Achtung crypto holders in Germany! Are you considering killing in the crypto market but worried about tangling with the Finanzamt (tax office)? Relax! This ultimate guide to crypto taxes in Germany will help you navigate easily through the tax landscape in 2024.
This article will break down the good, the bad, and the tax-free, explaining how Germany categorises crypto, what tax rates apply, and the all-important one-year holding period. We’ll also cover DeFi, mining, and other crypto activities, ensuring you understand your tax obligations for every aspect of your crypto journey.
Do I Have To Pay Cryptocurrency Taxes In Germany?
Any short-term cryptocurrency gains are taxed according to the individual Income Tax rate in Germany, which can be as high as 45%. This crypto tax in Germany applies if you sell or trade your cryptocurrency within a year of acquisition. Additionally, if your income exceeds €10,908, you are liable to pay a 5.5% Solidarity Surcharge on top of your Income Tax.
Moreover, German taxpayers are entitled to a tax-free allowance of €10,908. If your total income, including cryptocurrency gains, is less than €10,908, you will not be required to pay any income tax.
Can The BZSt Track Crypto?
Yes, the Bundeszentralamt für Steuern (BZSt) can track cryptocurrency transactions. If you have an account with a European digital currency exchange, it is likely that the BZSt already has access to your data.
When the EU’s Sixth Anti-Money Laundering Directive (6AMLD) took effect on June 3, 2021, it introduced stricter regulations for companies providing financial services to cryptocurrency customers.
This directive was designed to combat money laundering and other illegal activities by enhancing data sharing between EU member states.
A new EU directive, DAC8, is expected to take effect in 2025. This directive will grant the BZSt the authority to verify cryptocurrency ownership more thoroughly.
Consequently, the German tax office will be able to investigate cryptocurrency companies’ accounts and provide them with detailed insights into crypto assets.
How Is Crypto Taxed In Germany?
In Germany, cryptocurrency is treated as a private asset rather than property, which leads to unique tax implications. Unlike many other countries where cryptocurrency might be subject to Capital Gains Tax, in Germany, it is subject to individual Income Tax under specific conditions.
When you sell or dispose of any private asset, such as cryptocurrency, the taxation depends on how long you have owned it. If you have owned the cryptocurrency for less than a year, any profits from disposing of it are subject to Income Tax.
Disposal includes:
- Exchanging your cryptocurrency for euros or any other fiat currency.
- Swapping it for another cryptocurrency.
- Using it to buy goods and services.
However, you must not submit a tax return if your annual net gain is less than €600.
On the other hand, if you have held your cryptocurrency for more than a year, you can dispose of it tax-free. This makes long-term holding, or “HODLing,” particularly advantageous from a tax perspective.
It’s essential to note that certain crypto transactions, such as mining or receiving staking rewards, are considered income and are subject to Income Tax.
In these cases, you must file a tax return only if your additional income exceeds the annual threshold of €256.
Now that you have understood the basics of crypto taxes in Germany, let’s examine the Income Tax rates to determine how much you might need to pay.
German Income Tax Rate
As per the laws of crypto taxes in Germany, short-term gains from cryptocurrency transactions are taxed at your individual Income Tax rate. Besides Income Tax, there is also a Solidarity Tax (Solidaritätszuschlag or “Soli”), which is a surcharge calculated as a percentage of your total income tax.
However, as of 2021, this surcharge has been significantly reduced for most taxpayers.
For the 2023 financial year, which you will need to report on in 2024, the German Income Tax rates are as follows:
|
For Single taxpayers |
For Married taxpayers |
Tax Rate |
|
€0 – €10,908 |
€0 – €21,816 |
0% |
|
€10,908 – €62,809 |
€21,816 – €125,618 |
14% to 42% |
|
€62,809 – €277,825 |
€125,618 – €555,650 |
42% |
|
Above €277,825 |
Above €555,650 |
45% |
When Will I Pay Tax On Crypto In Germany?
In Germany, the crypto tax is applied to an individual if they satisfy any of the following conditions:
Short-term Gains Over €600
If you sell, swap, or spend your cryptocurrency within the same year you purchased it, and your net gain exceeds €600, you must file a tax return for the entire amount and pay taxes on it.
Staking/Lending Gains Within One Year
If you sell cryptocurrency you have used in staking or lending protocols within one year of acquiring it, you must pay taxes on any gains.
Crypto Income Over €256
If you earn cryptocurrency through mining, staking, or other income-generating methods and your additional income exceeds €256, you must file a tax return and pay taxes on the total amount.
Crypto Losses In Germany
Any cryptocurrency or digital assets swapped, sold, or spent at a loss do not attract crypto taxes in Germany. However, it’s essential to keep a record of these losses. You can use them to offset your profits, which can help reduce your overall taxable amount.
If you don’t have any profits to offset your losses against in the current year, the German Tax Act allows you to carry these losses to future financial years. You can use the losses to offset future gains only if you have reported them in your tax return.
Therefore, while you don’t pay taxes on crypto losses, tracking and reporting them can be beneficial for reducing future tax liabilities.
Lost Or Stolen Cryptocurrency
Lost cryptocurrency refers to irretrievably lost assets due to forgotten passwords, destroyed hardware, or accidental wallet deletion. On the other hand, stolen cryptocurrency refers to assets taken without consent through hacking, phishing, or other fraudulent activities.
In Germany, you may be eligible to claim such lost or stolen cryptocurrency as a loss with the BZSt. However, to claim such losses, you must provide the following evidence:
- Wallet Address: The address of the wallet to which the lost or stolen key belongs.
- Key Acquisition and Loss Dates: Documentation of when you acquired and lost the key.
- Acquisition Cost: Proof of the cost of acquiring the stolen or lost cryptocurrency.
- Control of Wallet: Evidence that the wallet was under your control.
- Amount of Cryptocurrency: The amount of cryptocurrency in the wallet when the key was lost.
- Hardware Possession: Proof that you possess the hardware where the wallet was stored.
- Transaction Records: Records of transactions to the wallet from an exchange that can be linked to your identity.
Tax-Free Crypto Germany
Germany is termed one of the most tax-friendly countries in Europe for cryptocurrency. Here’s a simplified breakdown of when you don’t have to pay taxes on your crypto profits:
Long-Term Holding
If your short-term investment gains (from holding crypto for less than a year) are less than €600 within a financial year, you do not need to report this on your tax return, and you won’t be taxed. However, if your short-term gains exceed €600, you will need to report all your gains and pay the corresponding taxes.
Small Short-Term Gains
If your additional income from cryptocurrency (and other sources) is less than €256 in a financial year, you don’t need to report or pay taxes. But, if your additional income surpasses €256, you must report all your extra income and pay taxes accordingly.
Income Tax Vs. Tax-Free
While crypto taxes (crypto Steuern) can seem complicated, there are two main tax implications for your crypto in Germany:
Taxed
Short-term profits: If you sell, swap, or spend crypto held for less than one year, or if you earn crypto through activities like mining or staking, you may be taxed. However, you only need to pay tax if your gains exceed €600; otherwise, you don’t need to file a tax return.
Tax-free
Long-term profits: If you sell, swap, or spend crypto held for over a year, the profits are tax-free. Additionally, annual gains under €600, additional income under €256, and other transactions like buying HODLing (holding), and gifting crypto are not subject to tax.
How Are Specific Crypto Transactions Taxed?
Here is a detailed analysis of how various crypto transactions attract different crypto taxes in Germany:
Selling Crypto For More Than €600 Within 1 Year
Selling bitcoins or any other cryptocurrency within twelve months of purchase attracts crypto tax in Germany in the form of income tax.
Private cryptocurrency trading is treated similarly to other private transactions, such as car sales. Hence, you only pay taxes on profits from the trade if you sell the asset within one year of acquiring it.
This means that if you sell something you’ve owned for more than a year, you do not have to pay taxes on the profits from that sale.
To avoid taxes on cryptocurrency trades, you must either ensure your annual gains are under €600 or wait at least one year before selling.
Selling Crypto Held For Over A Year
In Germany, if you’ve held cryptocurrencies for over a year before selling them, any profit from the sale is exempt from Income Tax, regardless of the amount you earn. This exemption applies to all profits made from selling these cryptocurrencies.
Importantly, you are not required to declare these transactions in your tax return, simplifying the reporting process for long-term cryptocurrency holders.
This rule encourages long-term investment in cryptocurrencies by providing a tax advantage for holding assets for more than a year before selling them.
