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Germany Crypto Tax Guide

Germany Crypto Tax Guide

Crypto tax in Germany

Under local law, virtual currencies are a digital representation of value that is not issued or guaranteed by a central bank or public authority and does not have a legal status of currency or money, but is accepted as means of exchange and can be transferred, stored and traded electronically. Cryptoassets, including cryptocurrency are considered assets from tax perspective.

While there is no specific crypto tax in Germany, crypto transactions are still taxable. Generally, crypto taxation is a bit simpler than in the many Common law countries since it mainly involves income tax only.

The tax authority is called German Federal Central Tax Office or Bundeszentralamt für Steuern (BZSt).

You should not try to hide your crypto gains from them. When you open an account with the crypto providers, you send them the identification documents for AML purposes. Most of the crypto providers have data sharing programs with the state authorities including the tax ones. Thus it’s reasonable to assume that BZSt already knows about your crypto transactions. Tax evasion is a serious crime in Germany so always do file tax returns and show all your crypto income.

Deadlines to remember and forms to complete

Tax year in Germany starts 1st of January and finishes 31st of December. You shall file your Income Tax Return until 31 of July of the next year on paper or online. Tax authorities will review your tax return and come back with a notice of payment due. You shall then pay tax within 1 month upon receipt.

You shall file a tax return if you have made a profit from cryptocurrency transactions. If you did not perform any taxable crypto transactions (just held crypto or bought it for fiat), you are not obliged to file a tax return.

Taxes applicable to cryptocurrencies

For individuals that are not considered businessmen/professionals in crypto, income tax is applicable. Income may arise from different sources: employment, investment, sales transactions.
Income tax arises when you dispose of your crypto. If you have a profit from this transaction, you may pay income tax on it.

Main rule to remember – if you hold a crypto for more than a year, you pay no tax at all. No matter how much profit you have made when disposing of such a crypto. It will be tax-free.

Tax office call this 1 year period a holding period. It starts from acquiring the asset and finishes with the transfer of the crypto to a third party for a consideration – such as a sale, or exchange for fiat or other crypto, or for goods and services.

For the tax purposes, disposal means “getting rid” of your crypto by any of the following means:
  • selling crypto for fiat;
Example: you bought Coin A for €3000 and later sell it for €4000. You'll need to pay tax on the resulting €1000 gain.

  • swapping, trading, exchanging one coin to another;
Example: You bought 1 Coin A for €2000. You exchange 1 Coin A for 10 Coins B. The market value of 10 Coins B is €3000 at the moment. Initially you paid €2000 to acquire Coin A. €3000-€2000 = €1000 which is your Capital gain for the tax purposes.

  • use crypto to buy goods and services;
Example: You buy Coin A for €5000. Later Coin A increases in value and you use it to buy a new device that costs €7000. The €2000 difference is you gain and you shall pay tax on it, unless you had been holding Coin A for more than a year by the time you buy a device.

Another important rule to remember is tax-free limit which is €600 for the year 2022. Note that it’s not a tax-free allowance which you can deduct from your gains (reduce your tax base by €600), you start paying tax on crypto gains starting from €601 and your tax base will be equal to all your crypto gains received in the current year.

If your total gains are less than €600, you don’t need to pay tax. You are actually not even obliged to report these gains to the tax authorities. However, it’s recommended to do it for the sake of transparency.

Note that for the tax purposes you shall always take the Euro value of your crypto. You may use the trading platform data to get this information.

How you calculate the amount of tax to pay

When you dispose of the crypto you owned – you can make a profit or loss. If you have a gain – you may pay tax on it. If you have a loss – not only you don’t need to pay tax, but rather you can reduce your tax burden. And you can even carry it forward to the next tax year.

In order to calculate the tax due, you shall start with the beginning: you need to calculate your capital gains/losses.

Basically, it’s the difference between the EUR equivalent of your crypto at the time you disposed of it and at the time you got it. If the result is more than zero – you have a capital gain for this asset. If it’s less than zero – you have a capital loss and you don’t need to pay the tax and can even reduce your gains.

gain/loss = sale price in EUR – purchase price in EUR

You can also deduct the fees you pay to the crypto currency providers and thus lower the gains.
Example: You acquired 1 Coin X for €1000 and paid a €100 transaction fee. Then you sell your Coin for €2000 and paid a fee of €100. You may deduct the fees: selling price will be €100 less and purchase price will be €100 more.

€2000 - €100 – (€1000 + €100) = €800

€800 gain will be taxed in accordance with your applicable Income Tax rate. If you hold the Coin for more than a year, you don’t need to include any of the profit/loss into your tax return.

If you disposed of your crypto otherwise than selling for EUR, you shall use the similar equation and take the data from the reputable exchange on the date of the relevant transaction.

If your total taxable gains are within the tax-free limit (which is €600 for the tax year 2022), you don’t need to pay tax.

If your total taxable gains are above €600 – your whole amount of gains is subject to income tax, you can not reduce them by €600.

And always remember to note the holding period.

Example: you have got 2 Coins A for €1000 each in 2019. In 2020 you buy another Coin A for €2000. Then you sell all of them later in 2020 for €3000 each. You have paid €4000 for 3 Coins A and got €9000 from selling them. Since 2 of the Coins had been held for more than a year, they are out of tax calculation: 2 Coins A * €3000 = €6000. You are left with €9000 – €6000 = €3000 gain. You deduct the purchase price: €3000 – €2000 = €1000 which is your ultimate tax profit subject to income tax.

