If there is one issue that every trader or investor in cryptocurrency has, it must be how to appropriately file their taxes and understand how cryptocurrency is actually taxed.
Fortunately, the Danish Tax Office, or Skattestyrelsen, has released tax advice on the subject of cryptocurrency taxes, so you can make instant exchanges with your crypto after learning a few things from this article.
How is crypto taxed in Denmark?
Instead of paying capital gains tax in Denmark, profits from selling or otherwise disposing of cryptocurrencies are taxed as personal income.
This indicates that your profits will be subject to a maximum tax rate of 52.07% for the 2022 tax year, depending on your total income and allowed deductions.
In Denmark, how is cryptocurrency taxed?
The Danish Tax Agency does not consider cryptocurrencies to be official currencies like the Danish krone or the euro. This means that for Danish citizens, income tax is applied to profits from selling or otherwise disposing of cryptocurrencies as opposed to capital gains tax.
Do you have to pay income tax every time you sell or otherwise dispose of a crypto asset now that we know that cryptocurrency gains are taxed as income? It depends, is the response.
You must pay income tax only if your goal in purchasing cryptocurrencies is to make money when you sell them later, unless you are regarded as investing in or trading cryptocurrencies as a company.
While Skattestyrelsen allows you to request a specific assessment to determine whether you are considered to have purchased cryptocurrencies for speculative purposes or not, the Danish Tax Agency will generally classify the majority of Danish citizens as speculators and require them to pay income tax on their gains.
In order to prove that you are not a speculator, you must be ready to offer sufficient proof that you did not purchase a cryptocurrency with the goal to benefit down the road.
We'll examine Denmark's current income tax rates in the section after this.
Income tax rates in Denmark
On their worldwide income, individuals who are considered to be tax residents of Denmark will typically be subject to a maximum tax rate of 52.07 percent.
This tax rate may appear to be rather high; however, taking into account the many exemptions, deductions, and credits available, the majority of people will actually pay a tax rate that is lower.
In order to have an understanding of the tax rate structure in Denmark, we must first define the several forms of income tax that are applicable:
- National income tax
- Municipal tax
- Labor market tax
- Church tax
A further layer of complexity is added by the fact that the Danish tax system classifies income from different sources as distinct types, such as personal income and share income, for example.
Calculating gains and losses
You must determine the gain or loss each time you sell or otherwise get rid of a coin. We must first ascertain the asset's purchasing price as well as its selling price.
Simply put, the selling price is the value of the cryptocurrency in Danish kroner at the moment of the transaction. First-in-First-out (FIFO) should be used to calculate the buying price.
Any trading or brokerage commissions related to the transaction can also be added to the cost basis. This indicates that trading commissions are entirely deductible from your gains.
The following is a general formula for determining profit or loss:
Profit or loss is determined by subtracting the purchasing price from the selling price.
The Danish Tax Agency makes it very clear that you typically cannot deduct a loss from any income made in the same year. As a general rule, you must report gains and losses separately when filing your taxes; we will go into more depth on this later.
Is Crypto Mining Taxed in Denmark?
Skattestyrelsen's crypto tax guidance does not expressly address how crypto mining is taxed, but we may look to a judgment from 2018 to gain insight into how mining rewards are viewed from a tax standpoint.
What's significant about the decision is that Skattestyrelsen came to the conclusion that bitcoin mining was regarded to be a pastime rather than a legitimate business (or “erhvervsmaessig virksomhed”).
Hence, all revenue derived from mining bitcoin or other cryptocurrencies will be subject to income tax at the time of receipt. To determine the amount of revenue, consider the fair market value as of the transaction date.
If the value of the cryptocurrency rises from the time you acquired the coins until you sell them at a later time, you will also be responsible for paying income tax on the increase. On the other hand, you can write off a capital loss if the value of the cryptocurrency declines. Box 20 should be used to report mining income as a “non-commercial business activity.”