Denmark Plans to Tax Unrealized Cryptocurrency Gains

Denmark, known for its strong emphasis on welfare, equality, and human rights, is now turning its attention to cryptocurrency regulation. While cryptocurrencies are legal to use in Denmark, they do not hold the status of legal tender. Denmark has no specific national regulations for cryptocurrencies but follows the guidelines of the Markets in Crypto-Assets (MiCA) framework.

In a recent report, the Danish Tax Council proposed that cryptocurrencies should be taxed based on the value of holdings rather than realized gains. The new tax regulation could come into effect on January 1, 2026.

Current Cryptocurrency Taxation in Denmark

As in most European countries, profits from cryptocurrency trading in Denmark are taxable and treated as speculative income. Cryptocurrency gains are subject to personal income tax, and previous losses can only be deducted in a limited manner.

Denmark employs a progressive tax system, where higher gains result in higher tax rates. According to the Danish tax authority's official website, profits from speculative assets are taxed similarly to wages, but the 8% labor market contribution is not included. Depending on individual circumstances, the tax rate can be as high as 53%, though losses can reduce this by up to 26%.

Planned Changes to Crypto Taxation

In its Wednesday report, the Danish Tax Council proposed a new tax form for cryptocurrency based on the value of holdings. The goal of the new regulation is to remove asymmetry between gains and losses, meaning investors could be taxed on unrealized profits or losses.

"Market-based taxation is considered capital income, and means continuous taxation regardless of whether an actual sale has taken place," the report stated.

Taxing cryptocurrencies presents challenges because they are not regulated by centrally recognized authorities or governments. Therefore, the tax authority plans to submit a new bill in early 2025 that, in addition to introducing the new tax form, could impose reporting requirements on companies dealing with cryptocurrency services.

The new tax system could come into force on January 1, 2026, with the unrealized capital gains tax rate likely set at 42%. Mads Eberhardt, lead analyst at Steno Research, added: "This tax will affect not only newly acquired cryptocurrencies but all assets acquired since Bitcoin's creation in January 2009. This will be an open fight against cryptocurrencies."

Wealth-Based Taxation Globally

Several countries are considering or have already implemented wealth-based taxation, which includes unrealized gains, aiming to impose higher taxes on larger fortunes.

In the United States, the concept of a "billionaires tax" has been proposed, targeting the wealthiest individuals and including cryptocurrency holdings. Norway is also known for its wealth tax, which applies to cryptocurrencies regardless of whether there has been an actual sale during the tax period.

Argentina is among the countries looking to tighten cryptocurrency taxation rules. While Latin American countries primarily tax realized gains, proposals have been made to impose a wealth-based tax on held assets to help the government better combat inflation and economic pressure.

Spain is also considering stricter taxation rules for cryptocurrencies. Wealth-based taxation has been suggested for particularly large portfolios, although there is no concrete plan yet. The same is true for Canada, where only realized gains are currently taxed, but the idea of heavily taxing individuals with high net worth for the public good is gaining traction.