Tax authorities recommend to use the FIFO method for calculating your accounts: when you hold more than 1 items of the crypto and dispose of them, you shall take the value of the “first in” coin, which means you take the coin that you have acquired before others withing the holding period.

Losses

You shall also consider the losses you might have made in the tax year. If your losses are more than your gains, you don’t need to pay income tax. You shall however be careful with the losses – if the loss is derived from the crypto that you have held for more than a year, this would not be accounted since selling after a holding period is tax free anyway.

You can also claim a loss when your crypto is stolen or lost. However, you will need to provide the tax authorities with a good evidential base that would confirm that you have owned the questionable crypto and you have no means to restore or recover it.

If you have losses – you shall record them carefully since losses can reduce your tax liability and you can even carry them forward to the next tax years.

Tax rates

The individual tax rate is based on your total annual income. If you get less than €10,347 in a tax year, you don’t need to pay tax. If you have income €10,348 – €58,596 you pay 14% – 42% tax (progressive tax rate). You pay 42% on the income starting from €58,597 until €277,825 and finally 45% for the income above €277,826.

Note you are also subject to Solidarity surcharge which is 5.5% on our tax rate (e.g. if you are subject to 14% tax, Solidarity tax will be 0.77%).

If you submit the tax return together with a spouse, all the thresholds are doubled (for example joint annual income less than €10,347 * 2 = €20,694 will not be subject to income tax).

Tax exemptions and discounts to reduce your tax liability

As discussed above, main exemptions and discounts include time period (1 year), and value (€600).

If you hold the crypto for a period exceeding one year, you don’t need to pay tax on a profit made.

Next thing to consider is a tax-free limit which constitutes €600 for the tax year 2022. This means that you have to pay the tax only if your overall gains are above this threshold.

You don’t pay tax if you buy crypto for fiat currency, or you just hold it. You are not even obliged to report these transactions to the tax authorities. You are however advised to keep track thereof, since you could need this information later when you dispose of this crypto and profits might get subject to tax.

Transfer crypto between your wallets doesn’t trigger tax.

Specific cases to consider

Mining. When you mine new coins, you get income and it’s taxed as “income from other sources” under usual tax rates. However, the tax-free limit is much less: €256 for the year 2022. When you exceed this amount, you will need to pay tax and might also be required to consider this income as a business revenue. Commercial income would require additional document flow and incur tax consequences different from those applicable to individuals.

Staking. Staking involves locking your existing crypto assets to validate transactions on the blockchain and create new blocks. As a result you may be awarded with the new coins. Income received form staking is treated similarly to the income from mining, including the tax-free limit.

Airdrops. Airdrops are a marketing tool that distributes crypto through a group of people to build their use and popularity. If you get new coins without any actions from your side (even sharing the posts is considered an action!), you pay no tax. Otherwise, new coins will be taxable as your income from other sources at the Euro value as of the day of receipt.

DeFi transactions. There are a great number of them and not every type of the transaction already got its tax definition. You may however fairly consider that when you earn new crypto, you shall pay income tax on your earnings.

Crypto salary. Same as you are subject to income tax when you get a usual salary or similar payments, you shall include the crypto salary into your income. If you receive in-kind benefits from your employer in crypto, they will also be taxable as income, unless they are below the threshold of €50 per month.

Note also that when you later dispose of any of the crypto discussed above, you may be subject to additional tax if you get a profit. This is not a double taxation, that’s not the case here. Imagine you mine a coin worth €1000/get a salary of €1000. You first need to pay income tax on this value. If you later sell this coin for €1500, you pay tax on the difference between the initial cost and the cost of selling: €1500 - €1000 = €500 which is your profit and you will need to pay tax on it. However if you sell it for e.g. €500 only, your transaction results in a loss and you may reduce your taxable income.
The holding period is applicable for all of the above cases: if you hold your crypto for more than a year, you pay no tax on profit.
ICO. Usually the initial coin offerings are distributed through specialized crypto platforms and new coins are paid by the existing cryptocurrencies. Thus from tax perspective when you participate in the ICO, you just exchange one crypto for another. This will trigger income tax if you get profit.

NFT’s. NFT’s are unusual coins from many points of view, however they have similar tax treatment as other crypto: when you dispose of them and get profit or loss, you report this transaction to the tax authority and pay tax.

Gifts. When you receive a crypto gift, you don’t pay tax unless you dispose of it with a profit within a period of less than a year (note that the holding period would include both the holding period of you and your donator). When you gift crypto, it’s considered a disposal and triggers tax similar as other disposals. There are tax-free amounts: €20 000 for the third persons and €500 000 for the spouses.

Records you need to keep

Remember to keep all the records of your crypto transactions. Even when the transaction is initially tax-free, it might become taxable later based on your further actions. The records to keep include:
  • The date of the transaction
  • The details of another party involved (other party’s crypto wallet or your own one)
  • The crypto value in Euro at the date of each transaction
  • The purpose of the transaction (sell/change/buy/gift)
Liability

Violation of tax laws is a serios crime and may end up in imprisonment or significant fines.

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