A Guide To Cryptocurrency Tax in Germany

Cryptocurrency has taken the financial world by storm, and Germany is no exception. But with the rise of crypto profits comes the responsibility of paying taxes on those gains. As a crypto investor in Germany, it's essential to understand the intricacies of crypto taxation to avoid legal issues or hefty fines. That's why we've created this comprehensive tax guide to help you navigate the complexities of crypto taxation in Germany. From calculating your taxes to reducing them through HODLing, and everything in between, this guide has got you covered. So sit tight and let's dive into the world of cryptocurrency taxes in Germany.

How Is Crypto taxed In Germany?

Since cryptocurrency is considered a private asset, which is different from a property and has specific tax implications. This means that if you make a profit from your crypto, you will be subject to individual Income Tax rather than Capital Gains Tax, but only in certain situations.

Moreover, it’s essential to keep in mind that when you sell your cryptocurrency, the tax rules will depend on how long you held it. Let’s understand these scenarios more clearly.

Crypto Income Tax Germany

As cryptocurrencies are classified as private property, they are not subject to Capital Gains Tax as is the case with stocks or equities. However, gains from the sale of cryptocurrencies are subject to Income Tax

Short Term Trade

If you have held your cryptocurrency for less than a year before disposing of it, you will be subject to regular income tax on the resulting profits. This covers all forms of disposition, including selling cryptocurrency for fiat currency, exchanging it for a different type of cryptocurrency, or using cryptocurrency to purchase goods or services. Moreover, it’s worth noting that you're allowed a tax-free limit of €600 per calendar year.

Long-Term Trade

Want to save crypto tax in Germany?

Waiting for at least a year before selling your crypto can help you avoid taxes altogether, which is good news for German crypto investors who are willing to exercise patience.

In addition to the previously mentioned long-term and short-term taxable events, certain cryptocurrency transactions such as mining or staking rewards are also classified as income and are subject to Income Tax.

We will discuss them in detail, before that, let's now delve into the Income Tax rates to gain insight into how much you might owe.

Income Tax Rate Germany

The amount of tax you pay will depend on your individual Income Tax rate, which can range from 0% to 45% based on your total income during the tax year. This table shows the Income Tax Rates for the year 2022.

Income Tax Rate

Planning ahead? Here’s the tax rate for 2023.

It's important to note that these tax rates don't include the additional solidarity surcharge tax (Solidaritätszuschlag or 'Soli') of 5.5%, which is applied to single taxpayers who pay more than €16,956 in income tax and married taxpayers who pay more than €33,912.

Crypto Losses Germany

If you've disposed of cryptocurrency within a year and incurred a loss rather than a profit, you won't be required to pay tax on it. Nonetheless, it's important to keep track of these losses, as they can be utilized to offset any future gains and reduce your overall tax liability.

If you don't have any gains to offset your losses against, the German Tax Act enables you to carry forward your losses to future financial years, thereby it will rede your tax liability on any of your potential future gains.

Lost and Stolen Crypto

We recommend that you contact the BZSt directly to discuss your situation and provide them with all the relevant information, such as

• When you acquired and lost the private key
• The wallet address
• The cost incurred to acquire the lost or stolen cryptocurrency
• Amount of cryptocurrency in the wallet at the time of loss
• Evidence that the wallet was under your control
• And any transactions linked to your identity or a verified account on a digital currency exchange.

If your loss claim is approved by the BZSt, it can be used to offset other income tax you have in the same tax year.

How to Calculate Crypto Gains & Losses

Calculating your crypto gains or losses is a fundamental process for any tax jurisdiction that levies income tax on crypto sales. To determine your capital gain, you subtract your selling price from the purchase price, and the negative result is your capital loss. It's crucial to note that all values used to calculate capital gains or losses for German taxpayers must be in Euros at the time of the transaction.

The selling price represents the value of the cryptocurrency at the time of the transaction, which you can obtain from an exchange or popular price aggregator websites. However, establishing the purchase price can be challenging as you need to determine what you paid for the coins you sold.

