date | theme

29. January 2019 | Bitcoins & Cryptocurrencies: Moving Abroad Enables Tax-Free Sale

25. August 2021 | New rules for the taxation of Bitcoins & Co. – BMF letter to create clarification

September 3, 2021 | Bitcoin GmbH – which legal form is the best for tax purposes?

17. December 2021 | Cryptocurrency and its taxation – so you can offset losses and earn income tax-free

30. August 2022 | Cryptocurrencies abroad: Tax liability in Germany? (this contribution)

The Principality of Liechtenstein is an attractive location for companies and private crypto investors because of the world’s first blockchain law, the Token and VT Service Providers Act (TVTG). This is why more and more established companies and startups with blockchain-based business models are locating there. Even for crypto-interested individuals, a transfer of residence to Liechtenstein can be extremely attractive. Especially German taxpayers have to comply with the regulations of the AStG when moving away. That’s why we explain what you need to consider for crypto currencies abroad when it comes to German taxation.

1.Cryptocurrencies Abroad

Lichtenstein is interesting for both private crypto investors and companies. On the one hand, Lichtenstein has a blockchain law, the Token and VT Service Provider Act (TVTG). Secondly, the tax burden there is low. This is why more and more private individuals are moving to Lichtenstein. But then the question arises whether Germany may still have a tax liability. Specifically, it is therefore the question of whether a natural person of German nationality who lives abroad and earns income from cryptocurrencies is taxable in Germany. We clarify these as follows.

2nd tax liability in Germany for crypto currencies abroad

2.1 Unrestricted tax liability

The departure to Lichtenstein means that in future there will be no residence or habitual residence in Germany. This means that there is no longer an unlimited tax liability in Germany.

2.2 Limited tax liability for cryptocurrencies abroad

According to § 1 (4) EStG, however, natural persons who have neither a residence nor their habitual residence in Germany are also subject to limited income tax with their domestic income within the meaning of § 49 EStG. Therefore, it is necessary to check whether domestic income in this sense is achieved with cryptocurrencies.

2.2.1 Purchase and sale of cryptocurrencies

The purchase and sale of cryptocurrencies could mean such domestic income.

If there is less than one year between the purchase and sale of another economic good which does not constitute an object of daily use, it is a taxable private sale transaction according to § 23 (1) sentence 1 number 2 sentence 1 EStG. According to § 49 (1) no. 8 (a) and (b) EStG, domestic income within the meaning of the limited income tax liability also includes income from private sales transactions. However, only those related to immovable property or domestic rights subject to the provisions of civil law on immovable property are affected. However, this is not the case with cryptocurrency, so that the capital gain achieved with cryptocurrencies is not subject to the catalogue of § 49 EStG. Consequently, the capital gain does not constitute domestic income and is therefore not subject to a limited tax liability in Germany.

2.2.2. staking rewards

Staking is the provision of coins or tokens to the network for the validation of transactions. The provision of the coins or tokens is blocked for a certain period of time, so that a short-term sale is no longer possible. For this, the Stakende receives staking rewards in the form of new coins / tokens. The provision to the network is currently often equated with a loan provision, for which the Stakenden interest through staking rewards.

Nevertheless, the staking rewards do not constitute capital income, since the transaction cannot be assigned to any digit of the final list of § 20 EStG. In particular, it is not another capital claim, since there is no claim in money, but virtual currencies flow in.

Often, however, staking is operated via participation in staking pools, in which the participants do not act directly as validators, but make their coins or tokens available to a validator. According to the BMF letter of 10.05.2022, however, participation in staking pools is regularly not considered a co-entrepreneurship. Rather, the income from participation in staking pools is regarded as income within the framework of private asset management, as a result of which it is taxable as other income according to § 22 no. 3 EStG.

According to § 49 paragraph 1 no. 9 EStG, domestic income includes other income within the meaning of § 22 no. 3 EStG, as far as income from the use of movable property in Germany is concerned. On the one hand, the question arises as to whether coins/tokens are to be qualified as movable objects, and on the other hand, where the coins/tokens are located. In the following, we will deal further with the question of domestic reference for virtual currencies. First of all, however, it can be said that there will be no domestic reference.

Extended limited tax liability according to § 2 AStG by crypto currencies abroad

3.1. Requirements for tax liability according to § 2 AStG

§ 2 AStG contains a regulation on extended limited tax liability. The extended limited tax liability includes all income within the meaning of § 2 EStG with the exception of foreign income according to § 34d EStG. The catalogue of § 49 EStG therefore plays no role.

§ 2 AStG specifies the following cumulative requirements, the existence of which leads to the extended limited tax liability: