**Author: TaxDAO**
1. **Introduction**
Germany’s attitude towards cryptocurrencies is relatively open and friendly. As early as 2013, the German Ministry of Finance began to focus on the development of cryptocurrencies and issued relevant policy documents. Germany is the first country in the world to officially recognize the legality of cryptocurrency transactions such as Bitcoin, with the number of Bitcoin and Ethereum nodes second only to the United States. Additionally, the German government encourages banks and financial institutions to actively participate in the development of cryptocurrencies, establishing a relatively friendly tax system and corresponding regulatory guidance.
2. **Overview of Germany’s Basic Tax System**
2.1 **Germany’s Tax System**
The federal financial revenue in Germany primarily comes from tax revenues, other regular income, and capital project income, with taxes consistently being the main source of financial income, accounting for approximately 50%. Following tax reforms, Germany’s tax revenue has been gradually increasing, with its share of financial income steadily rising.
Germany’s tax system is known for its complexity, multi-tiered structure, and high efficiency. As a federal state, its administrative management system is divided into three levels: federal, state, and local, with each level having its own functions and responsibilities. The costs incurred are borne by the respective level. Therefore, Germany implements a three-tier tax system, categorizing all taxes into shared and exclusive taxes. Shared taxes are jointly owned by federal, state, and local governments or two of these levels and are distributed according to specific rules and proportions. Exclusive taxes are allocated solely to the federal, state, or local governments as their exclusive income.
Typical examples of shared taxes include Value Added Tax (Umsatzsteuer) and Income Tax (Einkommensteuer), with revenues collected jointly by federal and state governments and shared between them. The revenue from VAT is distributed to the states according to a certain proportion, while income tax revenue is allocated based on population and economic conditions.
Exclusive taxes are revenues exclusive to a certain level of government, collected and managed solely by that level, without sharing with other governments. Exclusive taxes include, but are not limited to, property tax levied by local governments and land transaction tax levied by state governments. For instance, land tax is a tax levied by local governments on existing land and its buildings, with the rate determined by local governments, reflecting the characteristics of tailored policies for different cities.
2.2 **Major Tax Types**
2.2.1 **Corporate Income Tax**
Corporate income tax subjects are divided into unlimited and limited tax liability taxpayers. Unlimited taxpayers, i.e., enterprises located in Germany, are liable for taxes on income sourced globally; limited liability taxpayers, i.e., enterprises located outside Germany, are liable only for income sourced within Germany. If a double taxation avoidance agreement exists between two countries, foreign enterprises can typically enjoy tax reductions. The corporate income tax rate in Germany is 15%.
2.2.2 **Personal Income Tax**
German residents are subject to unlimited tax liability, meaning they must pay taxes on all income, both domestic and foreign; non-residents are subject to limited tax liability, usually taxing only their income sourced within Germany. The scope of personal income tax includes income from agriculture and forestry, business income, income from self-employment, employment income, investment income, rental income, and other income. The tax rate is progressive, ranging from 14% to 45%, with a basic deduction.
2.2.3 **Value Added Tax**
Germany’s VAT is a turnover tax borne ultimately by the consumer. The current VAT rate is a uniform 19% nationwide, with a reduced rate of 7% applicable to goods such as food and books. Businesses can deduct VAT invoices acquired during operations as input tax when filing VAT returns.
VAT returns can be filed monthly or quarterly. Newly established enterprises or those with annual VAT payments below €7,500 from the previous year may opt for quarterly filing, with a deadline of the 10th of the month following the quarter; if the previous year’s VAT payments exceed €7,500, monthly filing is required, with a deadline of the 10th of the following month. Additionally, businesses must conduct an annual reconciliation of their total VAT at year-end.
3. **Germany’s Cryptocurrency Tax Policy**
3.1 **Qualifying Cryptocurrencies**
Since the inception of Bitcoin in 2009, the scale of cryptocurrency transactions has expanded dramatically. Against this backdrop, on February 27, 2018, the German Federal Ministry of Finance issued a public letter based on the European Court’s ruling on the “Hedqvist case,” using the term “virtual currencies” (Virtuelle Währungen). The German Federal Ministry of Finance believes that the rules applicable to the exchange of Bitcoin and traditional currency can also apply to the exchange of other virtual currencies and traditional currencies.