Trading Or Exchanging Crypto Held For Less Than 1 Year
Exchanging one cryptocurrency for another (like swapping Bitcoin for Ethereum) is taxable per German crypto tax laws. You’ll need to pay taxes on any profits from such trades, but only if the profit exceeds €600 in a year.
Moreover, this taxable event occurs when the profit is realised in the same year as the initial purchase of the cryptocurrency.
Trading With Stablecoins Held For Less Than 1 Year
A stablecoin, like USDT (Tether) or BUSD (Binance USD), is a cryptocurrency designed to keep a stable value. This is achieved by backing stablecoins with reserve assets, typically a stable fiat currency such as the US Dollar (USD) or the Euro (EUR).
Trading stablecoins for other cryptocurrencies or stablecoins in Germany is considered a taxable event if you’ve held the stablecoins for less than a year.
This rule is similar to the taxation of regular cryptocurrencies. If you sell or trade any crypto assets within a year of purchasing them, any profit you make over €600 is subject to crypto taxes in Germany.
Participating In An ICO/IEO
When you participate in an Initial Coin Offering (ICO) or an Initial Exchange Offering (IEO), you invest in a new cryptocurrency or company by purchasing tokens or coins before they are officially launched. These purchases are typically made using existing cryptocurrencies like Bitcoin or Ethereum.
As per the crypto tax laws in Germany, this transaction is considered a crypto-to-crypto trade. The crucial moment for tax purposes is receiving the new tokens during the ICO or IEO. This is when a taxable event occurs. The value of the cryptocurrency you used to purchase these new tokens on this date becomes the cost base for these new tokens.
Later, when you decide to sell the new tokens, this cost base is crucial in determining your tax obligations. If you sell the tokens within a year of acquiring them, you will be subject to taxation on any profits made from the sale. However, if you hold onto the tokens for more than a year before selling, you may benefit from more favourable tax treatment.
Crypto Margin Trading And Derivatives
Although margin trading, derivatives, and futures are often mentioned together, they have distinct tax treatments. The Bundeszentralamt für Steuern (BZSt) has yet to issue specific guidance for the tax implications of crypto margin trading, crypto derivatives, and futures. However, we can look at their guidelines for these products in traditional markets to understand what to expect.
Margin Trading
In margin trading, profits can be classified differently based on how the transaction is settled:
- Capital Income: If no cryptocurrency is delivered and the difference is settled in cash, the profits are considered capital income. This type of income is taxed at a flat rate of 25%, known as a withholding tax.
- Private Sales Transaction: If cryptocurrency is delivered upon settlement, the transaction is viewed as a private sales transaction. The tax treatment here varies:
- If you hold the crypto asset for less than one year before selling, any profit is taxed at your regular income tax rate.
- The profits are tax-free if you hold the asset for over a year.
For capital income, it’s important to note that you can only deduct up to €801 per year in income-related expenses, such as trading fees. Additionally, the one-year holding period rule does not apply to capital income.
Derivatives
The taxation of derivatives depends on whether the investor ends up acquiring the underlying crypto asset:
- Capital Income: If the derivative does not result in you acquiring the cryptocurrency and is instead settled in cash, the profits are taxed as capital income at a 25% flat rate.
- Private Sales Transaction: If you acquire the cryptocurrency when you close your position, the profits are taxed as a private sales transaction. The tax rate depends on the holding period:
- Less than one year: Profits are taxed at your regular income tax rate.
- More than one year: Profits are tax-free.
Futures Trading
The critical tax event for future transactions is when you close your position. The tax treatment follows the same principles as for derivatives and margin trading, depending on whether you receive the underlying crypto asset or a cash settlement.
However, in 2021, there was a significant change in the law affecting futures and potentially other derivative products and margin trades. Now, losses from futures transactions can no longer be freely offset against income from capital assets. Specifically:
- Losses from future transactions can only be offset against profits from other future transactions and income from options transactions.
- There is a €20,000 limit on loss offsets per year.
Spending Crypto Within A Year
In Germany, cryptocurrency can buy goods, services, and trade. Any increase in the cryptocurrency’s value between the time of acquisition and the time it is spent is subject to taxation. For example, if you bought €8,000 worth of Bitcoin (BTC) and later used it to buy a PlayStation 5 when it was worth €10,000, the €2,000 increase in value is considered a net gain and will be taxed as income.
