Danish authorities do not recognize cryptocurrencies as financial instruments or legal currency. The Danish Tax Authority typically treats cryptocurrencies as investment property and taxes income from sale of cryptocurrency similar to capital gains, allowing deductions for losses.
The Tax Authority has determined that income from mining of cryptocurrencies is to be treated as income from a hobby, unless done on a commercial scale. The Tax Authority appears not to have issued tax guidance specifically for staked cryptocurrencies, air drops of cryptocurrencies, or hard forks. The Tax Authority has stated that the taxation of gifted cryptocurrencies must be determined on an individual basis. The realization of certain gifted cryptocurrencies is not subject to tax.
Denmark has no laws specifically addressing cryptocurrencies and no regulatory proposals on cryptocurrencies are pending before the Danish Parliament. Danish authorities do not recognize cryptocurrency a currency, and treat cryptocurrencies as a form of financial speculation, i.e. property acquired with the purpose of making a financial profit at time of sale.
The term cryptocurrency is not legally defined for purposes of determining income taxation, and how cryptocurrencies are taxed depends on how they were received and how they are divested. While typically cryptocurrencies are considered a form of financial speculation, the National Tax Tribunal has found that this must be determined on a case-by-case basis.
The Danish Tax Authority (Skatteforvaltningen) and Danish courts have determined that in order for cryptocurrency to qualify as an investment property, making a financial profit at the time of sale need not be the only reason for the investment. Because cryptocurrencies do not have many other uses compared to other collectable property, cryptocurrencies are typically taxed as investment property subject to capital gains. However, mining of cryptocurrencies (i.e., the creation or discovery of cryptocurrency) qualifies as income from a hobby unless carried out on a commercial scale. If carried out on a commercial scale, mined cryptocurrencies instead are treated as income from commercial activity.
Denmark classifies income in categories, including income from employment, income from commercial activity, income from hobbies, and income as capital gains. Losses made in commercial activity and on capital holdings are deductible.
II. Tax Treatment of Block Rewards
A. Tax Treatment of Mined and Staked Cryptocurrencies
The Danish Tax Authority (Skatteforvaltningen) has issued guidance for the tax treatment of mined cryptocurrencies. The guidance treats mining as a hobby. When carried out on a large scale over an extended period, mining is considered a commercial activity. The Income Tax Act provides that a person must report and pay income tax on proceeds from hobbies. Financial losses incurred as part of a hobby (a.k.a. non-commercial) activity are not deductible. Costs associated with the procurement of income from hobbies are typically not deductible. Costs incurred in mining on a commercial scale, such as the cost of electricity and of the mining computer, are deductible. When cryptocurrencies are received as payment for goods or services, losses in value may not be deducted as a business expense as the cryptocurrencies are not held as investment property but used as a form of payment.
No guidance by the Tax Authority specifically addressing staked cryptocurrencies was located.
B. Tax Treatment of Tokens Received Through “Airdrops” and “Hard Forks”
The Danish Tax Authority appears not to have issued any guidance specifically on the tax treatment of tokens received through airdrops or hard forks. However, the discussion of the tax treatment of mining discussed above could also apply to these forms of acquiring cryptocurrency if they could be considered rewards for previous work or previous holdings.
The Tax Authority has stated that the question of who is responsible for tax payments in connection with a cryptocurrency gift is subject to an individual determination. The Tax Authority provides a link for applying for a binding ruling on how to treat a cryptocurrency gift for tax purposes. Thus, whether an airdrop or hard fork be considered more analogous to a gift or mining may depend on the situation in a given case. Under Danish law, gifts are not subject to income tax.
C. Tax Treatment of Cryptocurrencies at Time of Sale
Cryptocurrency tokens are treated as investment property and capital gains are taxed upon their sale. The taxation of each cryptocurrency is determined individually, using the first in first out (FIFO) principle to determine the cost basis. For tokens that have no purchase value, the fair market value at the time of mining will apply. Depending on how they were acquired, cryptocurrencies received as gifts may not be subject to tax upon realization.
Prepared by Elin Hofverberg
Foreign Legal Specialist
 Skat [Danish Tax Authority], Bitcoins, ikke erhvervsmæssig begrundet, anset for særskilt virksomhed, https://perma.cc/FTM8-SYXS; Danmarks Nationalbank, Bitcoin er ikke penge (Mar. 18, 2014), https://perma.cc/BJ3L-45J7; Elin Hofverberg, Denmark: Recent Bank and Tax Statements on Bitcoin, Global Legal Monitor (June 16, 2014), https://perma.cc/S93U-FVQ9. For more on how cryptocurrencies are regulated more generally in Denmark see Elin Hofverberg, Regulatory Approaches to Cryptoassets: Denmark, Law Library of Congress (Apr. 2019), https://perma.cc/SQ5F-PJ5C.
 For further information on what constitutes a hobby verses a commercial activity see Skat, Den juridiske vejledning 2020-2, C.C.1.3.1 Generelt om afgrænsningen af erhvervsmæssig virksomhed over for ikke erhvervsmæssig virksomhed, https://perma.cc/H2LX-YBQC.
 Skatterådet, SKM2019.7.SR, supra note 7.
 For further information on what constitutes hobby verses commercial activity see Skat, Den juridiske vejledning 2020-2, C.C.1.3.1 Generelt om afgrænsningen af erhvervsmæssig virksomhed over for ikke erhvervsmæssig virksomhed, https://perma.cc/H2LX-YBQC.
 § 6 Statsskatteloven. See also Clarify Your Business Status for Tax Purposes, supra note 13.
 § 6 Statsskatteloven. See also Clarify Your Business Status for Tax Purposes, supra note 13; Skatterådet, SKM2014.226.SR, Bitcoins, ikke erhvervsmæssig begrundet, anset for særskilt virksomhed (Apr. 1, 2014), https://perma.cc/JY3F-VRAH.
 Compare tax treatment of mining in Part II (A) above.
 Bitcoins and Other Cryptocurrencies, supra note 18.
 § Statsskatteloven.
 Bitcoins and Other Cryptocurrencies, supra note 18.
 See Skatterådet, SKM2019.78.SR, supra note 21, determining that cryptocurrencies received as gifts by a spouse are not subject to tax upon realization.
Last Updated: 02/05/2021