, these efforts play a vital role in maintaining financial order and social stability.
4.4 Additional Regulatory Measures
The Danish government has officially announced plans to begin exchanging data on Danish cryptocurrency investors internationally starting in 2027. Additionally, a new bill is expected to be introduced in early 2025, mandating that cryptocurrency service providers report customer transaction details to authorities. These initiatives aim to strengthen oversight of Denmark’s estimated 300,000 crypto investors and curb potential tax evasion.
This decision demonstrates the Danish government’s proactive and forward-looking approach to maintaining crypto tax compliance and financial security. By engaging in international data sharing, Denmark seeks to gain a more complete picture of investor behavior, enabling more precise tax supervision. Requiring service providers to report transactions further strengthens monitoring of crypto activity, facilitating timely identification and resolution of potential tax evasion. These measures are crucial for ensuring fairness in crypto taxation and preserving financial stability in Denmark.
5. Conclusion and Outlook
In terms of taxation, Denmark has pioneered a novel proposal to tax unrealized gains on crypto assets, explicitly allowing investors to offset losses against gains. This measure aims to address existing inequities in how crypto investors are taxed. However, it may also create cash flow pressures for investors and distort long-term investment decisions. Therefore, the Danish government must carefully balance various factors when implementing this policy, ensuring it effectively resolves tax inequities without imposing undue burdens on investors or the market. The actual impact of this reform will be closely watched by stakeholders across society.
On the regulatory front, Denmark has implemented a series of detailed and comprehensive measures designed to foster a healthy and orderly environment for the crypto industry. First, by enforcing strict company registration and authorization procedures, Denmark ensures that all crypto businesses meet legal standards, controlling industry quality from the outset. Moreover, regulatory powers have been decentralized, enabling authorities to conduct flexible and unannounced inspections to ensure ongoing compliance. Violations trigger a tiered penalty system: minor infractions may result in service suspension or fines as warnings, while serious violations could lead to license revocation or even criminal prosecution, effectively deterring misconduct. Through these coordinated efforts, Denmark not only mitigates various risks inherent in the crypto space but also safeguards the stability and integrity of its national financial system.
We firmly believe that Denmark will continue strengthening and refining its tax and legal frameworks for crypto assets—an essential step toward maturing its domestic crypto industry. Simultaneously, Denmark will keep improving its regulatory architecture and enhancing oversight efficiency to preserve financial market stability and market integrity. Denmark is steadily advancing toward creating a supportive ecosystem for the healthy development of cryptocurrencies. With these strategic moves, Denmark is poised to play a more active role on the global crypto stage, contributing to the standardization and prosperity of the industry.
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