Denmark Eyes Taxing Unrealized Crypto Profits
In an effort to bridge the gap between the tax treatments of digital and traditional assets, Denmark is contemplating the introduction of a tax on unrealized gains from cryptocurrencies. The Danish Tax Law Council has published an extensive 93-page report, offering a range of recommendations aimed at revising the current tax framework for digital assets.
Aligning Digital and Traditional Asset Taxation
The central focus of the report is to ensure that holders of digital assets such as cryptocurrencies are subject to similar tax rules as those applied to traditional assets like stocks, real estate, and precious metals. Among its proposals, the report suggests the introduction of legislation that would tax unrealized profits or losses on digital assets owned by Danish citizens. This would involve a significant 42% capital gains tax on unrealized profits.
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If the proposal gains legislative approval, the new tax law could be implemented as early as January 2026. This would mean Danish investors would be required to pay taxes on their Bitcoin (BTC) and other digital holdings from the point of acquisition, irrespective of whether they have sold these assets.
A Move Towards Fairer Taxation
The Danish Tax Law Council argues that this proposed legislation is part of a broader strategy to rectify the “unfair treatment of cryptocurrency investors.” Denmark’s tax minister, Rasmus Stoklund, commented on the proposal, emphasizing that in recent years, Danish crypto investors have faced disproportionately high taxes. The council’s recommendations aim to establish a more equitable taxation framework for both gains and losses in the crypto sector.
The proposed tax regime is envisioned as a three-tiered system for digital assets, comprising Capital Gains Tax, Inventory Tax, and Loss Write-Offs. The Capital Gains Tax is intended to align the tax treatment of digital assets with that of traditional assets by imposing a 42% tax rate on unrealized profits.
The Inventory Tax would require crypto investors to pay taxes on their entire portfolio, based on an annual assessment, regardless of whether they have sold any assets. To alleviate the tax burden, the Loss Write-Offs provision would allow taxpayers to offset losses against profits, thereby reducing their overall tax liability.
A Glimpse into Denmark’s Crypto Taxation Philosophy
These proposed tax laws reflect Denmark’s evolving stance on digital assets. In 2022, the Danish Supreme Court ruled that individuals profiting from digital asset sales, whether through donations or purchases, are subject to stringent tax policies.
Global Trends in Digital Asset Taxation
Denmark’s approach to streamlining crypto taxation is part of a broader global trend, with several countries revisiting their tax policies for digital assets. For example, Italy recently announced considerations to increase its capital gains tax on cryptocurrencies from 16% to 42%.
In a similar vein, New Zealand introduced a bill in August 2024, aimed at enhancing tax compliance among crypto asset holders through new checks and measures. Meanwhile, in Japan, opposition party leader Yuichiro Tamaki has promised to implement crypto tax cuts if elected to power.
The dynamic landscape of digital asset taxation underscores the need for countries to adapt their tax frameworks to effectively manage the growing prominence of cryptocurrencies in the global financial ecosystem.