Selling Staked/Loaned Crypto Within 1 Year
When you use a staking or lending protocol or even a non-custodial wallet to stake as part of a Proof-of-Stake (PoS) consensus mechanism, Germany’s tax rules can differ from those of other crypto transactions.
Before April 2022, selling cryptocurrency you had used in a staking or lending protocol within 10 years would trigger Income Tax on any profits. This long holding period often meant a significant wait for tax-free profits.
However, the rules have been updated. The holding period for cryptocurrency used in staking or lending protocols has been reduced to just 1 year. If you sell your staked or lent cryptocurrency within 1 year of acquiring it, you must pay Income Tax on any profits.
Staked/Loaned Crypto Sold After One Year
If you want to sell your staked/loaned cryptocurrency after a year of investment, then as per the laws of crypto taxes in Germany, you will not be liable to pay any taxes.
Getting Paid In Bitcoin Or Cryptocurrency
In Germany, whether freelancing or employed and receiving income in cryptocurrencies like Bitcoin (BTC), you’re subject to income tax.
The critical rule is that any crypto received as payment—whether from freelance work or salary—is taxed based on its market value at the time of receipt. Freelancers should report the market value of crypto received for services rendered on their tax returns.
Similarly, employees whose salaries include cryptocurrencies must include this value in their annual tax declarations. Failing to declare crypto income accurately and on time can result in penalties and additional taxes.
Sign-Up And Referral Bonuses
As per the laws of crypto taxes in Germany, any cryptocurrency you receive as a reward for signing up or referring users to a service is considered income and taxable at receipt time. This includes bonuses or incentives received in cryptocurrencies for participating in promotional activities.
It’s essential to accurately report the market value of these cryptocurrencies on your annual tax return. Declining such income can lead to penalties and additional tax liabilities.
Receiving An Airdrop In Exchange For An Action Or Service
As per the laws of crypto taxes in Germany, any cryptocurrency you receive as a reward for signing up or referring users to a service is considered income and taxable at receipt time. This includes bonuses or incentives received in cryptocurrencies for participating in promotional activities.
It’s essential to accurately report the market value of these cryptocurrencies on your annual tax return. Declining such income can lead to penalties and additional tax liabilities.
Receiving An Airdrop In Exchange For An Action Or Service
The German Federal Ministry of Finance, Bundesministerium der Finanzen (BMF), has specified that private investors may face taxation upon receiving a crypto airdrop in certain circumstances, particularly when the airdrop is received in exchange for a service or action.
Examples include receiving tokens or cryptocurrencies to share a social media post or providing personal information. In such cases, the value of the airdrop is considered income and is subject to Income Tax.
Conversely, receiving an airdrop without performing any service or action in return would typically not be subject to Income Tax under current guidelines.
Mining Crypto
If you’re engaged in cryptocurrency mining operations in Germany, it’s essential to understand how Income Tax applies. According to the German Federal Ministry of Finance, many mining activities may be classified as commercial operations.
This means you will pay Income Tax on your mining profits after deducting allowable expenses such as electricity and equipment costs.
Mining rewards may not be subject to Income Tax if they do not exceed the annual threshold (Freigrenze) of €256, as outlined in Section 22 no—3 sentence 2 of the German Income Tax Act (EStG).
However, once your mining rewards surpass this threshold within a calendar year, you must file a tax return. All additional income from mining beyond this limit becomes taxable.
Staking Rewards
According to the Federal Ministry of Finance (BMF), staking rewards received by private investors may be subject to Income Tax in Germany. This applies to rewards earned through Proof-of-Stake (PoS) mechanisms and staking pools.
Like mining, staking rewards are exempt from Income Tax if they do not exceed the annual threshold of €256, as specified in Section 22 no—3 sentence 2 of the German Income Tax Act (EStG).
It’s important to note that this threshold encompasses all additional income, including earnings from other sources. If your total additional income exceeds €256 in a calendar year, you must file a tax return, and all additional income becomes taxable.
Gifting Crypto To Friends & Family
In Germany, giving Bitcoin or other cryptocurrencies to your family or friends as a gift is treated similarly to any other type of gift. Here’s what you need to know:
Tax-Free Limits:
Gifts are generally tax-free up to certain limits. The tax-free threshold for gifts to friends is €20,000. However, the threshold for gifts to spouses is higher, set at €500,000. If the value of the gift exceeds these amounts, it becomes subject to the “Schenkungssteuer” (gift tax).
