The taxation of cryptocurrencies is not explicitly regulated by law in Germany, but rather general tax regulations are applied, which, however, are not always unproblematic due to the novelty of digital assets. The Federal Ministry of Finance has expressed its view for the first time in a letter from Febuary 2018 on individual issues of taxation, which binds tax offices in Germany. This letter concerns only value added tax. Comprehensive administrative instructions or fiscal court decisions do not yet exist.
If a cryptocurrency was purchased and sold within one year, "speculative transactions" within the meaning of § 23 Para. 1 No. 2 of the German Income Tax Act (EStG) applies. The applicable tax rate is the standard individual income tax. This amounts to between 14 % and 45 % (the solidarity surcharge is 5.5 % of the tax rate).
In response to a parliamentary inquiry, the German Federal Government has stated that income from private mining may constitute other income pursuant to § 22 No. 3 EStG. In mining, the threshold to commercialism, a sustainable, self-employed activity with the intention of making a profit, is quickly crossed.
An exemption limit of 600 euros p.a. applies - however, the exemption limit applies to all private sale transactions in the year in question, i.e. it does not only apply to the taxpayer's crypto transactions.
Tax-free trades do not have to be specified in the tax return, but investors should carefully document both tax-free trades and taxable trades to provide the tax authorities with appropriate and complete evidence of the transactions made.
The classification as a speculative object means that capital gains are completely tax-free after a holding period of at least one year. However, not all coins that are sold have been "acquired" within the meaning of this provision, as the sellers may have received them by means other than simple purchase on a stock exchange.
If a transaction is completed within the one-year holding period, an exemption limit of 600 Euros p.a. applies - however, the exemption limit applies to all private sales in the relevant year and therefore does not only apply to the taxpayer's crypto transactions.
In Germany the general deadline for filing annual tax returns ends on 31 May - at least for those who have to file an income tax return. If you do not deliver on time, you may have to pay a penalty fee. The processing takes place via "Elster" (German electronic tax file).
According to german legislation, the first-in-first-out method (FiFo) is most suitable for reliably determining the acquisition costs of cryptocurrencies (cf. LfSt Bayern v. 12.3.2013, p. 2256.1.1-6/4 St32). In other words, it is assumed that those coins which were first purchased / mined are also those which were first used in the context of the private sale transaction. Experience values for the legal treatment of other calculation methods (e.g. last-in-first-out) are scarce to non-existent. When determining the acquisition costs, the problem often arises that coins were acquired at different times and different exchange rates/acquisition costs.
With Blockpit you can create a tax report where your transactions are automatically arranged according to FIFO.
Losses can be offset and carried forward in both past and future tax years, thus offsetting gains from private sales.
The applicable tax rate is the standard individual income tax. This amounts to between 14 % and 45 % (the solidarity surcharge is 5.5 % of the tax rate).
In the private sector, the respective cryptocurrencies can/should be held for longer than one year in order to avoid tax liability. If the trades are carried out by a limited liability company which specialises in trading in cryptocurrencies, every trade is taxable. It is possible to reduce the tax base through trades to realise losses (if possible) shortly before the end of the one-year period.
In the Blockpit platform you can automatically record all trades and create a tax report in a few minutes, which arranges the trades according to the most favourable calculation method.
Keep in mind that the new observation period of one year automatically begins with the realisation of profits or losses. Detailed information can also be found in our blog article on the issue.
In order to achieve a favourable tax result, you must be able to present a complete report with all transactions when submitting your tax return. Tools such as Blockpit let you automatically create a full report on your trading history. The tax liability itself is calculated by the tax office and depends on your total income.
In Germany, tax evasion is a criminal offence that is punishable by imprisonment of up to ten years or a fine according to the German Tax Code (AO). Tax evasion is also punishable by law.
Tax evasion has to be distinguished from frivolous tax reduction, which is merely an administrative offence. Tax authorities might prosecute it, but they are not obliged to. Disciplinary actions for tax offences are mandatory, but tax reductions in which the offender cannot be proven to have acted intentionally can be punished as a frivolous tax reduction if the other conditions for the offence are met.
Through analysis of the respective blockchain using software or by the pressure of authorities on exchanges for the publication of user data, comprehensive user research could be carried out. It is difficult to say how much authorities (especially the tax office) are doing technologically.