Denmark is weighing the possibility of taxing unrealized gains on cryptocurrency assets to reduce discrepancies in tax treatment between digital asset investors and traditional asset holders.
Denmark Considers Taxing Unrealized Crypto Gains
The Danish Tax Law Council has published a detailed 93-page report that includes multiple recommendations concerning the taxation of digital assets.
A central focus of the report is to ensure equivalent treatment for holders of digital assets compared to those holding traditional assets like stocks, real estate, and precious metals.
The report suggests several measures, including proposing to tax unrealized profits or losses on digital assets owned by Danish residents. Specifically, it calls for a 42% capital gains tax on unrealized profits.
Should this legislation be approved, it could take effect as soon as January 2026, requiring Danish investors to pay taxes on their Bitcoin (BTC) and other holdings from the time of acquisition, regardless of asset sales.
The Danish Tax Law Council has stated that this proposed legislation is part of a wider initiative to rectify the “unjust treatment of cryptocurrency investors.” Denmark’s tax minister, Rasmus Stoklund, commented:
In recent years, there have been instances of Danish individuals investing in crypto-assets facing substantial taxes. The council’s proposals aim to establish a more equitable taxation framework for the gains and losses of crypto investors.
Significantly, the suggested tax structure contemplates a three-tier tax system for digital assets, which includes Capital Gains Tax, Inventory Tax, and Loss Write-Offs.
As previously mentioned, the Capital Gains Tax seeks to align the taxation of digital assets with that of traditional assets by implementing a 42% tax rate on unrealized profits.
The Inventory Tax aims to compel crypto investors to report and pay taxes on their entire portfolio annually, irrespective of any actual sales.
Lastly, Loss Write-Offs will support taxpayers by permitting them to offset losses against their profits to lessen their overall tax obligation.
These proposed tax regulations align with Denmark’s position regarding digital assets. In 2022, the Danish Supreme Court issued a pivotal ruling declaring that individuals profiting from the sale of digital assets, whether obtained through donations or purchases, would be subjected to stringent tax regulations.
Global Tax Treatment of Digital Assets
Denmark’s move to streamline cryptocurrency taxation reflects similar actions by other countries. For example, Italy recently announced plans to increase its capital gains tax on crypto from 16% to 42%.
In addition, in August 2024, the New Zealand government introduced legislation outlining new measures aimed at enhancing tax compliance among holders of crypto assets.
In Japan, opposition party leader Yuichiro Tamaki has promised reductions in crypto taxes if he is elected. As of now, BTC is trading at $67,486, reflecting a 2.1% increase in the last 24 hours.
Image from Unsplash.com, Chart from TradingView.com
