Denmark's Tax Council Proposes Bill to Tax Unrealized Gains on Crypto

Denmark Tax Law Council has recommended a new bill that could introduce taxation on unrealized gains and losses for crypto assets held by Danish investors, potentially starting in 2026. In a comprehensive 93-page report, the Council proposed that all crypto assets be taxed under a unified framework. Three potential models were considered: capital gains tax, warehouse taxation, and inventory taxation.

Danish Tax Minister Rasmus Stoklund highlighted that many investors have faced inequitable taxation under the traditional capital gains tax model. He emphasized the need for simpler, clearer tax regulations for crypto assets. The report leaned towards an "inventory taxation" model, which would treat an investor's entire crypto portfolio as a single inventory subject to taxation by a specified date each year, regardless of whether the assets have been sold.

Proposed Taxation Model

Under the inventory taxation model, Danish crypto investors would be taxed on unrealized gains and losses, similar to how stocks and bonds are taxed. However, the report did not clarify how these new tax rules would apply to existing crypto holdings. Additionally, the Tax Council proposed that crypto service providers, including exchanges and payment firms, be required to report transaction information accessible to all EU nations.

Although the recommendations suggest a shift in tax policy, they do not guarantee immediate implementation. Stoklund indicated that a bill would not be presented to the Danish Parliament until early 2025, with any new regulations not expected to take effect before January 1, 2026.

Global Trends in Crypto Taxation

Denmark's tax recommendations come amid a broader international trend towards tightening tax regulations on both crypto and traditional financial assets. For instance, U.S. presidential candidate Kamala Harris has advocated for a 25% tax on unsold assets, while Italy plans to raise its capital gains tax on Bitcoin from 26% to 42% to help fund election promises and reduce its fiscal deficit. Conversely, Turkey has opted not to impose additional taxes on crypto or stock profits this year, providing a period of stability for investors as the country navigates its evolving economic policies.

In the UAE, the government has amended its VAT Executive Regulation to treat digital assets similarly to traditional financial services concerning VAT exemptions. These changes, effective from October 2024, include VAT exemptions for crypto-to-crypto transfers and conversions, further promoting a crypto-friendly environment and aiming to attract more blockchain businesses to the region.