Gift Tax Rates:
The “Schenkungssteuer” applies different tax rates depending on the relationship between the donor and the recipient:\
- The tax rates range from 7% to 30% for spouses, children, and grandchildren.
- For other relatives (e.g., parents, siblings) and unrelated individuals (friends), tax rates can go up to 50%.
Exemption Renewal:
The tax exemption limits are renewed every 10 years. If you have not used up your exemption limit entirely in a previous gift within the last 10 years, you may still have room to give more without triggering the gift tax.
However, to determine the gift’s tax value, use the cryptocurrency’s fair market value on the day you made the gift.
Earning Less Than €600 In Short-Term Gains And Income In A Year
According to German crypto tax laws, you will not be liable to pay any taxes if you sell your Bitcoins or any other cryptocurrencies at a profit of less than €600 within twelve months of its purchase. This exemption falls under rule 23 of the Income Tax Act (Einkommensteuergesetz, EStG).
If your profits from cryptocurrency trading stay below €600 in a year, you are not required to file a tax return as this amount qualifies for tax exemption.
However, if your earnings exceed €600 within the same period, you must file a tax return, and the entire amount of profit becomes taxable.
Buying Cryptocurrency With Euros (EUR)
Germany does not impose taxes on buying or holding cryptocurrencies like other countries. This tax benefit should encourage you and make you feel optimistic about your investment. However, it is crucial to maintain precise records of your purchases.
This documentation is essential for accurately calculating the cost basis of your cryptocurrency transactions when you eventually sell or dispose of them.
Besides generating accurate crypto tax reports, KoinX offers you a comprehensive portfolio tracker. You can use it to keep accurate records of your purchases.
Receiving An Airdrop When You Didn't Do Anything In Return
When you receive cryptocurrency through an airdrop, you acquire these digital assets without making a purchase or providing any service. These cryptocurrencies are not transferred from another party’s legal framework but are directly created in your wallets, provided they meet the necessary criteria. Think of it like winning a lottery or stumbling upon unexpected gains.
As there’s no purchase involved, the German Income Tax Act (EStG), specifically Section 23 (1) No. 2, doesn’t apply when you later sell these airdropped cryptocurrencies.
Similarly, if you haven’t provided services in exchange for the airdrop, it doesn’t count as other income under Section 22 No. 3 EStG. Therefore, when you sell cryptocurrencies received through airdrops and haven’t done anything in return (like promoting on social media), the profits from these sales are typically tax-free.
Transferring Crypto Between Wallets
When transferring cryptocurrency between different exchanges, wallets, or accounts, it’s crucial to note that this action is not considered a taxable event under current German tax laws. This means you won’t trigger income tax simply by moving your crypto holdings around.
However, you may have to pay a transfer fee, which will trigger the capital gains taxation in Germany. Hence, the transfer itself may be tax-free when transferring crypto, but transfer fees are not exempt from taxes.
Hard Forks
As a private investor in Germany, you are not required to pay Income Tax solely for receiving cryptocurrency from a hard fork, as per the BMF.
However, you must file a tax return if you sell this cryptocurrency within a year of receiving it. Any profits exceeding €600 from the sale must be reported to ensure compliance with tax regulations regarding gains from crypto transactions in Germany.
Receiving And Redeeming Utility Tokens
According to the latest guidance from the BMF, the tax implications of cryptocurrency transactions in Germany depend significantly on the type of token involved.
For utility tokens, such as Brave’s BAT tokens used for tipping content creators, receiving and redeeming these tokens generally do not incur Income Tax. This is because they are primarily used for specific functionalities within their platforms.
However, it’s essential to note that the tax treatment may vary if utility tokens hold significant market value or are traded for profit outside their intended use cases.
DeFi Tax
Due to its emerging market, the BZSt has yet to issue specific guidance on decentralised finance (DeFi).
However, this does not exempt DeFi investments from tax obligations in Germany. You must interpret existing cryptocurrency tax guidelines from the BZSt and apply them to your DeFi activities, preferably with the assistance of a qualified crypto accountant.
There are a couple of crucial tax implications to consider:
Earning New Tokens Via DeFi Protocols
Activities like staking, liquidity mining, or yield farming often result in receiving new tokens or coins. The BZSt will likely treat these new tokens as additional income, subject to Income Tax upon receipt if the income exceeds €256.
