Denmark is preparing to introduce a tax on unrealized gains from digital assets like Bitcoin. Starting January 1, 2026, Danish investors may face a 42% tax on the gains of their bitcoin holdings, even if they haven’t sold their assets.
This proposal is part of a broader effort by the Danish government to bring digital assets under the same regulatory umbrella as traditional financial assets.
The concept of unrealized gains tax means that investors would pay taxes on the increase in value of their bitcoin holdings, even if they have not sold the assets and converted them into fiat currency.
In essence, this tax would apply to the potential profits based on the value of the digital asset at the end of the year, rather than waiting until the assets are sold. This approach mirrors the taxation model Denmark already applies to certain traditional financial contracts.
For instance, Denmark already taxes some equity exchange-traded funds (ETFs) on unrealized gains each year. These ETFs, which reinvest dividends, are subject to tax rates of 27% or 42% under the “lagerprincippet” (inventory principle), a method also proposed for digital assets.
By treating bitcoin similarly, Denmark aims to streamline its tax system and ensure consistency across financial instruments.
This is particularly bad news for long-term bitcoin holders, who have turned to the scarce digital asset to protect their finances against perils of inflation and currency devaluation.
Denmark’s Tax Minister, Rasmus Stoklund, believes the current system for taxing bitcoin is unfair to many investors. He suggests that the new regulations will simplify how digital assets are taxed, addressing the challenges that investors have faced.
Stoklund emphasized that the government wants to create a fairer and more efficient tax system, stating:
“It is my opinion that there is a need for clearer and more appropriate rules in the area. That is why I am also looking forward to putting forward a bill and discussing it with the parties in the Folketing.”
Under the proposed system, bitcoin investors will be taxed annually based on the value of their assets at the start and end of each year. This inventory-based taxation will apply to both gains and losses, which will be treated as capital income.
Investors will also have the opportunity to offset losses from one digital asset against gains from another, or even offset gains from bitcoin against losses from other financial contracts.
While this new tax system may provide a simpler approach for some investors, it raises concerns about liquidity. Investors might face situations where they owe unrealized gains taxes, but haven’t sold their assets, leaving them without cash on hand to cover the tax bill.
Recognizing this potential issue, the Danish Ministry of Taxation is considering measures to alleviate liquidity problems, such as carryback rules or provisions to mitigate the impact of sudden price drops after the tax year ends.
This move aligns with Denmark’s existing taxation rules for certain financial contracts under the Capital Gains Tax Act (Kursgevinstloven). Currently, some traditional financial contracts, such as equity ETFs and stock savings accounts (Aktiesparekonto), are taxed on unrealized gains annually.
The government believes that by extending this framework to digital assets, it will help reduce complexities and ensure a more consistent treatment of financial instruments.
The proposed changes will affect investors in Denmark who have acquired digital assets since Bitcoin’s inception in January 2009.
This marks a significant shift in how bitcoin is treated for tax purposes, potentially making Denmark one of the first countries to introduce such taxes for the digital asset.
Taxing unrealized gains may have a significant impact on bitcoin investors, particularly those who hold onto their assets for the long term. Investors will need to account for potential tax liabilities even if they don’t sell their holdings.
This could influence trading behavior, as some investors might choose to sell their assets to cover their tax obligations or to realize gains strategically.
Frequent traders may find the new system less burdensome, as they would no longer need to track every individual transaction in great detail. Instead, they would report the overall change in the value of their holdings over the tax year.
But for the long-term holders, specifically those who have turned to bitcoin as a safe haven asset to shield themselves from the inflationary pressures of fiat currencies, this is bad news.
This could create a significant financial burden, as investors might need to sell some of their assets just to cover the tax, contradicting the very idea of a long-term holding strategy.
A 42% tax rate on unrealized gains is significant. For investors looking to preserve their wealth over time, such a high tax burden could severely limit the profitability of bitcoin as an investment option, making it much less attractive.
Under this new tax rule, even if bitcoin’s value rises due to inflationary devaluation of the Danish krone, investors may lose a significant portion of their perceived “safe haven” gains to taxes.
According to a report by Focus Economics, Danes faced a consumer inflation rate of 7.7% in 2022, a steep rise from sub 2% inflation in the previous decade.
Above that, liquidity issues remain a key concern. The volatile nature of the bitcoin market means that asset values can fluctuate dramatically in a short period.
Taxing gains that only exist on paper might strain investors’ resources, particularly if the market drops after the tax year ends, leaving them with a tax bill based on a higher value than their current holdings.
Denmark’s proposal comes amid growing global regulatory scrutiny of digital assets. Across Europe, regulators have been paying closer attention to digital assets like Bitcoin, with some even suggesting more drastic measures to limit or reduce their use.
Researchers from the European Central Bank (ECB) have raised concerns about Bitcoin’s impact on traditional financial systems, and some economists have even called for policies to curb its expansion.
In a similar action, Italy recently announced plans to raise its capital gains tax on bitcoin and other digital assets from 26% to 42%. This tax hike is part of a broader budget plan to boost public revenue and address the fiscal deficit.
These moves have sparked concerns among bitcoin investors and industry leaders, who fear they could negatively impact the European countries’ digital economy.
One user noted on X:
I’m watching this space closely. Taxing unrealized gains could set a precedent for other countries. Hope Denmark considers the potential impact on innovation and fintech growth.
Another user, furious with this announcement, stated:
“Keep doing it guys. Every time it happens I cross off where I’m moving to with my crypto.”
In line with these concerns, Denmark’s move to tax unrealized gains could be seen as part of a broader effort to regulate the bitcoin market more tightly.
By imposing stricter tax obligations, the government may discourage bitcoin holders from maintaining their investment in the country and move their holdings to more favorable jurisdictions.
