Crypto Tax Guide Germany

The most important questions and answers about crypto taxes in Germany: clearly summarized, expressed understandably, and regularly updated. If you need a tax guide, this is the one.

Crypto-terms used correctly:

In crypto-space, terms like cryptocurrencies, crypto-assets, digital assets, or coins are often used synonymously. Yet they mean different things. Crypto-Trustee Georg Brameshuber on this:

“In Germany, there is a lot of talk about crypto-values right now, because many terms are currently valued differently. The term “virtual currencies” is also often used, which actually comes from money laundering law. Internationally, for example, in the EU-wide MiCA regulation (Markets in Crypto-assets, note), the term crypto-assets was established.”

Correct definitions do not always have the upper hand in everyday life, which is evident in the fast-moving crypto scene. The proper umbrella term crypto-assets still plays a subordinate role online. Instead, many search requests carry the term crypto-currencies, which is oriented to the fiat-world.

Crypto taxes in Germany – the most important facts in brief:

If you invest in crypto-currencies and -assets such as Bitcoin and Co. as a private person, you can trigger a tax liability. The precondition for this is that you have your domicile or habitual residence in Germany (when you are in Germany for more than 180 days per year).

The counterpart to the private investor is the commercial investor. The precondition for this is, for example, investments made for third parties. The decision, whether private or already commercial investor, always leads to discussions, as crypto-trustee Georg Brameshuber explains:

“Generally, the question of whether a commercial activity is carried out in the overall picture arises. Only by looking at individual cases real certainty can be obtained. However, both a high number of transactions and high-priced transactions do not necessarily lead to a commercial location.”

Since most crypto-users can be assumed to trade privately, we want to address private persons with this guide.

In Germany, crypto assets are considered other commodities. Selling it counts as a private disposal transaction. Profits must therefore be taxed at the personal income tax rate. The amount of tax depends on your income and your marital status (single or married).

The classification as other commodities entails a particular advantage for investors in Germany: Gains remain tax-free up to the exemption limit of € 600 or, in the case of selling, after the speculation time limit of one year (min. 365 days).

Why do I have to pay crypto-taxes?

Even though no one likes to do it, paying taxes makes perfect sense. The state can build hospitals, roads, and schools with tax money. It can support the poor and unemployed and distribute wealth more fairly.

In Germany, you have to take care of your taxes on your own because there is a duty of cooperate. So you can’t just wait for the state to come towards you. Instead, you have to become active yourself and disclose all tax-relevant facts entirely and truthfully. Blockpit can do a lot of your work.

When do I have to pay crypto-taxes?

To put it simply, you have to pay taxes whenever there is a taxation-claim. In the case of crypto, this claim exists in specific individual- and special-cases. Concrete, you pay taxes on other income from selling private commodities. It sounds more complicated than it is. You pay taxes:

• Selling crypto before the expiration of the one-year lockup (and making a profit of more than € 600). For example: if purchased on 01.03.2022, a sale made up to and including 01.03.2023 is taxable. A deal from 02.03.2023 is tax-free.

• If you generate your income commercially. Crypto-trustee Georg Brameshuber has already explained above that the distinction between private and commercial is not always clear-cut. Most likely to be commercial is mining:

“Mining, meanwhile, suggests that average miners operating at a cost-covering rate have a density of operation that suggests a commercial enterprise.”

• If you get paid in crypto by your employer.

So much for the basics. Beyond that, there are some exceptional cases:

Exchange of crypto-currencies:

You can trigger a tax liability if you exchange one crypto asset for another (e.g., BTC → ETH). The precondition is to generate a profit of over € 600 and realize that profit within 365 days of the original purchase.

Trading with Stablecoins

Stablecoins are cryptocurrencies with high price stability ( this is why there is a “stable” in the name). Their price rate is linked to classic fiat-currencies, such as the US-dollar (TrueUSD) or the euro (EURB). The sale of stablecoins only causes tax liability if you trade it within one year (365 days) and make a profit of more than €600.

