Bitcoin and cryptocurrency trading in Germany
Germany has taken firm and imaginative action in accommodating the growth of cryptocurrency and blockchain technology – in part driven by negative interest rates on traditional cash deposits and demand from investors. The capital, Berlin, is a hot spot for spending crypto, so all in all Germany earns a 7.6/10.
Law and crypto trading in GermanyLegal - existing crypto legislation
Generally speaking, cryptocurrencies are considered legal across the European Union, but cryptocurrency exchange regulations depend on individual member states. Regulations may vary by member state, and by compliance with the European Banking Authority (EBA), European Commission (EC), European Central Bank (ECB), European Insurance & Pension (EIOPA), and European Supervisory Authority for Securities (ESMA). Cryptocurrency taxation also varies but many member states charge capital gains tax on cryptocurrency-derived profits at rates of 0-50%.
Trading bitcoin and other cryptocurrencies is well developed, and the German financial sector is looking to develop its influence and expertise in crypto trading.
The German Federal Central Tax Office or Bundeszentralamt für Steuern (BZSt) treats bitcoin and other cryptocurrency as private money for tax purposes. At present it’s not treated as foreign currency, legal tender, or as property under the German Tax Acts.Legal - forthcoming crypto legislation
Germany has taken the bull by the horns on many aspects of the crypto economy. A recent Amending Directive made it one of the first countries to enable financial institutions to use crypto assets. More positive and assertive guidance and legislation looks certain to follow, especially as with negative interest rates on traditional bank held deposits, people are seeking to invest in crypto to make gains.
Taxing cryptocurrencies in Germany
Currently, cryptocurrencies are treated as private money in Germany and offer small advantages for individuals. For example, any sales under 600 Euros carry tax exemptions, so a small transaction that gained a profit of, say, 200 euros, would not be taxable.
Under current income tax laws, if you are trading cryptocurrencies the net amount gained or lost at the time of sale is taxed as income. This applies whether you are trading one cryptocurrency for another or into fiat. Fees, of course, are deductible.
Purchasing products and services with your hard-earned crypto is treated the same as trading them. So if you acquire bitcoin and then purchase something with it, you’ll be taxed on whatever gain your bitcoin has made before you spent it – assuming you’ve held it for under a year. If you hold bitcoin for a year or more before using it – you won’t be taxed. It sounds eminently reasonable.
Remember any crypto transactions which are viewed as financial instruments will be treated separately from your passive non-trading crypto holdings, and you will not be able to transfer your net losses and gains between these two types of crypto investment.
As we have said, tax treatment of cryptocurrencies for individuals and companies is different – there is no tax exemption for holdings of crypto over a year for businesses as there is for individual investors.
The Federal Ministry of Finance (BMF) has ruled that crypto transactions made by individuals are not subject to Value Added Taxes (VAT) for all EU member states. Even though investing or trading in cryptocurrencies such as bitcoin is legal and well established, the gains or losses you make will definitely have a bearing on your tax situation.
As with most countries, holding Bitcoins in your wallet and sitting on them, or transferring them between wallets incurs no tax, but make sure you aren’t getting confused –it’s easy to do – between transferring them, transacting them or disposing of them.
Tax when moving residency
As with any income, your bitcoin will come under the tax laws of the country you become legally resident. If you move outside Germany but are still resident, make sure you have detailed transaction reports about your purchases and sales across all exchanges you used. If you set up a business to trade bitcoin, that business will come under the tax laws of the country it operates from.
Tax on mining
It’s highly technical and beyond the scope of most individuals but mining for bitcoin or any other cryptocurrencies is, you guessed it, a taxable event. In Germany, the mining of crypto by individuals is taxed as other income, and the taxable amount is the net profit you make on your mined coin. So, if you are mining bitcoin, you are taxed on the sale price of your crypto at the time of disposition minus the costs associated with mining it. Oh yes, and mining bitcoin and other crypto as a business is subject to very different taxation rules that you need to be aware of.
You can make business deductions for equipment and resources used in mining but deductions are related to whether you are mining as business or for personal gain. Your mined bitcoin will be valued at its fair market price and you’ll also be taxed on your transactions with it.
Crypto financial services in Germany
Investing in bitcoin has become increasingly recognized by Germany’s financial institutions, with legislation enabling 4,000 Spezialfonds to invest in crypto assets. This will likely allow the indirect investment of bitcoin-linked funds for retirement purposes.
Germany’s financial services are becoming increasingly open, with banks now able to take custody of crypto. Banks have an increasing part to play in formalizing legislation and tax laws while stimulating the crypto economy.
Much legislation has been passed to ensure licensing and compliance by crypto-related service providers, but as yet it is not clear how DeFi can be accommodated by the existing financial framework.
Using crypto in Germany
Bitcoin Berlin! When it comes to crypto, Berliners have been leading the way in spending bitcoin. Plenty of businesses have been up for accepting cryptocurrency in one form or another as payment.
The way is open to dentistry (as usual), buying property, holidays, entertainment, and certain educational establishments. The European School of Management and Technology (ESMT), for example, was one of the earliest places to accept it. Several world brands accept bitcoin payments including, most famously, Microsoft and Starbucks. In most cases it is possible to buy vouchers with your currency that may then be indirectly used with participating outlets.
If you’re feeling generous you can gift crypto, but it is also subject to German gift tax if you hold your cryptocurrency at an exchange located abroad. It is also dependent upon the extent to which you or the person receiving the gift is a tax resident in Germany. You can gift crypto to a recognized charity or non-profit organization free of tax, and most crypto exchanges will be able to advise on gifting your coins.
Crypto regulation in Germany
German cryptocurrency regulations stipulate that individuals and legal entities can buy/sell/hold crypto assets as long as it is via a BaFin (Federal Financial Supervisory Authority) licensed exchange, custodian or Bitcoin ATM. Germany is one of the first countries in the world to provide guidance to financial institutions on the custody of crypto assets. However, claiming a loss through fraud or theft is quite complex as there are so many definitions to comply with, including asset price and circumstances. If your crypto wallet has been stolen, you cannot claim any immediate tax relief, but you should record any losses as you can offset these with any future crypto profits within one year. You’ll also need to make clear whether your losses were part of a trading business or for personal investment purposes. Reputable exchanges carry insurance against fraud or hacking, so in this event, you’re more likely to be claiming some form of compensation from the exchange.
There are requirements to provide identification when purchasing crypto in Germany, and you’ll need to keep records for tax purposes. While it may be possible to purchase with a degree of anonymity, this requires taking extensive measures, and you’ll still have to declare your trading for tax purposes.