Crypto Cost-Basis Method Germany

If you're unable to determine the purchase price, a conservative approach would be to consider it as zero. However, this means that you'll have to pay tax on the full amount, which may result in paying more tax than necessary.

But this would be unfair for you to pay tax on the full amount.

The BZSt has guided how to calculate the purchase price or cost basis of cryptocurrency. Individual identification can be used when possible, and documentation must be available to support it. However, when individual identification is not possible, the recommended method for accounting is First in First out (FIFO), which involves selling the oldest coins first.

Tax-Free Crypto Transactions Germany

If you’re involved in any of these activities you are not liable for tax (except for a few cases) in Germany.

• Selling cryptocurrency held for more than one year
• Giving cryptocurrency as a gift to friends and family
• Earning less than €600 in short-term gains and income within a year
• Purchasing cryptocurrency using EUR
• Selling staked or loaned cryptocurrency after one year
• Transferring cryptocurrency between wallets
• Receiving an airdrop without any action on your part
• New coins received through hard forks
• Receiving and redeeming utility tokens

Note: In some cases, airdrops and hard forks are tax-liable crypto transactions, which we will discuss later.

Taxed Crypto Transactions Germany

If you engage in any of the following activities within one year, you may be subject to taxation.

• Selling cryptocurrency for fiat currency
• Exchanging cryptocurrency for another coin
• Using cryptocurrency to purchase goods or services
• Investing in an ICO or IEO, earning cryptocurrency as income, &
• Receiving Cryptocurrency through mining or staking activities

When to Report Crypto Tax in Germany

As a taxpayer, the deadline to submit your tax return for the previous year is May 31st of the following year. For example, if you earned income in 2022, you would need to submit your tax return by May 31st, 2023.

However, if you engage a tax advisor, they can submit your tax return by December 31st of the following year. For instance, if you engage a tax advisor for the 2022 tax year, they would have until December 31st, 2023 to submit your tax return.

How to File Crypto Taxes in Germany

Any profits or income you’ve made from crypto assets must be reported to the BZSt on your tax report. So once you’ve figured out your taxable income and capital gains base, you can choose any one of the following channels to file your taxes:

1. Through ELSTER(online tax filing portal)
2. Using paper forms

Filing Taxes using ELSTER

Follow the steps listed below to file your taxes online without facing any blockers midway through:

1. Go to the ELSTER website and register for an account. You will need your personal information, including your name, address, and tax identification number (TIN).
2. After registering, download the ELSTER software to your computer. The software is available for free on the ELSTER website.
3. Open the ELSTER software and enter your tax information. The software will guide you through the process, and you can save your progress and come back to it later if needed.
4. When you have completed your tax return, submit it using the ELSTER software. You will receive a confirmation that your tax return has been submitted.
5. After submitting your tax return, you will need to sign it electronically using your ELSTER certificate. If you don't have an ELSTER certificate yet, you can apply for one on the ELSTER website.
6. After submitting your tax return, you will receive a tax assessment from the tax office. This will let you know if you owe additional taxes or if you are entitled to a refund.

Filing Taxes using Paper Forms

To file your taxes the traditional way using paper forms. You will need the following forms to accurately report all your transactions:

1. Hauptvordruck ESt 1 A (The General Tax Form)

1. Anlage SO(For other Income)

This form is for the capital gains and income you’ve made from crypto assets. You need to report all your crypto transactions and the gains you’ve made over the entire tax year.