Trading Tokens That Accrue Value
Many DeFi protocols issue liquidity pool tokens instead of new tokens as rewards. These tokens represent your share of the pool’s capital and can accrue value based on rewards received. Any profit realised may be taxable when you trade these liquidity pool tokens back for your original assets.
The tax treatment depends on how long you held your original assets and the liquidity pool tokens:
- Any gain upon trading liquidity pool tokens is subject to short-term Income Tax if you held your original assets for less than a year before adding them.
- If you held your original assets for over a year, the gain may qualify as a long-term tax-free gain.
- Similarly, when withdrawing your assets by trading liquidity pool tokens back, gains are taxable if the tokens were held for less than a year but tax-free if held for more than a year.
NFT Taxes
When dealing with NFTs, it’s essential to understand their German crypto tax implications, which are generally similar to fungible coins or tokens. However, if you’re an NFT creator, there are specific considerations:
Selling or Swapping NFTs
Whether you’re selling, swapping, or buying NFTs with cryptocurrency, the tax treatment depends on how long you’ve held the asset:
- Any profit is subject to Income Tax if held for less than one year.
- If held for more than one year, the profit is typically tax-free.
Creating and Selling NFTs As An Artist
Income from minting and selling NFTs as an artist may be categorised as income from artistic activity or commercial income. This means you’ll need to pay Income Tax and potentially Trade Tax.
Mining Tax
When mining cryptocurrencies like Dogecoin, Monero, or Bitcoin, it’s essential to understand the implications of crypto taxes in Germany, which apply uniformly across different types of coins:
Mining Rewards
The BZSt considers mining rewards additional income, subjecting it to income tax. To calculate your taxable income, use the fair market value of the coins in EUR on the day you received them.
Expense Deductions
You can deduct expenses related to mining, such as electricity or equipment costs, from your mining income. Your taxable profit is determined by subtracting these expenses from your mining income. Income Tax is then applied to the remaining profit at your regular Income Tax rate.
Disposing of Mined Coins
Any profit is subject to Income Tax if you sell or dispose of any mined coins within one year of receiving them. The tax treatment depends on whether you held the coins for less than or more than a year.
Staking Tax
Even though PoS and PoW are based on different consensus mechanisms, their rewards are treated similarly from a tax perspective. According to the BZSt, Income Tax applies to staking rewards based on the fair market value of the coins in euros on the day you receive them.
A recent clarification from the BZSt addresses the holding period for staked tokens. Previously, there was a need for clarity about whether income tax would apply to profits from disposing of staked tokens held for less than 10 years.
However, as of updated guidance in 2022, the standard one-year holding period now applies.
This means you’ll only be liable to pay Income Tax on profits from selling staked tokens if you’ve held them for less than one year. If you keep them for over a year, any gains are tax-free under current regulations.
How To Calculate Your Crypto Taxes In Germany?
Figuring out how much German crypto tax you owe can feel daunting, but it doesn’t have to be. Here’s a breakdown of three ways to tackle your crypto tax calculations:
Use a Crypto Tax Calculator
This is the simplest option, especially if you’ve made a lot of trades throughout the year. Crypto tax calculators like KoinX can connect to your cryptocurrency exchanges and wallets. Once connected, it’ll automatically generate a report summarising your capital gains and losses. This saves you time and effort on the cost of decided fees that may be associated with using these services.
Get Help From An Accountant
If you need help navigating crypto tax regulations or have a complex tax situation, consider hiring an accountant specialising in cryptocurrencies. They’ll have the expertise to handle crypto transactions and file taxes correctly. While this option offers peace of mind, it can also be expensive.
Do It Yourself (DIY)
This is the most time-consuming route, but it can save you money on accounting fees. However, it’s essential to be familiar with the crypto tax regulations in your country. Remember, tax laws can vary depending on your location. If you decide to go the DIY route, research beforehand to ensure you calculate everything correctly.
German Cost Basis Method
According to BMF guidance, FIFO (First In, First Out) is the preferred method for calculating crypto taxes when specific units cannot be identified. This means that the coins you acquired first are considered sold first when calculating proceeds and profits.
However, in a May 2022 update, the BMF introduced a requirement for a ‘wallet-by-wallet’ analysis to determine the “sequence of use” of sold units. For each wallet you hold crypto in, you need to track the acquisition and sale of coins separately within that wallet.
