On-shore VASP in Denmark

Lov om forebyggende foranstaltninger mod hvidvask og finansiering af terrorisme (hvidvaskloven) – The Money Laundering Act.

This is the core Danish law that transposes the EU's 4th, 5th, and 6th Anti-Money Laundering Directives (AMLDs).

The 5th AMLD (Directive (EU) 2018/843) was particularly significant for bringing virtual asset service providers under the scope of AML/CFT regulations, requiring them to register and comply with the same obligations as traditional financial institutions.

The 6th AMLD (Directive (EU) 2018/1673) primarily harmonises the definition of money laundering offences and associated penalties across member states, indirectly strengthening the overall framework.

Exchange between virtual currencies and fiat currencies.

Exchange between one or more virtual currencies.

Are custodian wallet providers.

Provide other services related to virtual assets.

Identification and Verification of the Customer:

Natural Persons: Obtain and verify the customer's identity (full name, address, date of birth, national identification number if applicable). Verification must be based on reliable, independent sources (e.g., valid passport, national ID card, driving license combined with proof of address).

Legal Entities: Obtain and verify the entity's name, legal form, address, registration number, and Articles of Association. Identify and verify the identity of the persons who are authorised to act on behalf of the legal entity.

Purpose and Intended Nature of the Business Relationship: Understand the purpose and intended nature of the business relationship or the occasional transaction.

Identification of Beneficial Owners:

VASPs must identify the ultimate beneficial owner (UBO) of all legal entities and trusts. A UBO is typically any natural person who directly or indirectly owns or controls more than 25% of the shares or voting rights, or otherwise exercises control.

Verification of the UBO's identity is also required, using reliable, independent sources.

VASPs must conduct an enterprise-wide risk assessment (§ 7 of Hvidvaskloven) to identify, assess, and understand the money laundering and terrorist financing risks associated with their customers, products, services, transactions, and geographic areas.

Enhanced Due Diligence (EDD): Required in situations presenting a higher risk of money laundering or terrorist financing. This includes:

Customers who are Politically Exposed Persons (PEPs) or their family members/close associates.

Customers from high-risk third countries (as identified by the EU or FATF).

Unusual or complex transactions.

Situations where the customer is not physically present for identification.

Measures include obtaining senior management approval, taking reasonable measures to establish the source of funds and wealth, and conducting enhanced ongoing monitoring.

Simplified Due Diligence (SDD): Permitted in clearly defined low-risk situations, but these are rare for the virtual asset sector, which is generally considered higher risk.

VASPs must continuously monitor the business relationship, including scrutiny of transactions undertaken throughout the course of that relationship, to ensure that the transactions are consistent with the VASP’s knowledge of the customer, their business, and risk profile (§ 13 of Hvidvaskloven).

Customer information and risk profiles must be kept up-to-date.

E-money Tokens (EMTs): Crypto-assets that aim to maintain a stable value by referencing the value of one official currency (e.g., a EUR-pegged stablecoin).

Asset-Referenced Tokens (ARTs): Crypto-assets that aim to maintain a stable value by referencing any other value or right, or a combination thereof, including one or more official currencies, commodities, or other crypto-assets (e.g., a stablecoin referencing a basket of currencies or gold).

Titles III (ARTs) and IV (EMTs) of MiCA apply from June 30, 2024.

The remaining provisions of MiCA apply from December 30, 2024.

EMTs are explicitly classified as a specific type of crypto-asset within MiCA, but their issuance is restricted to entities already authorized as credit institutions or e-money institutions under the E-Money Directive 2009/110/EC (EMD2). MiCA effectively extends and adapts EMD2 rules for EMTs.

ARTs are a distinct category under MiCA.

Securities: Stablecoins that qualify as financial instruments (securities) under MiFID II are excluded from MiCA's scope and remain subject to existing securities legislation. However, most common stablecoin designs are unlikely to meet the definition of a transferable security under MiFID II.

Algorithmic Stablecoins (without robust reserves): MiCA effectively prohibits purely algorithmic stablecoins that do not maintain a stable value through reserves (see section 5 below).

Issuers must ensure a 1:1 backing for all outstanding EMTs in the official currency they reference.

The reserve assets must be held in segregated accounts with credit institutions.

They must be invested only in highly liquid, low-risk assets and in a manner that ensures stability and sufficient liquidity.