ICOs and IEOs
Initial Coin Offerings (ICO) and Initial Exchange Offerings (IEO) are comparable to the principle of a company’s initial public offering (IPO). The goal: Startups sell tokens in exchange for crypto-assets and thus generate capital.

From a tax perspective, a purchase of ICOs and IEOs is comparable to crypto trades. Thereby, the values of the time of purchase and the time of sale get compared here as well. These events are only taxable if they are sold again within one year (365 days) and generate a profit of more than €600.

Margin-Trading
Margin trading involves obtaining a loan from a third party (e.g., a broker) that can be used for trades. As a rule, interests also get charged in this case. The classification as a futures transaction means that income from margin trading is subject to a flat rate of the capital gains tax of 25 percent. However, the tax-advantaged one-year lockup period cannot apply to capital income.

Trading with future
Future-trading does not involve buying or selling crypto assets. Instead, investors speculate on the rise or fall of an asset in the future. Also, the classification as a futures transaction comes to play here. Therefore, income from trading with futures is subject to a flat 25 percent capital gains tax rate. In this case, too, the tax-advantaged one-year lockup period cannot be applied.

Airdrops and Bounties
Airdrops and bounties are a popular marketing tool and, at the same time, a reward for users. The following applies to airdrops: Anyone who sells airdrops within one year (and makes a profit) has to pay tax on them at the progressive income tax rate. Those who wait a year, on the other hand, do not. A pure classification as a donation does not come into play. Georg Brameshuber puts it in more specific terms:

“Airdrops do not need to get taxed on the inflow itself. From this perspective, they are not taxable. The coins or tokens received as part of an airdrop are considered to have been acquired at zero and are taxed by the total amount if they are sold within one year (365 days, note). The zero acquisition costs also apply if the airdrop already has a specific value at its inflow.”

The situation is different with bounties. Users receive them in return for completing a specific task. As a result, they get classified as “other income,” which means they have to be taxed when they are received.

Non-fungible Tokens (NFTs)
From a tax point of view, an NFT purchase or sale is a token exchange. This means that the gain is taxable in Germany at the progressive income tax rate and tax-free after a one-year lockup period. Georg Brameshuber:

“The classic NFT in the field of digital art is a miscellaneous economic good and has to be treated exactly the same way as all common crypto-values in the context of taxation.”

Hard-forks and soft-forks
A fork describes a change or divergence in a blockchain-protocol. Generally, a division is made between trend-setting hard-forks and rather modifying soft-forks.

Examples of hard forks are Bitcoin Cash and Bitcoin Gold, which emerged from a fork in the Bitcoin blockchain and henceforth existed independently. Soft-forks are more comparable to software upgrades. If all users agree, the new version replaces earlier fundamental rules of the currency.

This brings us to taxation: In the case of hard-forks, the so-called footprint theory comes into play. This means no tax changes apply to the original asset (old asset). The following applies to the newly created asset: The acquisition date of the original asset gets transferred to the new coins. The acquisition costs are considered to be 0 euros.

In concrete terms, this means: The new crypto-asset is always tax-free if the old one is as well (365-day holding period). But if hard-fork gains get sold within one year after the fork, they have to be taxed. On the other hand, soft-forks are only a kind of update (comparable to a token swap) and are therefore not considered for tax purposes.

DeFi (Decentralized Finance)
DeFi is an essential part of crypto today. Nevertheless, the term is difficult to define and still causes misunderstandings. Georg Brameshuber defines DeFi as follows:

“DeFi means the financial innovations in blockchain and crypto-tech that have arisen since 2020, based on protocol environments.”

The unique quality of DeFi is that it works without central financial service providers such as brokers, stock exchanges, or banks. Services (such as borrowing and lending, asset securitization, or insurance) get handled decentrally using smart contracts.

In connection with DeFi, terms such as Yield Farming, Staking/Lending, Masternodes, or Liquidity Mining/Pools frequently get mentioned. These are trading strategies in the broadest sense, with which passive income (mainly in the form of so-called rewards) can be generated.

If you want to go further into detail, read our detailed article on DeFi Swaps, Liquidity Pools, and Yield Farming.

