Bitcoin and Tax: Taxation of Cryptocurrencies

Taxation of cryptocurrencies and tokens

Bitcoin and other cryptographic currencies – unlike the euro – are not legal tender. A legal obligation to accept Bitcoins therefore does not exist. Whether a seller of goods or services wants to accept Bitcoins is rather a purely private law question that the seller can and must answer on his own.

In addition, since there is a lack of an issuer when mining Bitcoins, they cannot be classified as “e-money”. The European Court of Justice (ECJ) ruled in 2015 in the Hedqvist case that transactions with Bitcoins fall under the tax exemption for foreign exchange under EU law. However, this does not mean that Bitcoins are to be treated like a fiat currency (Euro or other) in all tax matters.

For the tax treatment of Bitcoins, this means that they are to be treated as ordinary intangible assets – at least in income tax law. The concrete tax consequences of Bitcoin transactions continue to depend on whether the transactions are carried out in the private sector or in the operational sphere. Automated crypto tax report for the tax office

The crypto tax return regularly presents private crypto investors with challenges. Because anyone who makes taxable profits from activities with cryptocurrencies must file a tax return. But also the indication of losses can be advantageous, as these can be offset against future profits. WINHELLER and ACCOINTING have jointly developed a solution that allows crypto investors to quickly and easily create a tax report for the tax office. Learn moreTaxation of Bitcoin, Ether and Co. for private investors

For the private user of Bitcoins, Ether and other coins, it is essentially relevant how the sale is taxed. A sale is, for example.B the sale of Bitcoins for euros via a trading platform. However, the use of Bitcoins as a means of payment is also a sale fact, i.e. if the Bitcoin holder pays for the purchase of goods or services with Bitcoin.

In both cases, private sales transactions – also known as “speculative transactions” – are within the meaning of § 23 (1) no. 2 of the Income Tax Act (EStG), provided that the Bitcoins were previously purchased. The question of purchase is therefore an essential aspect of the question of taxation, especially if the bitcoins have been held for more than a year.

The classification as a speculative object leads to the fact that capital gains are completely tax-free after a holding period of at least one year. However, not all Bitcoins that are sold were previously “purchased” within the meaning of this provision, as the sellers received them by other means than by simply buying them on an exchange. In each individual case, it must therefore be examined whether Paragraph 23(1)(2) of the EStG applies at all. We are happy to help you. All questions and answers at a glance

• What taxes are levied when trading cryptocurrencies?
  On profits from trading in crypto currencies, income tax is levied in accordance with § 23 EStG (private sales transactions).
   
• How is the amount of taxes for cryptocurrencies calculated?
  First, the profit is calculated from the purchase price and the sale price. The amount of taxation of this profit is then based on the personal income tax rate (18 to 45 percent) + solidarity surcharge.
   
• Can profits on cryptocurrencies be tax-free?
  If cryptocurrencies are held for more than a year, the profit from the sale in Germany is completely tax-free.
   
• Is cryptocurrency mining taxed?
  When mining as a hobby, profits are not taxable. With mining, however, you are often very fast in the commercial sector. Here we summarize the taxation of mining.
   
• How are hard forks treated for tax purposes?
  The profit on the sale of coins received via hard forks can be tax-free or subject to taxation. Here it depends on the individual case. Find out more here.

Purchase at different rates

If a sale transaction is settled within the one-year holding period, at least an exemption limit of 600 euros p.a. still applies – however, the exemption limit applies to all private sales transactions in the year in question, so it does not only apply to Bitcoin transactions of the taxpayer.

The capital gain to be subject to taxation results from the difference between the sales price achieved and the acquisition costs and advertising costs of the Bitcoins used (e.B purchase price of the previously acquired Bitcoins or costs for mining the Bitcoins).

Corresponding losses can be offset against them and can also be carried forward both back and into future years and thus offset against profits from private sales transactions. When determining the acquisition costs, the problem often arises that the Bitcoins used were purchased at very different times at different rates / acquisition costs. In these cases, the so-called first-in-first-out method (Fifo) is likely to be suitable for reliably determining the acquisition costs (cf. on foreign currency transactions LfSt Bayern of 12.3.2013, S 2256.1.1-6/4 St32).

In other words, it is assumed that those bitcoins that were first purchased/mined are also the ones that were first used in the context of the private sale business. This only does not apply if the purchase and sale of certain Bitcoins can exceptionally be clearly distinguished from other Bitcoin transactions.

Video: How do profits from Bitcoin, Ether & Co. have to be taxed? Bitcoin taxation by income tax rate

Since the Fifo method is no longer expressly regulated by law with the introduction of the withholding tax, investors should carefully document their Bitcoin transactions in order to be able to provide their tax office with suitable proof of the transactions made in case of doubt. The tax rate is based on the ordinary individual income tax rate. The final withholding tax is therefore of no significance in this respect. All winnings must be entered by private investors in Appendix SO of the tax return.

If the investor carries out extensive transactions – in particular within the one-year period – there is a risk of classification as a commercial activity. In this case, the one-year period of § 23 EStG no longer applies.   Our Promise

Crypto tax consulting at WINHELLER means:

• Clarification of all unclear facts
• Reconstruction of lost trade details
• Advice on the choice of FiFo or LiFo
• Timely submission of the income tax return
• Complete communication with the tax office by our experts

Do you need support and want to avoid tax evasion? We look forward to hearing from you via our contact form for the taxation of crypto assets.Crypto taxation for companies

Unlike private investors, commercially active persons and companies cannot carry out private sales transactions. Transactions with Bitcoins, which are in the business assets, instead usually lead to income from commercial operations according to § 15 EStG. In this case, there is no minimum holding period after which tax exemption occurs. Depending on the legal form of the company, the profits thus achieved are then subject to income tax (sole proprietors and partnerships) or corporation tax (GmbHs, AGs, etc.) – as well as trade tax in each case.

In addition to the income tax implications of Bitcoin transactions, their VAT treatment is still important for companies. At the end of 2015, the ECJ ruled in the Hedqvist case, according to which the commercial exchange of Bitcoin into conventional currencies (BTC/EUR, ETH/EUR, etc.) is not subject to VAT. This Decision concerns the application of EU law.