As public interest in cryptocurrencies like Bitcoin and Ethereum surges, more industries explore how they can take advantage of them. Here, the issue of taxation has its say in the process. Bitcoin profits are tax-free in many countries, including Portugal, Malta, Singapore, Belarus, and Switzerland. 

However, you can read news on governmental decisions in favor of or against cryptocurrency almost every day. Denmark joined the countries that levy profits like capital gains, potentially setting a precedent for other digital assets to be taxed in the future.

Some currencies are entitled to different taxable brackets. while you buy Bitcoin check whether they are entitled to capital gains tariffs or not. The taxation bracket differs from the purpose to purpose you have held your coins for. For example, the time for which your currencies have been held in your account prior to they were sold. Your transaction would be classified among capital or income gains.

Taking Denmark as a case, the profit generated by selling them will be considered an income gain, upon which your tax percentage would be claimed by the government. 

Bitcoin Profits Deemed Taxable in Denmark

Bitcoin is again in the spotlight after the Danish Ministry of Taxation was taken to Court for unjustified taxation of profits made from cryptocurrency-related activities. Both decisions confirm verdicts issued by lower-instance courts and are linked to unjustified actions like purchases and donations. One case concerned gains from Bitcoin bought, while the other related to selling the coin.

Denmark’s Supreme Court stated that there are only two purposes behind their acquisition: to be sold or used as a means of payment. Thus, it decided in two separate rulings that profits made from selling them become taxable, whether they’re paid for or received as donations. The two rulings that regard Bitcoin profit taxation are potentially setting precedence for profits made from cryptocurrency or other digital assets over time.

Additionally, the Court’s decision extends to BTC mining, meaning that individuals who self-mine their currency are now required to pay taxes on their work. This is a massive blow for BTC holders, as they’ll be forking over a portion of their profits to the government.

These policies aim at enhancing the state’s ability to detect and counter tax-related evasion, avoidance, and fraud, possibly creating a safer environment for crypto-related experiments and transactions.

The Danish Taxation System

European countries are world-famous in terms of taxation policies. Speaking of Denmark, it is said that the average effective tax rate that a person in Denmark has to pay is approx. 45%. But all this monetary cruelty justifies when you notice the infrastructure and various development aspects of the country.

Denmark has proudly reputed as the world’s happiest country in the UN’s world happiness index. People living in Denmark can enjoy various free public services like free education, free health, and well-being services. 

All these miracles are only possible due to the progressive tax system that their government has imposed in the country. It means that an individual with a higher income has to pay higher taxes to the government to eliminate income inequality among the population. Denmark is also famous for imposing taxes on investment, which are entitled among the income gain taxes.

Crypto Holding Taxation in the European Union

In the European Union, taxing capital gains, transactions, and mining are all examined. Related solutions should counter money laundering, create a safer environment for crypto users, and additionally, fund the EU’s $185 billion annual spending budget.

As Denmark is not the only country taxing Bitcoin profits, it’s noteworthy to look at the pioneers of these rules. In the UK, for instance, the owners pay the same tariff rate and other cryptocurrencies as they do for shares.

They have to pay a surcharge on profits over £6,000, and taxes are applicable (though they differ) to each method of acquiring cryptocurrency: receiving as a form of non-cash payment, owning a crypto-backed business, trading, mining.

Unlike in many other countries, digital currencies in Germany are considered private assets, as opposed to properties which brings about different implications. The latter would bring about different taxes. Here, the tax rate paid on currencies equals the regular Income Tax rate – up to 45%. But here, the law differs from that of Denmark. 

While you’d pay for holding these digital currencies in Denmark for over a year, this isn’t the case with Germany, where your currency becomes tax-free after you HODL it for a year. And when the crypto is disposed of, the taxation rate is calculated according to the time that passed while holding it.

In Italy, the Senate approved new rules for gains that levy 26% on digital gains whenever they amount to over €2,000. However, several transactions like staking and mining are yet to be reviewed and Agenzia Entrate hasn’t released any guidance on them so far. Despite lacking an official statement, these ways of gaining profits are unlikely to remain exempt from tax.

Countries Where Cryptocurrency is Tax-free

We’ve seen what cryptocurrency taxation means and now it’s time to discover the countries where the profits are exempt from taxes or discounted profits.

Switzerland, home to “Crypto Valley,” has friendly policies for investors, as this type of income and capital gains are considered tax-free. However, you may need to pay an income tariff if you’re mining or trading professionally.

On the other hand, Singapore has no capital gains tax, meaning that investors can sell their digital coins tax-free. Most of the time, they are not subject to income tax, unless it’s earned or received as a business for services and goods.

Last but not least, Portugal is another tax-friendly country regarding cryptocurrency. Most citizens here only have to pay capital gains tariffs or income tariffs on crypto if they’re trading at a professional level.

Denmark’s decision to tax Bitcoin’s profits might be a milestone toward cryptocurrency acceptance, so let’s stay tuned to see what other implementations will occur.