Inflow taxation of DeFi assets (staking, lending, masternodes, etc.)

The possibility of generating rewards and thus passive income with crypto assets is becoming increasingly popular. Here’s how they’re taxed:

Capital gains from crypto-assets accruing from staking, lending, masternodes, liquidity mining, or yield farming get fully taxed at the inflow. The so-called common value applies here:

“The common value is the one that can be compared with market price data. A draft of the BMF refers to the average price of three marketable stock exchanges. This average price gets used to determine the value at the time of the inflow for the taxation claim.”

If the rewards get sold at a later date, it is tax-free. The basis for this is the absence of an acquisition process. When selling the rewards, the one-year holding period needs to be observed.

When do I not have to pay crypto taxes?

First things first: if you own cryptocurrencies for over a year, selling them is always tax-free, no matter how much profit you make. Beyond that, simply put, two scenarios relieve you from paying taxes:

1. No tax-relevant events are being realized. This means that there is simply no profit. (Why a tax return makes sense even in a loss scenario, you will learn a later).

1. Your profits remain below certain exemption limits.

Those are the basics. Now let’s get more into the details. You don’t pay taxes in the following situations:

Crypto profits under € 600:

Your cryptocurrency-gains are tax-free if they are less than €600 per year. The €600 is an exemption limit. As soon as you exceed it by one euro, you have to pay tax on the entire profit (i.e., already from € 601). The counterpart to the exemption limit is the allowance. The allowance describes the amount of money up to which no taxes are due. Only the part of the profits that exceeds the allowance will be taxed if you are beyond it. This allowance applies, for example, to capital income.

Crypto-losses:
For a loss to be taxable, it has to get realized within the one-year speculation period. Therefore, the principle is identical to the taxability of potential gains, which are also relieved from tax after one year.

Donating and giving away cryptocurrencies:

You can give away up to € 20,000 per year tax-free (for example, to friends) and do not have to observe the one-year time limit. For married couples, the limit is even € 500,000. Crypto donations are tax-free too.

Buying cryptocurrencies:

Those who buy crypto with fiat (i.e., traditional money) do not have to pay taxes.

Account Transfers:

Moving crypto, meaning transferring it from one wallet to another or taking it to a new exchange, is also tax-free. It is important to keep an accurate record in any case.

What happens if I don’t pay crypto taxes?

The Federal Central Tax Office (BZSt) ensures that all taxpayers fulfill their tax obligations. Anyone unsure whether they have done it correctly in the past can proactively act at any time and request changes of previous tax returns at the tax office. And those who are starting to invest in cryptocurrencies regularly should use a crypto-tax-software like Blockpit from the very beginning. It allows you to calculate your crypto taxes within minutes and track your entire portfolio clearly for many years.

Even though it is more of an exception, deliberate misrepresentation can result in fines and prison sentences of up to 10 years. More likely, however, are tax refunds, interest, and late payment penalties.

How does the Federal Central Tax Office (BZSt) know that I hold cryptocurrencies?

Many people believe that crypto trading is anonymous. In fact, governments can track crypto users. How significant these efforts are currently is hard to say. However, the technology for it exists. For example, departments can collect personal data by analyzing the blockchain using special software and putting pressure on exchanges to hand over this data. The far-reaching introduction of KYC-processes (Know your Customer) for registration or Europe-wide efforts – keyword EU Directive DAC8 or MiCA (Regulation on Markets in Crypto-Assets) – speak for increasing regulatory tendencies.

How much crypto tax do I have to pay?

The crypto tax rate is based on the regular individual income tax rate. This ranges from 14% to 45%. Everyone must pay the solidarity surcharge, which is 5.5% of the tax rate.

Do I also have to pay taxes on crypto-profits made years ago?

Yes. You should keep a record of your cryptocurrency-transactions for the last 10 years. After all, there’s a real chance that you’ll be controlled. And especially in the volatile crypto space, large amounts can sum up quickly. Serious tax avoidance exists if the evaded tax amounts to more than € 50,000.

