The most important in a nutshell
- Cryptocurrencies count as other assets in Germany. The sale counts as a private sale transaction, profits must be taxed at the personal income tax rate.
- Up to the exemption limit of € 600 or when selling after the speculation period of one year, profits remain tax-free.
Cryptocurrencies are increasingly evolving from a niche phenomenon to a speculative object for adventurous investors. From a tax point of view, however, there are a few things to consider: Unlike classic investment products such as shares or fund shares, you have to take care of the taxation yourself.
Cryptocurrencies and taxes for retail investors
Virtual currencies do not legally count as (foreign) currency or capital investment, but as other assets. They are therefore equivalent to works of art or other valuables. For private individuals who trade Bitcoin (BTC) and Co., this means that profits from trading are subject to income tax and not – like most financial investments – to withholding tax. There are two aspects to consider:
Tax cryptocurrencies – we will show you how:
Speculation period: When do cryptocurrencies incur taxes?
For profits from transactions with crypto currencies, there is a speculation period of one year. This means that if you hold tokens of a cryptocurrency for more than 365 days and only sell them afterwards, any profits – but also losses – remain tax-free.
If you sell Bitcoins, Ether to Co. within the one-year period with profit, these are speculative profits. These are subject to the regular income tax rate – the percentage that is also deducted from your income as income tax.
By the way, it makes no difference to the tax office whether the profit is made by exchanging it into a “regular” fiat currency such as € or US dollar, when shopping or by exchanging it into another cryptocurrency.
The pro tip from Blockpit Cryptotax:
Separate custody accounts for long-term and trading holdings
After a one-year holding period, cryptoassets are tax-free in Germany.
By using the FiFo process, it can happen that you unconsciously sell old stocks. If Bitcoins were purchased in different tranches and held in a custody account, a sale assumes that the oldest Bitcoins were sold. In order to ensure the tax exemption of older Bitcoins despite the trading activity of other Bitcoins, it is advisable to set up your own custody account for long-term or trading stocks. The First-in-First-Out Method (FIFO)
In order to check whether the one-year period is adhered to, you should always document the time of acquisition. You should also know the purchase price for the determination of profits. It gets a bit trickier when cryptocurrencies are bought or sold at several times. Simplification is achieved by the “first-in-first-out” method (FIFO). According to this, it is assumed that the first tokens purchased will also be sold first.
An example:
- Bertha Müller bought 0.5 BTC for the first time in March 2019 at a price of € 6,000.
- In July 2020, she bought another 1 BTC at a price of €9,000.
- In April 2021, she sold 1 BTC at the price of €50,000.
For simplicity, it is believed that the first Bitcoin purchased will be the first to be sold. Therefore, she only has to pay tax on the profit from the sale of 0.5 of the BTC she had acquired in July 2020 (speculative profit here: € 20,500). The profit from the sale of the 0.5 BTC she acquired in March 2019 (€22,000) remains tax-free, as the sale is after the end of the speculation period. Buy/SellDateNumber (Price)Price Buy13. March 20190,5 (3.000 Euro)
6,000 EuroSale after the end of the speculation period! Buy20. July 20201 (9.000 Euro)9.000 EuroSale of 0,5 BTC within the speculation period! Sale15. April 20211 (50,000 euros)
50,000 EuroSpeculation profits in total:
– 42,500 euros
Of which taxable:
– 20,500 euros
You can deduct any sales advertising costs incurred, such as merchant commissions, from the taxable profit. Alternative: The “Last-in-first-out” method (LIFO)
The LIFO method assumes that the last tokens purchased are sold first, but is not used in taxation in Germany.
The assessment of the leading crypto tax software provider Blockpit Cryptotax, that the FIFO method is prescribed by administrative instructions and according to experience the LIFO method is often not accepted by tax offices, was confirmed in the draft of the BMF letter on the taxation of crypto currencies of 17.06.2021. Allowance
For income from private sales transactions, the exemption limit of € 600 applies. Up to this limit, the profit remains tax-free. If the sum of all capital gains is higher within one year, the entire amount must be taxed.
Attention:
The limit of €600 applies not only to cryptocurrencies, but to all private sales transactions within a year! For example, if you sell an antique piece of furniture with a profit of 800 €, the exemption limit is already exceeded and the profits from trading crypto currencies are also taxable. This applies to losses due to trading cryptocurrencies
If losses are incurred due to trading in crypto currencies, these can be offset against profits from other private sales transactions from the respective tax year. This can reduce the tax burden. If no profits have been made in a year, you can also carry the losses forward to future years and carry them back to the previous year.
By the way, it is unlucky to whom Bitcoins are stolen. From a tax point of view, a theft does not count as a sale transaction, so the loss cannot be claimed for tax purposes. When does trading cryptos count as a commercial activity?
Transactions with Bitcoins, Ethereum and Co. can lead to income from trade, other services or private sales transactions. When the trade is seen as a commercial activity is still legally disputed:
- If you buy and sell cryptocurrencies so frequently that it exceeds the scope of private asset management, the tax office may assume that you are trading commercially.
- However, several judgments of the Federal Finance Court show that only those who act like a dealer are considered to be commercial dealers – for example, by acting on behalf of others or having office space and employees.
If you are considered to be commercially active, you must register a business. In addition, corporation tax and trade tax apply as soon as the allowance of € 24,500 is exceeded. Your crypto assets are then classified as business assets for tax purposes and taxed accordingly. In commercial trading, there is also no holding period – coins can therefore not be sold tax-free after one year.
As far as VAT is concerned, there was legal uncertainty for years. In 2018, the Federal Ministry of Finance finally announced that the exchange into and from Bitcoins & Co. is exempt from VAT. What applies tax-related to the mining of crypto currencies?
The term “mining” refers to the “mining” of cryptocurrencies through complicated computing operations. These serve to legitimize transactions that are made in the Bitcoin network and to enter them in a ledger – the so-called block.
