Cryptocurrencies became very popular in Germany. Currently it’s estimated that 5.8% of Germans own cryptocurrency, with most crypto owners using Bitcoin.
Germany is not usually known for its low or favorable tax rates. However, Germany does possess a relatively favorable tax code for crypto. It also has advanced technological infrastructures, allowing it to be one of the most accessible countries for crypto users.
Germany is not a tax haven, nor is it a tax-free country on cryptocurrencies. However, it is a more favorable country for crypto investors due to its low tax rates on crypto exchanges.
Taxes can be applied to crypto if for several reasons, including you get paid in crypto or sell the crypto in under a year and earn over €600. Despite this, Germany remains one of the best places for crypto holders and we’re here to help you make the right choices.
Our team at Nomad Capitalist can help you make the best choices with your money. We believe that you should keep more of your money for you and your family. If you want to learn more about how we can help you, contact our staff today.
Cryptocurrency has only increased in popularity in Germany over the last decade. When looking for the right place to invest in crypto, it’s a good idea to pay attention to local interest. Just a few stats to demonstrate just how important crypto is to the local economy in Germany:
- 5.8% of German people own cryptocurrency
- 69% of this percentage invest in Bitcoin
- 35% of German crypto holders use crypto for purchases
- 72% of German crypto holders spend at least €100 a month on purchases with crypto
These stats only serve to demonstrate that crypto is popular, though. How do we know that Germany offers favorable tax status for crypto buyers and sellers?
Germany is one of the best countries for crypto investment because its listed as a private money. This means that as a private investor in crypto you will not be taxed on any crypto held for over a year.
Crypto profits won’t be taxed as long as they’re lower than €600. However, this perk does not apply to businesses using crypto in purchasing or paying employees. These revenues and payments will be subject to taxes as any other currencies.
In Germany, cryptocurrency is considered Privatvermögen by the German Federal Central Tax Office. Such private money is tax-free as long as crypto earnings don’t exceed €600.
This 0% tax rate is set out in Section 23 of the German Income Tax Act.
If an NFT is sold in Germany, the capital gain is taxed as if it was a crypto sale and based on the ordinary individual income tax rate.
Paying Employees With Crypto
Germany won’t tax crypto tokens that have no market value due to not being listed on any exchange. They will start to be taxed when they become tradable.
But crypto received as payment is taxed if it is an established cryptocurrency with a genuine market value.
What Are The Crypto Taxes In Germany?
Capital Gains Tax
German income tax authorities are fairly friendly to any individual resident with crypto assets.
You are not required to pay capital gains tax on crypto assets held for more than a year.
So Germany-based crypto investors will not need to pay tax on sales of the likes of bitcoin and ether, as long as they’re held for more than a year.
However, businesses will have to pay capital gains tax on crypto assets held for over a year.
Unlike private investors, companies have to pay this tax on their crypto transactions.
Income Tax Liability
Section 15 of the German Income Tax Act lays out corporate cryptocurrency taxation in Germany.
This section of the German Income Tax Act stipulates that there is no minimum holding period after which crypto tax exemption takes place.
LLCs, public companies, and other corporate entities will need to consider the income tax implications of having extensive crypto holdings or if they foresee participating in mining or staking activities.
If the company is a partnership, it is subject to income tax. In the same way any profits of a sole proprietor are subject to income tax.
Cryptocurrency taxation relates to the fact that crypto assets are considered private goods, unlike equities and stocks.
Any transactions where you dispose of a cryptocurrency are considered taxable events in Germany. If you sell, this taxable event will require you to work out your cost basis and report earnings.
Yet, if a cryptocurrency upgrades its token for functionality purposes, there are no crypto tax implications as German tax authorities do not view this as a taxable event.
Moving cryptocurrency between exchanges, wallets, or accounts is not considered a taxable event either.
There is a crypto tax liability if you use cryptocurrency to purchase something. You will have to pay taxes as, from a tax perspective, converting crypto capital assets to goods or services receives the same tax treatment as selling these assets on an exchange.
Cryptocurrency is not tax-free in Germany. Like in countries such as Australia, Canada, India, the UK, and the US, you must pay tax on crypto gains.
Also, for tax purposes, there are tax exemption limits for gifting cryptocurrency. This is tax-free, up to the maximum threshold of €20,000 for friends and €500,000 for family members.
If your crypto gift exceeds the threshold values, the tax rate varies according to your relationship with the recipient.
How Much Tax Do You Pay on Crypto Income in Germany?