Reference: MiCA, Articles 32-35.

Issuers must establish and maintain a reserve asset pool that is separate from their operating funds.

MiCA specifies detailed rules on the composition, diversification, and management of the reserve assets to ensure the stability of the ART.

Reference: MiCA, Articles 40-42.

Only credit institutions (banks) authorized under the Capital Requirements Directive (CRD IV) or e-money institutions authorized under EMD2 can issue EMTs.

These entities must also notify their competent authority (Finanstilsynet in Denmark) and comply with specific MiCA requirements related to EMTs.

Reference: MiCA, Article 21.

Issuers must be authorized by their competent authority (Finanstilsynet in Denmark) as a "crypto-asset service provider" (CASP) specifically for the issuance of ARTs.

The authorization process requires a detailed application outlining business plans, governance arrangements, operational resilience, and the reserve asset management.

Reference: MiCA, Article 18.

Holders of EMTs have the right to redeem them at par value (1:1) for the underlying official currency at any time, free of charge (with exceptions for fees for non-active users, similar to e-money).

Reference: MiCA, Article 37.

Holders of ARTs have the right to redeem them for the underlying assets (or their market value) from the issuer at any time.

MiCA specifies conditions for redemption, including notice periods and potential fees, but ensures the right to redemption.

Speculative Intent: A cornerstone of Danish crypto tax is the assumption of "spekulationshensigt" (speculative intent). SKAT generally assumes that individuals acquire cryptocurrency with the intent to profit from price fluctuations. This means that gains from the sale or exchange of crypto are almost always taxable, and losses are generally deductible.

FIFO (First-In, First-Out): For individuals, SKAT mandates the FIFO principle for calculating cost basis when selling or exchanging cryptocurrencies. You cannot choose LIFO, average cost, or specific identification. This is a crucial detail.

Documentation: Meticulous record-keeping is paramount. Taxpayers must be able to document all transactions, including acquisition dates, prices, disposal dates, prices, and exchange rates.

Selling crypto for fiat currency.

Exchanging one cryptocurrency for another (e.g., Bitcoin for Ethereum).

Using crypto to purchase goods or services (the value of the crypto at the time of purchase is considered a disposal).

Gains from NFTs are also generally treated similarly.

There is no separate flat "capital gains tax rate" for cryptocurrency for individuals. Instead, these gains are added to your other personal income and taxed according to Denmark's progressive income tax rates.

Bundskat (Bottom tax): 12.06% (2024)

Kommunalskat (Municipal tax): Varies by municipality, typically around 24-27% (average ~25.04% in 2024).

Sundhedsbidrag (Health contribution): 1% (2024)

Topskat (Top tax): 15% (2024) on income above a certain threshold (DKK 640,100 after AM-bidrag in 2024).

Therefore, the combined marginal tax rate on crypto gains can be up to approximately 52-56%, depending on your municipality and total income.

Labour Market Contribution (AM-bidrag): 8% is also levied on the gross income before other taxes.

Losses from the sale of cryptocurrency (where speculative intent existed) are generally deductible against gains from other cryptocurrencies within the same income year.

Net losses cannot typically be deducted against other types of income (e.g., salary income) or carried forward for individuals, unless it's classified as business activity.

However, if you can prove that your acquisition was not for speculative purposes (e.g., as a collectible that you never intended to sell), neither gains nor losses would be taxable/deductible. This is a difficult threshold to meet for crypto.

Income from mining is taxed as personal income at the market value of the mined crypto at the time of receipt.

If mining is conducted on a professional scale, it may be treated as business income, subject to specific rules for self-employed individuals or companies.

Rewards received from staking (e.g., for participating in a Proof-of-Stake network) are taxed as personal income at their market value at the time of receipt.

Airdrops are generally considered taxable income at their market value at the time of receipt, unless they clearly fall under the definition of an unsolicited gift with no expectation of consideration. SKAT's stance tends to be that most airdrops are taxable.

Yield Farming / DeFi Income:

Income generated from DeFi activities such as providing liquidity, lending, or yield farming is generally taxed as personal income at its market value when received.

Payment for Goods/Services/Salary in Crypto:

If you receive cryptocurrency as payment for goods, services, or as salary, it is taxed as regular income (business income or salary income, respectively) at its market value at the time of receipt.