German Cost Basis Method
The German tax year spans from January 1 to December 31. Usually, the tax deadline is July 31 each year, which shifts to the next working day if it falls on a weekend.
However, due to the COVID-19 pandemic, deadlines have been extended. For instance, you have until September 30, 2024, to file your 2023 tax return.
If this date lands on a weekend, the deadline moves to the subsequent working day. This adjustment allows taxpayers extra time to meet their obligations during exceptional circumstances.
How To Reduce Your Crypto Tax In Germany?
Germany offers a surprisingly crypto-friendly tax environment, with several strategies to minimise your crypto tax burden. Let’s explore some effective methods:
HODL for Tax-Free Gains
This is the mantra for many crypto enthusiasts – HODLing (Holding On for Dear Life) also pays off in tax savings! In Germany, holding crypto for over a year before selling benefits you from a complete tax exemption on any gains.
This applies to short-term capital gains tax and income tax on crypto earned through staking or lending. If you believe in the long-term potential of your crypto, consider holding for at least a year to reap the tax-free benefits.
Utilise Exemption Limits
Germany offers generous tax-free thresholds for crypto gains and income. You can earn up to €600 annually from crypto trading without incurring taxes.
This lays to short-term capital gains, meaning even if you buy and sell crypto within a year, this exemption shelters your initial €600 in profits.
There’s also a €256 exemption for additional crypto income, such as staking rewards. Remember, exceeding these limits makes the entire amount taxable.
Track and Offset Losses
The crypto market can be volatile, and losses are inevitable for some of you. But here’s the good news: the German crypto tax laws allow you to offset your capital gains with past losses.
This means tracking your transactions and strategically selling assets at a loss to minimise your overall taxable gains. It’s a form of tax-loss harvesting that can significantly reduce your tax bill.
Strategic DeFi Investments
Decentralised Finance (DeFi) offers exciting investment opportunities, but its tax implications can be complex. Consider the tax treatment for different DeFi activities like liquidity pools and staking. Consult a tax professional to ensure your DeFi strategies align with minimising your tax burden.
Gift Crypto to Family
Gifting crypto to your spouse or close relatives can be a tax-efficient strategy. In Germany, there is a €500,000 exemption on gifted crypto. This can be particularly beneficial if the recipient is in a lower tax bracket, potentially reducing the overall crypto tax liability within the family.
Deduct Expenses
Remember that various crypto-related expenses are tax-deductible in Germany. These can include gas fees associated with crypto transactions, software costs for crypto tax filing, and electricity expenses for crypto mining (within certain limits). Keeping accurate records of these expenses further minimises your taxable crypto income.
How Do You Report Crypto Tax In Germany?
The German tax authority, BZSt, mandates that any income or profits derived from crypto transactions, swaps, or sales must be declared on your annual Income Tax Return (Einkommensteuererklärung).
This reporting is akin to disclosing regular income, gains, or losses but requires a separate section for crypto activities categorised as ‘other income.’
What to Declare?
If you sold, traded, spent, or earned cryptocurrency in the previous financial year, it is crucial to include the total amounts in your tax return.
Filing Methods
Here are the two crypto tax filing methods in Germany:
Using Elster Online Platform:
The simplest way to file taxes is through Elster, the BZSt’s online tax platform (Elektronische Steuererklärung). You must complete Annex SO (Other Income) alongside the main form ESt 1 A. Your Complete Tax Report form KoinX provides essential details such as acquisition prices, costs, disposal proceeds, and fair market values in euros, facilitating accurate tax form filing.
Using On-Paper Format:
Alternatively, you can declare your crypto activities on paper and mail your tax forms to your local tax office (Finanzamt).
German Crypto Tax Filing Forms
Here’s a breakdown of the critical German crypto tax filing forms you’ll encounter:
This is the foundation of your German tax return. It captures your overall income picture, including salary, pensions, and other taxable income sources. While you won’t directly report crypto holdings here, it is the primary document where your crypto-related income (reported elsewhere) will be integrated into your total taxable income.
This is where your crypto magic happens! Anlage SO is specifically designed to report “other income,” which conveniently includes your cryptocurrency gains. Here, you’ll meticulously detail your crypto transactions throughout the year, including:
- Sales: Report the sale of any cryptocurrency for Euros or other assets.
- Trades: Record that here if you’ve swapped one crypto for another (e.g., Bitcoin for Ethereum).
