From exclusion to acceptance: Denmark’s crypto policy shift

1. Introduction

In recent years, with the rapid development of the crypto-asset market and the deepening of the international community's understanding of crypto-assets, the attitudes of governments and financial institutions towards crypto-assets have gradually evolved. Initially, Danish banks took a negative stance on crypto-assets and dissuaded clients from investing in crypto-assets to avoid facilitating money laundering and other financial illegal activities. However, over time, Denmark has gradually shown an accepting attitude towards crypto-assets.

The Danish Tax Law Committee recently proposed that unrealized cryptocurrency gains and losses be included in the tax scope from 2026, aiming to coordinate the cryptocurrency tax system with the current regulations for other investment products such as stocks and bonds. This article will introduce Denmark's crypto tax and regulatory system in order to help readers better understand Denmark's current crypto-asset policy and its transformation background.

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2. Overview of Denmark's basic tax system

2.1 Denmark's tax system

Denmark is a typical developed country with high taxes and high welfare. According to statistics from the Organization for Economic Cooperation and Development (OECD), among its member countries, Denmark's tax revenue accounts for the largest proportion of its gross domestic product (GDP), reaching about 46.3%. The Danish tax system is legislated by Parliament, and all tax laws can only be formally enacted and promulgated after being signed by the Queen and at least one cabinet minister. Tax administration is the responsibility of the Danish Tax Department, which has several functional agencies, the National Tax Tribunal and the National Tax Administration Center (SKAT). It is worth noting that Denmark's autonomous territories, the Faroe Islands and Greenland, enjoy independent tax systems and are not subject to the Danish tax system.

The Danish tax system is similar to the Italian tax system we introduced earlier. Both tax systems are mainly divided into two categories: direct taxes and indirect taxes. In Denmark, direct taxes refer to taxes that are deducted directly from taxpayers' income, including corporate income tax, personal income tax, labor market surcharge, church tax, property assessment tax and property tax. Indirect taxes are taxes paid by taxpayers when purchasing goods or services, mainly including value-added tax, customs duties, carbon emissions tax and consumption tax.

2.2 Main types of taxes in Denmark

2.2.1 Personal income tax

In Denmark, any individual who resides for more than 6 months is required to pay taxes to the Danish government. For individuals living in Denmark, they are required to bear comprehensive tax responsibilities. Generally speaking, the taxes that individuals need to pay include state taxes, municipal taxes, labor market taxes and church taxes. Denmark implements a progressive tax rate system for personal salary income and capital gains, and this tax rate will vary depending on the city of residence. The highest tax rate can reach 52.07%.

（1） State tax: A progressive tax system is adopted, divided into two levels of minimum tax and maximum tax, which are levied according to personal income. The minimum tax base is calculated based on personal income plus positive net capital income. In 2024, the minimum tax rate corresponding to this tax base is 12.01%. For singles, the maximum tax base is also composed of personal income plus positive net capital income. However, when calculating the maximum tax, an 8% labor market tax will be deducted first, and then a 15% tax rate will be levied on the portion exceeding DKK 588,900 (2024 standard).

（2） Municipal tax: Local income tax, also known as municipal tax, is calculated based on taxable income and is taxed at a flat rate, which varies depending on the city. According to data from 2024, the national average municipal tax is 25.067%.

(3) Labor market tax: The tax rate is 8% of personal income.

(4) Church tax: Church tax is levied at a flat rate, which varies depending on the municipality. The national average church tax in Denmark was approximately 0.65% in 2024. This tax is levied by municipal authorities, but it is only imposed on members of the Danish National Church (i.e. the Lutheran Church). When registering in Denmark, each individual needs to clearly indicate whether they should be included in the church tax.

（5） Share tax: According to Denmark's regulations on share income in 2024, if the amount of share income does not exceed DKK 122,000 (this standard applies to married couples), it will be taxed at a rate of 27%. Once the share income exceeds this amount, the tax rate on the excess amount will be increased to 42%.

（6） Other taxes: This is mainly for foreigners, such as scientists working in Denmark or being sent to Denmark. They can apply for a unified tax rate of 27% on their total salary. The preferential period can last up to 84 months, but there are many recognition conditions. In addition, the 27% unified tax rate does not cover all income, but is calculated based on cash wages, telephone/internet services provided by the employer, the taxable value of the company car, and the taxable health insurance paid by the employer. All other income will be taxed according to the normal tax rules. It is worth noting that no deductions are allowed from income subject to the flat tax rate. At the same time, after 84 months, the income will no longer enjoy the flat tax rate and will be taxed according to the ordinary tax rate.

2.2.2 Corporate Income Tax

According to Danish tax law, all companies registered in Denmark are considered Danish tax residents, which means that all their income is subject to tax. Denmark imposes a corporate income tax rate of 22% on ordinary companies, but only depreciation and expenses directly related to the company's operations are allowed to be deducted from taxable income. When determining taxable income, tax exemptions and tax depreciation must be deducted from the company's total income. It is worth noting that since operating costs and depreciation can be deducted from the tax base, the actual tax burden of the company may be lower than the statutory 22% tax rate.

In addition, according to Danish tax law, the tax treatment of permanent establishments (PE) and real estate located abroad follows the territorial principle. This means that Danish companies are not taxed on their worldwide income. Conversely, income from a permanent establishment outside Denmark or foreign real estate is not included in the Danish taxable income. For non-resident companies, their profits derived only from income earned in Denmark are subject to tax. The corporate income tax rate is the statutory 22%.

2.2.3 Value Added Tax

Denmark imposes value added tax on goods and services sold within the country and imported, with a standard rate of 25% of the tax-exclusive price of the goods or services. However, exported goods and services are exempt from tax. In addition, Denmark also implements a VAT exemption policy for some specific services, covering the fields of finance, insurance, medical care, education and passenger transportation.

For those companies engaged in VAT-exempt businesses, they do not need to register and pay VAT, but accordingly, they cannot apply for VAT refunds on raw materials or services purchased for such businesses. For companies engaged in zero-tax businesses, although they need to register for VAT, they do not need to actually pay VAT, and do not need to include VAT in the pricing of goods or services. At the same time, such companies are also entitled to apply for a refund of the VAT included in the goods or services provided by their suppliers.

2.2.4 Consumption tax

In Denmark, consumption tax is only required when goods are sold or brought into the country. Any company that brings goods into Denmark or manufactures goods in Denmark must first register with the Danish tax authorities in order to fulfil its obligation to pay excise tax. Excise tax is levied on certain goods, including but not limited to petroleum products, certain types of packaging materials, alcoholic beverages, tobacco, chocolate and candy, coffee, etc.

The excise tax rates in Denmark vary according to the category of goods. For alcoholic beverages, the tax rate is divided into two tiers: spirits with an alcohol content of more than 22% have a tax rate of 100%; and wines with an alcohol content of less than 22% have a tax rate of 50%. As for tobacco products, the tax rate also varies according to the type. It is worth noting that the excise tax on tobacco products in Denmark is levied at the production stage.

3. Denmark’s Cryptocurrency Tax Policy

3.1 Denmark’s Characterization of Cryptocurrency

In Denmark, the Financial Supervisory Authority issued a statement in December 2013 confirming that Bitcoin (and other cryptocurrencies) are not currencies, and in March 2014, the Danish Central Bank issued its own statement announcing roughly the same thing. The Danish Tax Council eventually ruled in early 2018 that crypto trading profits are taxable, which means that cryptocurrencies are considered speculative assets, that is, cryptocurrencies are considered a high-risk investment tool in Denmark. At this time, there is a lack of a clear regulatory framework, and there is no official regulatory agency to manage and regulate it. Investors need to bear the investment risks themselves. ‌

3.2 Current Status of Crypto Tax Policy in Denmark

3.2.1 Overview of Current Status

The Danish government regards cryptocurrency gains as capital income and requires investors to evaluate their crypto asset portfolios annually. At the same time, Denmark allows investors to use investment losses to offset gains.

In addition, the Danish government also plans to include crypto assets in the same tax rules system as traditional investment products, aiming to coordinate the tax system for cryptocurrencies with existing rules for other types of investments such as stocks and bonds. For example, the anti-thin capitalization rule in Denmark's existing tax rules refers to preventing companies from evading taxes through thin capitalization by restricting companies from reducing their tax base through borrowing rather than equity financing. Specifically, if the debt-to-equity ratio of a company is too high, the tax authorities may adjust its tax treatment to ensure fairness of taxation. Or the controlled foreign company rule, which applies to controlled foreign companies established in other countries by companies that have control in Denmark. If these companies fail to repatriate profits to Denmark in certain circumstances, the Danish tax authorities may treat these unrepatriated profits as income from Danish sources and tax them. The coordination rules are mainly intended to strengthen the Danish government's control over the crypto industry and reduce the original complexity of taxing crypto assets.

In recent years, against the backdrop of the rapid development of the cryptocurrency market, the Danish government has attached great importance to the taxation of this emerging field. To this end, they have been actively and in-depth studying the tax system for the crypto industry. This series of efforts ultimately led to the smooth introduction of a new proposal to tax unrealized capital gains on crypto assets. ‌‌

3.2.2 Unrealized Gains Tax

The Danish government is making an innovative attempt. Its Tax Law Committee has issued a tax law proposal for cryptocurrency assets. The formal legislative process is expected to start in early 2025, when the Minister of Taxation will submit the relevant bill to Parliament. The proposal is expected to take effect on January 1, 2026, implementing a market price-based tax system for crypto assets and imposing a tax of up to 42% on unrealized gains on cryptocurrencies. It is worth noting that this proposal was made against the backdrop of the growing use of cryptocurrencies in Denmark, and it plans to retroactively apply to crypto assets acquired since the birth of Bitcoin in 2009, while allowing investors to use investment losses to offset gains.

The proposal is fully laid out in a detailed 93-page comprehensive report, the core purpose of which is to bring the tax system for crypto assets into line with traditional financial instruments while addressing many of the long-standing challenges in the crypto industry. Danish Tax Minister Rasmus Stoklund stressed the need for this reform and pointed out the unfair tax burden faced by cryptocurrency investors under current regulations. Minister Stocklund said: "In recent years, cryptocurrency investors in Denmark have often suffered from heavy taxation. The proposals put forward by the Committee will ensure that the gains and losses of cryptocurrency investors are taxed more fairly and reasonably."

4. Danish Crypto Regulatory Framework

4.1 Financial Business Act

According to the Financial Business Act (Danish: lov om finansiel virksomhed), Denmark has set strict entry conditions for companies to enter the crypto asset market, requiring companies to obtain authorization before providing crypto asset services and to notify the Danish Financial Supervisory Authority at least 40 working days before the first service is provided. In addition, according to Chapter 9 and Section 181 of the regulations, if a company operates as a financial holding company or a mixed holding company, it must also follow a specific registration process. When it comes to the amendment of the company's articles of association, such financial enterprises shall submit a dated copy of the company's articles of association to the Danish Business Administration, which shall include all the newly amended contents. The Danish Business Administration will then forward this copy to the Danish Financial Supervisory Authority. This series of strict registration and authorization control measures aims to prevent potential risks at the source and lay a solid foundation for the future development of the crypto asset industry.

In addition, the law further emphasizes that if a company chooses to locate its headquarters or registered address in Denmark simply to evade the legal supervision of the country/region where its main customers are located, the Danish Financial Supervisory Authority will reject its authorization application in accordance with the law. This strict regulation effectively maintains the standardized development of the Danish crypto industry, reduces the legal risks that may be caused by foreign companies, and provides a more solid and comprehensive protection for the legitimate rights and interests of related companies and employees.

In order to respond to risk management needs more efficiently and quickly, the regulation grants the Danish Financial Supervisory Authority (or other Danish institutions authorized by law) special powers, allowing it to enter the business premises of crypto asset service providers other than asset-backed tokens and electronic currency tokens at any time without a court order, and requires individuals involved in crypto asset transactions (also excluding asset-backed tokens and electronic currency tokens), issuers of asset-backed tokens, issuers of electronic currency tokens, and crypto asset service providers to cooperate in providing information and conducting necessary inspections. This measure aims to more effectively regulate the crypto asset industry, crack down on illegal and irregular activities, and ensure that the assets of crypto investors are not infringed. 4.2 Danish Alternative Investment Fund Managers Act If the Financial Business Act focuses on pre-emptive prevention and in-process monitoring, the Danish Alternative Investment Fund Managers Act (Danish: lov om forvaltere af alternative investeringsfonde) focuses more on the supervision of events that have already occurred and may harm the interests of crypto investors. Under this law, the Danish Financial Supervisory Authority has the right to revoke all or part of the license of an alternative investment fund manager, or even prohibit the marketing activities of the alternative investment funds it manages. These severe measures apply to a variety of situations, including but not limited to: obtaining a license based on false information or any other fraudulent means; violating the provisions of the Anti-Money Laundering Act; and not actually using the authorization within 12 months after obtaining the authorization.

At the same time, to prevent conflicts of interest, the Regulation provides that an AIF manager shall establish a risk management function that is functionally and hierarchically separate from the operating units (including the portfolio management function) and is able to consistently and effectively identify, measure, manage and monitor all risks associated with the investment strategy, objectives and risk profile pursued by each AIF managed.

If a member of the management of an AIF manager fails to take necessary measures when a significant loss or imminent risk of significant loss occurs, he shall be liable to a fine or imprisonment for up to 4 months, provided that he is not subject to a higher penalty under other laws. Persons associated with an AIF manager who provide false or misleading information to a public institution, the public, any corporate body or the manager or investors of an AIF managed by the manager, or who commit gross or repeated negligence or omissions that may cause losses to investors, shall be liable to a fine or imprisonment for up to 4 months. .

It can be seen that the regulation has adopted a more stringent attitude in post-processing. Severe penalties can effectively curb behaviors that harm the interests of crypto investors, help maintain the good order of the crypto industry, strengthen the preventive role of the law, and further strengthen the government's supervision of the crypto industry.

4.3 "Anti-Money Laundering and Terrorist Financing Preventive Measures Act"

The "Anti-Money Laundering and Terrorist Financing Preventive Measures Act" (Danish: lov om forebyggende foranstaltninger mod hvidvask og finansiering af terrorisme) stipulates that if a company or individual knows, suspects or has reasonable grounds to suspect that a transaction, funds or activity is related to money laundering or terrorist financing, it must immediately notify the Money Laundering Secretariat. The same applies to suspicions arising from inquiries by potential customers who attempt to conduct transactions or wish to conduct transactions or activities. Crypto-asset-related transactions and investment activities are also regulated by the Act on Preventive Measures against Money Laundering and Terrorist Financing. The Anti-Money Laundering Secretariat is operationally independent and independent. As a national central unit, the Anti-Money Laundering Secretariat is tasked with: receiving and analyzing suspicious transaction notifications and other information related to money laundering, related predicate crimes or terrorist financing; disseminating its analysis results and any other relevant information to competent authorities, institutions and groups in cases of suspected money laundering, related predicate crimes or terrorist financing; the Anti-Money Laundering Secretariat is responsible for cooperating with other institutions to prepare and update national risk assessments in the field of anti-money laundering to identify, assess, understand and limit current money laundering risks, etc. This approach reflects Denmark's firm determination and efficient execution in combating money laundering and terrorist financing activities. By requiring companies and individuals to report suspicious situations in a timely manner, the monitoring and early warning capabilities of such crimes can be greatly enhanced. At the same time, the independence and professionalism of the Anti-Money Laundering Secretariat also ensure its fairness and accuracy in handling relevant information. In addition, through close cooperation with other institutions, a more comprehensive and effective anti-money laundering network can be formed to further enhance the country's financial security level. In general, this approach is of great significance to maintaining the country's financial order and social stability.

4.4 Other regulatory measures

The Danish government has officially announced that it will start exchanging data on Danish cryptocurrency investors at the international level from 2027. In addition, they expect to introduce a new bill in early 2025 that will force cryptocurrency service providers to report customer transaction details to the authorities. The move aims to strengthen supervision of approximately 300,000 cryptocurrency investors in Denmark and effectively curb possible tax evasion.

This decision shows that the Danish government has taken positive and forward-looking measures to maintain the order of crypto taxation and ensure financial security. The Danish government hopes that through international data exchange, it can more comprehensively grasp the trading dynamics of cryptocurrency investors and provide more accurate information support for tax supervision. At the same time, it requires service providers to report transactions, which further strengthens the supervision of cryptocurrency transactions, helps to timely discover and deal with potential tax evasion problems, and is of great significance for maintaining Denmark's crypto tax fairness and financial stability.

5. Summary and Outlook

In terms of the tax system, Denmark has pioneered a proposal to tax unrealized gains on crypto assets in its current tax system, and clearly stipulates that crypto investors can use investment losses to offset gains. This measure is intended to alleviate the tax injustice currently faced by cryptocurrency investors, but it may lead to tight cash flow for investors and distort investors' long-term investment decisions. Therefore, the Danish government needs to carefully weigh various factors when implementing this proposal to ensure that it can effectively solve the problem of tax injustice and avoid unnecessary negative impact on investors and the market. Its actual results are highly anticipated by all sectors of society.  

At the regulatory system level, Denmark has taken a series of sophisticated and comprehensive measures for the crypto industry, aiming to create a healthy and orderly development environment for the crypto industry. First, by strictly regulating the company registration and authorization process, Denmark strives to ensure that all companies engaged in crypto business meet legal requirements and control the quality of the industry from the source. On this basis, the Danish government has also decentralized regulatory powers, allowing relevant departments to conduct inspections at any time flexibly and maneuverably to ensure compliance in the operation of enterprises. Denmark has implemented a tiered penalty mechanism for violations of regulatory provisions. Minor violators may face service suspension or fines as a warning; while serious violators may face severe sanctions such as license revocation or even imprisonment, which effectively deters potential illegal acts. Through this series of measures, Denmark has not only effectively limited various risks that may occur in the crypto industry, but also maintained the stability and security of the country's financial system.

We firmly believe that Denmark will continue to strengthen and improve the tax and legal framework for crypto assets in the future. This move is a key step in driving the Danish crypto industry towards maturity. At the same time, Denmark will continue to improve its regulatory framework and continuously improve the effectiveness of supervision in the crypto field to safeguard the stability of the financial market and market order. Denmark is moving steadily towards building an environment conducive to the healthy growth of cryptocurrencies. Through this series of arrangements, Denmark is expected to play a more active role on the global cryptocurrency stage and contribute to the standardization and prosperity of the industry.