How much tax you pay on anything is always a key consideration. When you receive an airdrop of crypto, there is no income tax to be paid as long as you haven’t needed to take any action to become the recipient.
Ordinarily, you will have to pay taxes in Germany on airdrops that count as other income. Although they are subject to exemptions, they are also taxable income, like gifts are taxable.
The German Finance Ministry has described instances where airdrop recipients would have to pay income tax if exchanging access to the airdrop for personal data or social media posts, for example.
If crypto gains generated from private sales transactions exceed €600 or you hold on to them for less than a year, they become subject to income tax.
So, if €601 or more profit is generated from private sales transactions, this is subject to income taxes. Crypto to crypto and crypto-to-fiat currency sales are also subject to income tax.
In Germany, that means you are subject to income tax when you trade crypto for another crypto and euros.
Speculative transactions is another label used for crypto tax purposes for these private sales transactions.
Section 22 of the Income Tax Act makes provisions for fee deduction as part of the cost basis. The cost basis is your outlay.
However, staked or lent cryptocurrencies remain tax-free if held for more than a year. Any crypto fees you pay are deductible for crypto tax purposes.
So, your earnings have no tax liability, as any increase in cryptocurrency value stays tax-free.
Tax-Free Capital Gains
If you held on to this investment for less than a year, such private sales transactions are taxed at your regular income tax rate. Being in a higher income bracket results in you paying a higher tax rate on these capital gains.
Most crypto investors in Germany buy, sell, and trade crypto as capital gains investing activity through a crypto exchange. This income is considered capital gains income.
However, if you have earned crypto through mining rewards that receive tax treatment as ordinary income unless you mine as a hobby which would make the profits non-taxable, yearly mining rewards would have to total no more than €256 in other income.
Essentially, there are two main tax implications in Germany: short-term gains taxed by the tax office and long-term profits tax-free.
How to Calculate Crypto Taxes in Germany
German Cost Basis and Fair Market Value Method
Crypto tax software is available to assess how much of your Defi, NFT, or crypto income is taxable. If you lend crypto and are paid interest, you must pay income tax on the amount received.
The number of crypto transactions you carry out annually will have tax implications.
After you have accounted for all your transactions, you’ll be able to work out the cost basis and fair market value for all your investments.
For crypto tax purposes, subtract the sale price from the acquisition price to establish the amount of profit. This is the general formula for working out capital gain. This capital gain is then taxed using the personal income tax rate of 45% plus a 5.5% solidarity surcharge.
One of the best ways to understand cryptocurrency taxes in Germany is understanding the basics of income tax.
Selling these cryptocurrency tax software packages makes sense as it allows the calculation of crypto taxes in Germany for users of popular exchanges such as Coinbase, which the German regulator has recently censured for organizational deficiencies, or Binance, or if you utilize multiple exchanges.
Whatever your cryptocurrency tax calculator, it will adhere to one of the FIFO, LIFO, or HIFO cost basis methods of determining capital gains.
You will need to pay income tax on staking rewards related to the fair market value of any currency.
While Germany isn’t known for it’s tax benefits, it does have several perks to using cryptocurrencies in the country. The nation has one of the highest working trade systems. Buying, selling, and using crypto currencies is simple and safe.
Germany limits the amount of tax burden individuals owe for gains on cryptocurrency. This can make it a safe and reasonable place to live if you’re considering trading in crypto.
We hope this article helped you discover whether investing in crypto in Germany is right for you. Although there’s a lot to process and it can become very confusing. At Nomad Capitalist we’re here to make the process easier and more efficient. If you’re looking for experts to help you make the right decisions, become a client today.
German Cryptocurrency FAQS
It’s best to play safe and make an income tax return promptly. You need to file your tax return by July 31st of the following year. Basically, this means if you owe taxes from 2023, you need to file your return by July 31st of 2024.
Check that you pay the correct tax rate for your income tax bracket.
Establishing a channel of communication with the tax office is a good idea. You might think you are tax-exempt.
You might have missed a taxable transaction on your tax return.
If you fail to pay cryptocurrency taxes in Germany, you could receive a monetary fine and a maximum custodial sentence of five years.
Maintaining records of all your crypto transactions for a minimum of five years is standard practice. As the tax rate is based on the average individual income tax rate, the final withholding tax does not come into play.
You need to enter profits in Annex SO of the tax return. We are the crypto tax advisor you have been looking for to help you with your tax return.
The crypto tax year in Germany extends from the 1st of January to the 31st of December, in common with the tax year.
Remember that if you’ve owned crypto for over a year, you don’t need to include these tax-free gains on your tax return.