- Mining or Staking Rewards: Earned rewards from mining or staking crypto are considered income and must be declared.
Keep Records Of Crypto Investments
Residents worldwide, including those in Germany, need to keep detailed records of cryptocurrency transactions for five years as per tax office requirements. Here’s a breakdown of the essential records you should maintain:
- Transaction Dates: Record the date of each cryptocurrency transaction you make.
- Transaction Value: Note the cryptocurrency’s value in Euros at the time of the transaction. You can obtain this information from a reputable online exchange.
- Transaction Details: Document the purpose of each transaction and the details of the other party involved, even if it’s just their cryptocurrency address.
KoinX can simplify your record-keeping. By syncing your account from over 270 blockchains, wallets, and exchanges, our platform provides a central dashboard to record and view all your crypto activity. The great news is that portfolio tracking is available with our free plan. So join KoinX today and keep accurate records of your crypto investments.
What Happens If I Don't File My Cryptocurrency Taxes?
The BZSt is committed to making sure all taxpayers fulfil their tax obligations. If you’re still determining whether you’ve accurately reported your crypto taxes in past years, it’s wise to be proactive and amend your previous tax reports.
In Germany, tax evasion is a criminal offence. Depending on the intent and severity of the offence, it can result in penalties or even a prison sentence of up to five years.
How Can KoinX Help With Your Crypto Taxes in Germany?
Are you dreading the complexities of reporting your crypto taxes in Germany? KoinX can be your knight in shining armour! As an automated crypto tax reporting platform, we streamline the entire process, saving you time, frustration, and, potentially, a hefty tax bill.
KoinX goes beyond simple tax reporting. It’s a comprehensive crypto portfolio tracker that meticulously gathers your transaction data, classifies it according to German tax regulations, and generates a compliant tax report ready for submission.
Here’s how KoinX tackles your German crypto tax woes:
- Integration From Over 270 Platforms: No more manually combing through endless exchange and wallet statements. KoinX seamlessly connects with over 270 platforms, automatically fetching your transaction history.
- Automatic Transaction Import: Say goodbye to endless spreadsheets! KoinX imports your transactions, eliminating the risk of human error and ensuring complete data for accurate tax calculations.
- Unified Portfolio Overview: Gain a crystal-clear picture of all your crypto holdings in one place. KoinX offers a unified portfolio overview, making tracking your investments and identifying potential tax implications easy.
- Wide Range of Supported Cryptocurrencies: Whether you’re a seasoned crypto investor or just starting, KoinX has you covered. It supports many cryptocurrencies, ensuring all your digital assets are accounted for.
- Auto-Classification Of Transactions: German tax laws can get tricky. KoinX takes the guesswork out of it. Its auto-classification feature intelligently categorises your transactions according to German tax regulations (e.g., buying, selling, staking), ensuring your tax report reflects the correct tax treatment.
- Tax Report Export: KoinX generates a tax report specifically formatted for German tax authorities once everything is categorised and calculated. Export it, and you’ll be ready to file!
So sign up on KoinX today and make filing your German crypto taxes a breeze.
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Frequently Asked Questions
Is Cryptocurrency Legal In Germany?
Yes, cryptocurrency is legal in Germany. According to BaFin crypto regulations and the KWG (German Banking Act), individuals and businesses can buy, sell, and trade cryptocurrencies. However, cryptocurrencies are not recognised as legal tender in Germany. Instead, they are classified as “units of account.”
Is It Legal To Mine Crypto In Germany?
Yes, crypto mining, like Bitcoin mining, is legal. However, if you operate commercially, you will need a BaFin licence.
How Can I Cash Out My Crypto In Germany?
To cash out your cryptocurrency in Germany, you can use exchanges like Binance or Kraken to sell your crypto for euros. You can then transfer the euros to your German bank account. Don’t forget to report this transaction to comply with German tax laws.
Do I Report Crypto If I Didn't Sell It?
You should report your cryptocurrency holdings in Germany even if you haven’t sold them. This includes any staking or lending income. Accurate reporting ensures compliance with German tax regulations and avoids potential legal issues.
Does Binance Report To Tax Authorities In Germany?
Binance complies with international regulations and reports relevant transactions to tax authorities, including Germany. This helps ensure users meet their tax obligations. Therefore, we suggest that you always maintain accurate records of your transactions for tax reporting purposes.
