In recent years, it has become very popular to buy and sell cryptocurrency either in the form of Bitcoin, Etherium or a completely different Cryptocurrency — but how is cryptocurrency actually treated fiscally and what should you pay special attention to? Read here if you want to avoid a tax case.
Date: 31/01 2023
Is cryptocurrency taxable?
If your investment in cryptocurrency is covered by the concept of speculation in Danish tax law, your investment will be taxable under the State Tax Act when there is a resale intention already at the time of purchase and the resale is expected to be made for profit.
In practice, it has proved very difficult for persons to refute this speculative intention. Profits on the sale of cryptocurrency will therefore, as a general rule, always be considered to have been made with speculation in mind and thus to be taxable.
In very specific situations, it is accepted in practice that individuals can sell cryptocurrency tax-free. This has happened in cases where speculation has been refuted in the specific situation.
How is cryptocurrency taxed?
As a general rule, cryptocurrency (eg BTC, ETH, etc.) is taxed according to the capitalization principle. That is, the taxation occurs only after you have sold its cryptocurrency.
The statement of cryptocurrency gain and loss must be made for each cryptocurrency. The inventory is made according to the FIFO principle (First in, First out), which is that the first cryptocurrency acquired is the first one sold.
As a general rule, gains and losses must be determined separately, which means that the loss on the individual cryptocurrency cannot be offset against the gain on the same cryptocurrency or another.
This is of great importance, as gains are taxed as personal income without AM contributions at a tax rate of up to 52%, and losses are deducted as an equational deduction at a deductible rate of about 25%.
Example: A person with a gain of DKK 100,000 and a loss of DKK 100,000. (net gain of DKK 0) within the same income year, when trading bitcoins, will be in a situation where they will have to pay a tax. This is because gains and losses are taxed differently, and that as main rule it is not possible to offset the loss in the gain. The reason for this is that gains are taxed at up to 52% (personal income) and losses are deducted at a tax value of approximately 25% (equational deduction). In this example, the investor would have to pay approximately DKK 27,000 in tax on a gain of DKK 0.
SkatteInform can assist with the calculation of the taxable income of your cryptocurrency investment.
Exception for offsetting loss in gain
It is stated on SKAT's website regarding Cryptocurrency (Bitcoins) that it is possible to offset losses in profits if you do not buy new bitcoins between sales. This means that the stock of bitcoins must always be 0 before repurchasing.
Example: A person who buys 10 bitcoins, who sells 4 pcs. at a profit and later sells 6 pcs. at a loss, can make a net calculation. It assumes that:
- There must be no purchase between sales
- It must be within the same income year
- There can be no offsetting of losses in gains for other cryptocurrency
Cryptocurrency exchange/conversion
Exchange between cryptocurrencies is considered as buying and selling for tax purposes. That is, if you exchange/convert Bitcoins to etherium, it will be considered the sale of bitcoin and the purchase of etherium.
All cryptocurrencies are not taxed equally — financial contracts
There are countless cryptocurrencies in existence, and they are not treated the same. It is therefore important to examine the cryptocurrency you have invested in. A cryptocurrency may be subject to a different regulatory framework than the state tax code, which may result in different taxation rules. This applies, among other things, to stablecoins. For example, the cryptocurrency USDT, which is 1:1 with the US dollar, is considered Stablecoins.
Stablecoins are similar to financial contracts, and are thus subject to the provisions of the Exchange Gains Act. This means that Stablecoins are taxed as capital income according to the stock principle, i.e. they are taxed on the annual increase in value of both realized and unrealized gains. At the same time, any loss can also be deducted from capital income. Taxation on capital income amounts to up to 42%.
Contact SkatteInform if you need assistance with this.
Have you been contacted or have received a letter from the Swedish Tax Agency
If the Skattestyrelsen has sent you a letter in the form of a proposal for a decision or a decision, it is first and foremost important that you decide whether you agree with what the Skattestyrelsen has come up with. The Danish Tax Agency may have made a discretionary increase in your income or based on claims that are not correct.
As a rule, you have two weeks to submit your comments after receipt of the draft decision.
If you have received a decision, you have 3 months to appeal the decision. The complaint must be submitted to the Tax Appeals Board, and the complaint fee is DKK 1,100. You have the option of obtaining full (100%) or partial (50%) cost coverage for an advisor, depending on whether you win the tax case with a predominant degree.
We can help
Skatteinform has great expertise in assisting with tax returns on investment in cryptocurrency. Skatteinform leads tax cases for investors who have been unfairly taxed on cryptocurrency investments.
You are always welcome to contact us for a non-binding meeting if you would like a preliminary assessment of your tax case.
- We will make a qualified assessment about the possibility of appealing and winning the tax case.
- We will deal with the costs of conducting the case and we will set out the rules on what you can get paid by the public in cost reimbursement.
- We will inform you about the pros and cons of conducting the case so that you can decide whether to pursue the case.
We are also happy to assist with your tax return, so you reduce the risk of a tax case.
Contact Skatteinform
Call us by phone: 33 32 10 10
Send an email to us at: Info@Skatteinform.dk
Tax Inform
Inge Nilsson Berkay Sonmez
Chartered Accountant MSc. Merc.AUD
SkatteInform Statsauthorized
Audit partner company
Frederiksborggade 54 1. tv
1360 Copenhagen K
We do not accept responsibility for any dispositions that may be made on the basis of this newsletter without prior individual advice. Likewise, we do not accept responsibility for any errors and omissions.