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Denmark has not adopted legislation that specifically deals with cryptoassets. A crypoasset transaction may fall under Danish regulatory authority, depending on whether the cryptoasset is considered a form of payment (currency), capital asset (investment), or financial service.

The Danish Financial Supervisory Authority has stated that the use of cryptocurrencies as payment is generally not regulated by the Authority, but the applicability of Danish securities law will depend on the specifics of the initial coin offering (ICO). ICOs that are similar to initial public offerings (IPOs) are subject to securities law, and the issuing corporation must publish a prospectus in connection with the ICO.

Denmark generally treats cryptocurrencies as capital property for tax purposes, taxing gains and allowing for deductions on losses. However, losses may not be deducted as a business expense when the value of cryptocurrencies that have been received as payment for goods or services has decreased.

I. Approach to Assets Created Through Blockchain

A. General

Denmark has no laws specifically addressing cryptocurrencies and no regulatory proposals on cryptocurrencies are pending in the Danish Parliament. However, the Danish Financial Supervisory Authority has issued statements explaining that Danish laws may apply depending on the nature of the cryptoasset and how it is used.[1] The Authority determined that initial coin offerings (ICOs) may be conducted in such a way as to fall under the purview of the Authority, and thus would be subject to Danish regulation—for example, “legislation on alternative investment funds, prospectuses, and money laundering.”[2] Cryptocurrencies that are solely used as a means of payment continue to be outside of the purview of Authority.[3]

In 2018, the Financial Supervisory Authority made a determination that a specific ICO was not subject to its authority. In the specific case, the determining factor was that “the relevant token did not grant financial or decision rights over the corporation or the corporation’s earnings.”[4]

The Authority had previously in 2013 rejected the idea that cryptocurrencies that functioned similar to bitcoins were currencies and stated that it would not regulate use of such cryptocurrencies.[5] In its statement the Financial Supervisory Authority emphasized that it had evaluated the use of the cryptocurrency system and found that cryptocurrencies such as bitcoins do not fall under any of the financial services categories, including the issuing of electronic money, payment for services, currency exchanges, or the issuing of mortgages; thus, it concluded, such cryptocurrency activity was not covered under current financial regulations.[6]

B. Anti-Money Laundering Law

1. Regulation

As a member of the European Union, Denmark is bound by the EU’s Anti-Money Laundering Directives. It implemented the Fourth Anti-Money Laundering Directive through its Money Laundering Act.[7] The Fifth Anti-Money Laundering Directive must be implemented by January 10, 2020.[8] Money laundering is technology neutral, i.e., even though cryptoassets are not mentioned in the legislation, all money laundering using that technology is criminalized.[9]

2. Case Law

On April 8, 2019, the Danish police published a summary of a Danish District Court case where a man was sentenced to four years and three months in prison for money laundering, involving the use of bitcoins.[10] The total value of the money laundered exceeded DKK 3 million (about US$450,000).[11]

3. Prevalence

In a 2018 response to a parliamentary question to the Minister of Justice, the Justice Department responded that it was not aware of the use of bitcoin ATMs in Denmark to launder illicit funds.[12] However, it acknowledged that such cases have happened in other countries and that there is a likelihood that it will take place in Denmark as well.[13]

C. Taxation

Similar to other legal interpretations of how to treat cryptoassets, the way a cryptoasset is taxed depends on how it is used. SKAT (the Danish Tax Authority) and the Danish Tax Council have issued a number of statements on virtual and cryptocurrencies.

