date | theme

22. October 2018 | Taxation of Bitcoins and cryptocurrencies (this contribution)

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

18. June 2020 | Video: Cryptocurrencies & Bitcoins: Taxation of Trading / Lending / Mining & Cloud Mining

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

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

The taxation of Bitcoins is an issue that is increasingly confronted in the current time of digitalization. Thus, for many taxpayers this year, the question of the right taxation of crypto trading comes up when assessing income tax. The field of cryptocurrencies is still very young and volatile. Nevertheless, there are already some binding requirements in Germany when trading and taxing these values. In the following article, we would therefore like to give you a rough overview of the regulations already existing in Germany.

Simply speaking, cryptocurrencies are a digital means of payment. These are, for example, Bitcoin, Ethereum or Dash. In fact, they are all based on an encryption principle of cryptography. They are generated, passed on and converted through a process called mining. As a result, the currency should be completely independent of financial decisions and thus not subject to any state control. For the creation of such a cryptocoin, only private individuals or smaller companies of the private sector are responsible. Cryptocurrencies not only serve as a means of payment in the context of online trading, the fast worldwide sending of money, but they also serve as an investment for many investors.

2nd Tax Treatment of Cryptocurrencies in Germany

Of fiscal importance are neither the pure purchase or holding of cryptocurrencies, but the subsequent transactions. It should be noted here that a possible tax liability arises both in the classic sale and if there is a sale situation, for example also in the trading of crypto currencies among each other and is therefore taxable.

The taxable profit results from the difference between the sale price achieved, usually the acquisition costs, and the advertising costs of the coins used.

For private investors, the purchase and sale of cryptocurrencies is generally covered by the private sale business according to § 23 (1) no. 2 EStG. The following shall apply:

3.2. Sale within the speculative period

If the crypto currencies are sold within one year of purchase, the so-called speculative period, the profit generated is subject to the personal tax rate plus solidarity surcharge (SolZ) and, if applicable, church tax (KiSt). The prerequisite for this is that the profit exceeds the exemption limit.

3.3 Exemption for sale within the speculative period

If, on the other hand, a sale transaction is settled within one year, the profits are exempt from tax up to an exemption of EUR 600.00. However, this exemption applies to both crypto profits and all other private divestments within one year.

Attention: This is an exemption rather than an allowance. If the profit is EUR 601,00 (at 600,99 is rounded in favor of the Stpfl.), the entire profit is taxable.

3.4. Sale outside the speculative period: Tax exemption

If, on the other hand, there is more than a year between the purchase and sale of cryptocurrencies, the so-called speculative period has expired and the profits are completely tax-free. The exact height is inconsiderable.

Nevertheless, one is obliged to the complex and complete documentation obligation. Therefore, if requested by the financial administration, proof of purchase and sale including price information and further details must be submitted.

3.5 Hold Deadlines: LIFO, FIFO, HIFO and LOFO

Bitcoins are usually bought at different times and rates and then resold. Thus, when determining the purchase price in the context of the sale, the question arises as to the correct benchmark. In the context of the private sale transaction, the law therefore requires the application of the so-called FIFO procedure in accordance with § 23 (1) no. 2 sentence 3 EStG. According to this, those Bitcoins or Altcoins are considered to be sold first, which were also purchased first before.

In addition to the FIFO procedure, the LIFO, HIFO and LOFO procedures are also accepted. However, the prerequisite for this is that one of these procedures is consistently applied and this remains the case in the following years.

3.6. Tax consideration of losses

Any losses from trading in cryptocurrencies are offset against other profits and therefore protected from demise. However, losses can only be offset against other profits from private sale transactions and then lead directly to a tax reduction.

However, if losses are only partially compensated, it is possible to carry them over to the following year.

3.7 Lending/Funding of Cryptocurrencies

In addition to the classic sale and exchange of cryptocurrencies, there is also the possibility to lend them against interest income according to § 23 (1) no. 2 sentence 4 EStG. The special feature here is that even the first award leads to the fact that the coins can only be sold tax-free after ten years. Unless you apply the design model we designed to reduce this speculative freedom in lending to three years.

3.8 Taxation of interest income

In addition to increasing the holding period to ten years, the interest income generated annually in the meantime is subject to taxation. In this regard, it should be noted that the interest income is to be indicated in the currency EURO and the exchange rate is decisive when credit is made. For reasons of simplification, the assessment basis may also be based on the average price or the closing price of the day.

The interest is tax-free, however, only up to the amount of the savings lump sum of EUR 801,00 (collection EUR 1,602,00). In addition, interest is subject to the withholding tax of 25 %, the SolZ and, where applicable, the KiSt.

Attention: The savings lump sum not only includes interest income from lending but also, for example, classic dividend income.

3.9. Private Mining/Cloud Mining Provider

Private miners as well as cloud mining providers are not considered private persons in Germany, but as commercial persons or companies. They operate their services permanently for profit, so that the criterion of commercial activity is fulfilled. Anyone who generates Bitcoins, Ethereum, or other coins themselves must record the resulting profits as income from business operations in the tax return.

Individual companies and partnerships have the advantage over corporations that you are entitled to an allowance of EUR 24,000.00, so that a trade tax liability only exists beyond this. In addition, regardless of the legal form, miners can, for example, deduct electricity costs, hardware costs or office costs as operating expenses in a tax-reducing manner.

The basis for the assessment of profit is also the FIFO method. For reasons of simplification, the average price or the closing price of the day can be used.

4. taxation of persons or companies engaged in business

4.1. Taxation of capital gains on companies

Unlike private individuals, the taxation of commercially active persons and companies does not take place within the framework of the private sale transaction. Instead, cryptocurrencies that are in business assets lead without exception to income from business operations according to § 15 EStG. Accordingly, there is no speculative period and the profits are subject to income tax (individual company and partnership) or corporate tax (AG, GmbH and others) as well as trade tax, depending on the legal form.

Attention: The criterion of the commercial activity is when an activity is pursued permanently and with a profit intention. Accordingly, a private trade, which is intensively operated, can be classified by the tax office as commercial.

Sales tax: Tax exemption when buying/selling cryptocurrencies

According to the European Court of Justice (ECJ) and the Federal Ministry of Finance (BMF), cryptocurrencies are to be regarded as a kind of private money and are thus to be treated similarly to foreign currencies. Due to the nature of a means of payment, these virtual currencies are also to be treated as such and are subject to a derogation from the VAT System Directive (VATSystRL Article 135 paragraph 1e). According to the current legal situation, no sales tax is applicable for the purchase, sale and exchange of Bitcoins for fiat currencies (e.g. Euro, US Dollar, Swiss Franc).

Special theme: Tax evasion or reckless tax reduction

If, for example, profits from trading in cryptocurrencies that are above the tax-free limit of EUR 600.00 or are not recorded in the income tax return before the speculative period expires, you are punishable. Such offences are the criminal offence of tax evasion or reckless tax reduction. Therefore, in such cases, a self-declaration should be submitted in advance.

Our tax consultants specialize in online businesses and virtual currencies. Our tax consultants and tax attorneys therefore have special expertise in taxing Bitcoins and other cryptocurrencies. We advise in particular on the following topics: