Regulation

Denmark To Implement World’s First Crypto Unrealized Gains Tax

Published

3 weeks ago

October 24, 2024

Denmark is set to pioneer an unprecedented tax reform by introducing a tax on unrealized capital gains for cryptocurrencies, starting January 1, 2026. This bold move aims to integrate cryptocurrencies such as Bitcoin into the existing financial taxation framework, treating them similarly to other investment assets.

The Tax Law Council has recommended this tax to apply to future acquisitions and cryptos acquired as far back as Bitcoin’s inception in January 2009.

Denmark To Introduce Tax on Crypto Unrealized Gains

According to the press statement, Denmark will impose a 42% tax on unrealized capital gains for all crypto assets. This crypto tax will apply to assets like Bitcoin, which are not backed by any physical assets or fiat currencies. Consequently, the law if passed will bring these digital assets under the same taxation rules as traditional investments.

The government intends to align the crypto taxation with the existing rules for other investment types, such as stocks and bonds.

Moreover, the new tax policy will affect crypto purchased as far back as the genesis block of Bitcoin in 2009. Hence, anyone holding cryptocurrencies will be subject to this 42% tax rate on unrealized gains, regardless of whether they sell their holdings.

Tax Minister Rasmus Stoklund expressed support for the developments stating,

“Throughout recent years, there have been examples of Danes who have invested in crypto-assets being heavily taxed. That is why I am pleased that the Tax Council has today submitted some elaborate and up-to-date recommendations. The council’s recommendations can be a way to ensure more reasonable taxation of crypto investors’ gains and losses.”

Regulatory Challenges and Investor Impact

The introduction of this crypto tax will address the complexities of taxing digital assets. The decentralized nature of cryptocurrencies has made taxation difficult for both authorities and crypto holders. To solve this, Denmark plans to introduce additional regulatory measures.

The Danish government announced that starting in 2027, they will exchange data on Danish crypto investors internationally. They also plan to introduce a bill in early 2025 requiring crypto service providers to report customer transactions. This will help Denmark regulate approximately 300,000 Danes who own crypto-assets and curb potential tax evasion.

In addition, the government will allow investors offset losses from one crypto against gains in another, as well as gains on financial contracts. This approach will correct the current taxation system’s asymmetry, which heavily taxes investors on gains.

These developments coincide with Italy’s efforts to tighten its control over digital assets. Recently, Italy announced plans to increase its capital gains tax on cryptocurrencies, raising it from 26% to 42%. This change is part of Italy’s broader effort to boost government revenue by taxing profits from cryptocurrency investments.