1. Business Losses Not Deductible

In 2014 the Danish Tax Authority published a binding reply (a response to a public question from taxpayer that is a binding interpretation of the Tax Authority) in which it declared that an invoice amount cannot be issued in cryptocurrencies, but must be issued in Danish Kroner or another recognized currency.[14]  The Authority went on to state that any losses in the value of bitcoins cannot be deducted as a cost of doing business when bitcoins are used as a means of payment. [15]

2. Value-Added Tax

In 2016 the Danish Tax Authority discussed cryptocurrencies in relation to value-added tax (VAT) and found that cryptocurrencies are exempt from VAT.[16]  The determination is consistent with the preliminary ruling issued by the Court of Justice of the European Union in 2015.[17]

The Tax Authority has also commented on how the mining of bitcoins should be treated from a VAT tax perspective.[18]  The case presented to the Authority involved a Danish person who wanted to sell hashing capacity (data capacity) on the electrical grid, an activity that was subject to VAT, a cost that the seller could later deduct.[19] 

3. Cryptocurrencies Treated as Capital or Financial Instruments

In 2018 the Danish Tax Council declared that losses on the sale of certain cryptocurrencies (in this case bitcoins) that were purchased as an investment are tax deductible.[20]  In determining that losses are tax deductible the Tax Council also found that profits are subject to income taxation.[21]

In 2017 the Tax Council had previously found that other cryptocurrencies (in the relevant case bookcoins) are not subject to the same provisions for tax purposes. Instead, cryptocurrencies that are tied to another value, here silver, are more similar to structured debt (trade in commodities), and therefore subject to financial contracts taxation.[22]  Thus, any income derived from the increase in value of these types of cryptocurrencies is subject to gains tax and loss deductions under the same conditions as financial contracts.[23]

4. Tax Authority Investigation 

In January of 2019 the Tax Authority announced that it will collect information from cryptocurrency traders operating in Denmark to assess whether their customers are paying taxes.[24] The Tax Authority had previously received information on the sale and purchase of cryptocurrencies performed by Danes and persons with ties to Denmark from the Finnish Financial Authority.[25] According to reports, some 2,700 Danish citizens and residents have purchased and sold bitcoins to a value of DKK 100 million (US$15 million) on Finnish trading sites.[26]

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II. Custodianship of Cryptocurrencies by Financial Institutions

No specific legislative provisions governing custodianship of cryptocurrencies or other cryptoassets exist under Danish law. Legal commentary suggests that at present operators of cryptowallets are not subject to money laundering provisions.[27] The argument is based on the assumption that crytpocurrencies generally are not subject to money laundering legislation.[28] As evidenced by a recent court case, however, the use of cryptocurrencies in money laundering is indeed illegal.[29]

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III. Regulation of Cryptocurrencies as Financial Securities

Certain ICOs may qualify as securities if, because of their nature, they are more similar to initial public offerings (IPOs), and they fall under the general definition of “financial instruments” in the Act on Capital Markets.[30] A cryptoasset is considered a financial security for the purpose of the Act on Capital Markets if the purchase of the asset is associated with “financial and deciding rights over the corporation or the corporation’s earnings.”[31] Such ICOs are subject to capital market requirements in accordance with the Capital Markets Act, specifically those found in chapter 3.[32] Among other things this includes a duty to publish a prospectus.[33]

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IV. Treatment of Cryptoassets Not Considered Securities

Cryptoassets that are not considered securities are considered cryptocurrencies or utility tokens and may be subject to consumer protection legislation.[34] The government has, however, not made any public statement to that effect.

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V. Distinctions in Treatment of Different Categories of Cryptocurrencies

As Danish law does not specifically mention cryptoassets it also does not prohibit a certain form of cryptoassets. As seen above, different laws will apply to different types of cryptoassets based on their use. This means that issuers and users of cryptoassets must be mindful of what legislation may apply to them and their activities currently and in the future.[35]

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VI. Creation of an Official Digital Danish Currency

The Danish Central bank analyzed whether it should adopt an e-currency, and the result was a resounding “no.”[36] Specifically, its analysis concluded that

a central bank digital currency would not be an improvement of the existing payment solutions in Denmark. Central bank digital currency would fundamentally change Danmarks Nationalbank’s role in the financial system and make it a direct competitor to the commercial banks. The introduction would also lead to risks of financial instability. The potential benefits of introducing central bank digital currency for households and businesses in Denmark would not match the considerable challenges which this introduction would present. Danmark’s Nationalbank therefore has no plans to issue central bank digital currency.[37]

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Prepared by Elin Hofverberg
Foreign Law Specialist
April 2019

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Last Updated: 12/30/2020