The easiest way to document everything is to use Blockpit’s crypto-tax-software, which clearly and automatically records the transaction date, value in euros at the transaction date, the purpose of use, and recipient. Suppose you are not sure whether you have correctly declared the transactions of your cryptocurrencies and assets. In that case, it is best to proactively contact the BZSt, since there is a duty to correct incorrect declarations.

Where do I have to declare and enter my crypto-profits?

You need to enter profits from the sale of cryptocurrencies and assets (disposals) in the SO attachment. The exact amount is determined this way: sales price (selling price) minus acquisition costs and sales costs. You must then pay tax on the surplus. The tax rate ranges from 0% to 45%, depending on the classification. The profit then is included in the total taxable income.

Attention: Capital losses cannot be charged against other types of income. In addition, you must declare inflows from staking, lending, masternodes, etc., in the SO attachment.

In Germany, the tax declaration can be transmitted to the tax office manually or electronically using Elster – attachment SO (other income). Essential for your data is also the main document ESt 1 A.

If you have carried out futures transactions, you will also need the investment document KAP.

Do I have to declare my entire crypto-portfolio or just my profits on my tax return?

You do not have to declare how many cryptocurrencies or crypto-assets you own in your tax return.

But you have to declare gains for crypto-assets that you hold for less than a year (365 days) and pass the €600 exemption limit when you sell them. However, it is advisable to record these transactions anyway to show them in case of need (e.g., also when “cashing out”).

When do I need to file my crypto-asset tax return?

Generally, a tax return is always submitted for a previous year. So if you want to do your crypto taxes for 2021, you can do it in 2022 at the earliest.

The German tax year starts on January 1 and lasts until December 31. For decades, May 31 was considered the general deadline for submitting annual tax returns in Germany (and we still recommend sticking to this date).

In 2019, though, the deadline had been extended by two months to July 31. If this day falls on a weekend, the next working day applies. This means that you will have to submit your tax return for the 2021 tax year by August 1, 2022, at the latest.

Obviously, it’s better if you don’t wait until the very last minute. After all, if you file late despite the two additional months, you will have to expect a higher delay penalty.

Learn more about crypto tax deadlines.

Which calculation method is used for my tax return?

According to the German interpretation, the first-in-first-out method (FIFO) is the most suitable to determine the acquisition costs of cryptocurrencies and assets. In other words: the crypto assets acquired first (first-in) are also the first to be resold (first-out). The difference serves as the basis for the taxation of later proceeds and profits.

How to optimize your crypto taxes (and pay less taxes):

There are a few ways to effectively optimize your crypto taxes, leaving you with more money. The easiest one is to hold cryptocurrencies and assets like Bitcoin or Ethereum for over 12 months. No matter how much your profits are, you won’t have to pay taxes on them after a year.

Moreover, you can minimize your tax liability by offsetting it against expenses. Possible expenses include transaction fees (gas fees) or wallet costs. Also tax-deductible are the acquisition costs for a Blockpit-license.

If you want to trade more actively and regularly, you should split your accounts into different wallets. Create a wallet for long-term investments (Hodl) and one for short-term-trading. This way, you can easily separate your cryptocurrencies and assets and avoid paying taxes unintentionally.

Special case Wash Trading: What you need to know

The tax realization of losses (within 365 days from the inflow) is a popular way to reduce one’s tax liability. In doing so, some traders often rebuy the same cryptocurrencies and assets after a short time. However, this process has nothing to do with the term “wash trading” often mentioned in the media, which represents a form of market manipulation through artificial market activity:

“There is a pretty precise line of demarcation on classifying “wash trading” or, to put it more neutrally, portfolio-optimization. It runs down the line of whether the taxpayer assumes an economic risk and fully shares it with all the transactions he sets. In that case, there is no abuse of a dispositive right.”

About our expert:

Mag. Georg Brameshuber is a crypto-trustee at Validvent. He also contributes his expertise as co-founder of three blockchain/DLT-related companies and as a board member of several blockchain agencies. He has been advising Blockpit on crypto-asset income tax issues since 2021.