How to Avoid Tax on Crypto in Germany

Although it’s impossible to avoid your crypto taxes entirely in a legally compliant way. However, there are ways you can reduce your tax bill without getting into legal trouble with the tax authorities. Here are some of them:

• Hold your assets for more than a year to avoid paying any taxes
• Use tax-loss harvesting to reduce your capital gains
• Choose your assets strategically when getting involved in De-Fi transactions
• Utilize your tax-free thresholds
• Gift crypto assets to your spouse if they happen to be in a lower tax bracket
• Mining expenses, gas fees, transaction fees,  and software preparation fees are tax-deductible expenses in Germany, use them to lower your tax bill

Tax on Mining Crypto Germany

Mining in Germany is a taxable event regardless of which token you’re mining. If you’ve been involved in mining activities and have received tokens as mining rewards, these tokens will be subjected to income tax. Mining and Staking rewards above the €256 threshold is counted as additional income and is subjected to income tax in Germany.

Note that any costs incurred while mining these tokens are tax deductible and must be subtracted from the fair market value of the tokens upon receipt. The value you end up with after that is your taxable income base.

Moreover, you will have to pay income tax on the day when you decide to dispose of these assets by selling, swapping, or gifting them.

Crypto Margin Trading, Futures and CFDs

Crypto users who engage in margin and futures trading can make higher gains but also face increased risk. Currently, there is no official guidance on how such trading should be taxed in Germany, but existing regulations on margin, futures, and derivatives trading in traditional financial markets can be leaned on. If trading positions are settled in cryptocurrency, they will be subject to Income Tax, and if settled in non-crypto assets, they will likely be subject to Capital Income tax. Taxation occurs at the time the position is closed, and it is recommended to seek advice from a tax professional for specific situations.

NFT Taxes Germany

NFTs are considered to be the same as any other token as far as tax authorities are concerned and hence, their taxation is similar to how other crypto assets are taxed. That’s unless you’re an NFT creator yourself.

If you own NFTs and dispose of them within 1 year of acquiring them, the gains will be subjected to an income tax and if you hold them for more than a year, all your gains are considered tax-free.

While if you’re a creator minting NFTs from the blockchain and selling them for a profit. The income from that will be viewed as artistic or business income from the tax perspective and will attract income tax. There’s a chance that these transactions will also attract trade tax. However, the BMF is yet to release guidelines on their taxation, so we suggest that you consult the issue with a tax expert to better understand the tax implications associated with NFTs.

De-Fi Crypto Taxes Germany

DeFi, or decentralized finance, is a relatively new market, and like many other tax offices, the BZSt in Germany has not yet released detailed guidance on how DeFi investments will be taxed. However, this does not mean that DeFi investors will not have to pay taxes on their transactions. Instead, investors will need to interpret the current guidance on crypto tax from the BZSt and apply it to their DeFi investments. Alternatively, consulting with an experienced crypto accountant is recommended to navigate the complex tax landscape surrounding DeFi.

When it comes to DeFi tax implications, there are a couple of potential scenarios to consider.

First, earning new tokens via DeFi protocols, such as staking, liquidity mining, or yield farming, is likely to be viewed by the BZSt as additional income. As such, new tokens or coins received through these transactions will be subject to Income Tax upon receipt if the investor's additional income exceeds €256.

Second, trading tokens that accrue value in DeFi protocols can also result in taxable transactions. Many DeFi protocols issue liquidity pool tokens instead of new tokens, which represent the investor's capital in the pool and can accrue value based on the rewards received from being in the pool. When an investor withdraws their capital by trading their liquidity pool tokens back, they realize a profit, which may be subject to taxation depending on how long they have held their original capital and their liquidity pool tokens.

Can the BZSt track crypto?

Suppose you’re wondering whether you can hide some of your transactions from the BZSt by not reporting them on your tax report or not. The answer is a big no with an exclamation mark because the BZSt has access to all your records and can easily correlate your tax report with their database and figure out what’s wrong.

Ever since the EU’s sixth anti-money laundering directive came into force on June 3, 2021, any exchange offering financial services in the crypto space was asked to comply with harsher guidelines around when and how they can identify their customers.

Expected to become effective later this year, the Dac8 EU directive concerning data sharing will grant the Bundeszentralamt für Steuern the power to verify an individual's possession of cryptocurrencies. As per the proposed directive, the German tax office will probably be authorized to scrutinize the financial records of crypto enterprises to gain an understanding of their crypto holdings.

What Crypto Records will the BZSt want?

Similar to many tax offices around the globe, the BZSt expects you to maintain detailed records from the past 5 years. Given below is a list of records tax authorities expect you to maintain in Germany:

• Data and time of crypto Transactions
• The fair market value of your assets at the time of disposal
• The specific circumstances of the transaction and the parties involved in it

How are Airdrops and Forks taxed in Germany?

Airdrops

Tokens received via airdrops may or may not be taxable depending on the actions of the recipient. If the recipient acted to be eligible for the airdrop, then the airdrops will be considered as income and will therefore attract income tax.

If the recipient didn’t do anything in return for the airdrop, the sale of the assets received will not be considered a taxable event by the tax authorities.

Forks

Since soft forks result in no new tokens being issued to the users, it is considered a non-taxable event. As far as hard forks are concerned the BMF has clarified that for private investors, you do not need to pay Income Tax upon receipt of crypto as a result of a hard fork. However, if you sell this crypto within one year of receipt, you'll need to pay Income Tax if it's valued at more than €600.

Frequently Asked Questions(FAQs)

1. Is Crypto Legal in Germany?
   

Yes, cryptocurrency is legal in Germany. The German government recognizes cryptocurrencies as a digital representation of value and a form of private money. The use of cryptocurrencies is not restricted in Germany, and individuals and businesses can buy, hold, and trade cryptocurrencies freely. However, businesses that deal with cryptocurrencies are subject to regulatory requirements, such as registration with financial authorities and compliance with anti-money laundering regulations. Additionally, cryptocurrency-related income is subject to taxation in Germany, and individuals and businesses are required to report their cryptocurrency holdings and transactions to the tax authorities.

Filing your crypto tax all on your own is quite a cumbersome task and you might need some assistance to make sure nothing goes wrong and you don’t end up in legal trouble just because you missed reporting a couple of transactions on your tax report. Kryptos can help you with this with its smart software-based crypto taxation solution that can auto-fetch all your transactions and generate a legally compliant tax report in a matter of minutes. And all of this while you chill on your couch.

In Germany, cryptocurrencies are considered private money or assets and are therefore subject to taxation. The taxation of cryptocurrencies in Germany depends on the individual circumstances of the taxpayer and the purpose for which the cryptocurrency was acquired.

• Capital Gains Tax: If you buy and sell cryptocurrencies as a private investor, any gains you make are subject to capital gains tax. If you hold the cryptocurrency for more than one year, you may be eligible for a reduced tax rate.
• Income Tax: If you receive cryptocurrencies as payment for goods or services, you must declare the value of the cryptocurrency received as income and pay income tax on it.
• Mining: If you mine cryptocurrencies as a business, any income you receive is subject to income tax.
• VAT: Cryptocurrency transactions are generally exempt from VAT in Germany. However, if you sell goods or services for cryptocurrency, you may have to pay VAT on the value of the goods or services sold.

4. How much tax do you pay on crypto in Germany?

The amount of tax you pay on crypto in Germany depends on your circumstances and the purpose for which the cryptocurrency was acquired.

For capital gains tax, the tax rate is determined by your income tax rate and the length of time you held the cryptocurrency before selling it. If you hold the cryptocurrency for more than one year, you may be eligible for a reduced tax rate. The capital gains tax rate in Germany ranges from 0% to 45%, with a maximum rate of 25% for long-term gains.

For income tax, the tax rate is based on your income tax rate and the value of the cryptocurrency received as income.

For mining, the tax rate is based on your income tax rate and the income received from mining activities.

It's important to note that the tax treatment of cryptocurrencies in Germany is complex and can vary depending on individual circumstances. It's recommended to consult with a tax professional or accountant to ensure you are complying with all applicable tax laws and to determine the exact amount of tax you will need to pay.