The German government’s definition of crypto assets is relatively broad. According to a document released by the Federal Financial Supervisory Authority (BaFin) in 2020, it created a broader definition for cryptocurrency assets, stating that cryptocurrencies, as financial instruments, although not fitting the definitions of traditional financial instruments, possess legal status as money or currency, can serve as a medium of exchange, and can be transmitted, stored, and traded electronically. The Federal Ministry of Finance (BMF) stated in 2022 that a single unit of cryptocurrency is an asset, reflecting the ability to distribute economic benefits assigned to an owner’s public key to another public key. They can be valued based on market prices, typically determined through exchanges, trading platforms, or listed companies. The beneficial owner is the person who can initiate a transaction, thereby “controlling” which public key virtual currency or other tokens are assigned to, usually the owner of the private key. However, if the transaction is initiated through a platform storing the private key or allocated based on the beneficial owner’s instructions, ownership remains unaffected.
In terms of tax policy, Germany defines cryptocurrency as a special product with dual attributes of currency and property. Major cryptocurrencies (e.g., Bitcoin) are regarded as legal private currencies, and their holding, buying, selling, and use are legal activities. Since cryptocurrencies are deemed assets, their buying and selling profits are generally taxed according to personal income tax and capital gains tax provisions, while they are exempt from VAT.
3.2 **Cryptocurrency Tax System**
In Germany, profits from buying and selling cryptocurrencies are considered capital gains. According to German income tax law, if an individual holds cryptocurrency for more than one year, the capital gains obtained upon sale are tax-exempt. If the holding period is less than one year, the profits from the sale are subject to capital gains tax. If an individual earns no more than €600 in profits from cryptocurrency transactions in a fiscal year, according to German tax law, this portion of profit may be tax-exempt. This provides certain tax advantages for small personal transactions and investments.
In terms of mining and staking, income from cryptocurrencies obtained through mining is generally regarded as part of business income and is subject to income tax, but expenses incurred during the mining process can be deducted. For staking rewards, if held for more than one year, these profits are tax-exempt; if held for less than a year, income tax is applicable.
Regarding income from airdrops and forks, if the airdropped tokens are related to commercial activities, the received tokens are considered business income. Tokens are valued at their market price at the time of receipt; if the airdrop involves providing services (e.g., promoting projects on social media), the income from such services falls under other income as defined in Section 22, Paragraph 3 of the Income Tax Act and must be reported at market price. A fork refers to a hard fork or soft fork in a blockchain. A hard fork generates new virtual currencies, with tax treatment as follows: the new tokens generated are treated as independent assets, and the acquisition cost of the original tokens allocated must be proportionally distributed based on the market prices of the two tokens at the time of the fork. The fork itself does not constitute a taxable event, but if the new tokens are sold during the holding period, the profits are subject to private sales transaction tax.
Additionally, according to a document released by the Federal Ministry of Finance regarding individual issues in the taxation of virtual currencies and other tokens, exchanges between cryptocurrencies and traditional currencies are exempt from VAT. This means that buying and selling cryptocurrencies themselves do not incur VAT, further alleviating the tax burden of crypto transactions. Furthermore, if cryptocurrencies are used as a means of payment for goods or services, the appreciated portion may be subject to income tax.
4. **Building and Improving Germany’s Cryptocurrency Regulatory Framework**
The German Federal Financial Supervisory Authority (BaFin) officially defines cryptocurrencies as Crypto Values, viewing them as a new type of financial instrument, and introduces “cryptocurrency custody business” as a new financial service. According to BaFin’s requirements, from January 1, 2020, any company wishing to provide cryptocurrency custody services, including Bitcoin exchanges or custody institutions, must obtain permission from BaFin.
In 2020, Germany implemented the fifth EU Anti-Money Laundering Directive (AMLD5), requiring cryptocurrency exchanges and wallet providers to comply with strict AML/CTF regulations. These regulations include customer due diligence, reporting suspicious transactions, and implementing internal control measures to ensure market transparency and compliance.
In May 2021, the German Federal Parliament passed the Electronic Securities Act (Gesetz zur Einführung von elektronischen Wertpapieren, eWpG). The eWpG defines crypto securities and categorizes them as a subset of electronic securities. The implementation of the German Electronic Securities Act marks a significant step for Germany in the digital financial sector, helping to ensure technological neutrality, improve financial market efficiency, and reduce operational costs. This law also responds to the German government’s push for a blockchain strategy and principles of technological neutrality.
In November 2021, Germany’s new government mentioned cryptocurrency in its coalition agreement, advocating for the establishment of an equal competitive environment between traditional finance and innovative business models. The coalition calls for creating a new dynamic to ensure comprehensive and risk-appropriate regulation of new business models.
In 2022, the German Federal Ministry of Finance released the first national cryptocurrency tax guideline titled “Individual Issues in the Taxation of Virtual Currencies and Other Tokens,” covering tax scenarios such as mining, staking, lending, hard forks, and airdrops. Specific provisions have been mentioned earlier, and this guideline further improves Germany’s cryptocurrency regulatory framework, demonstrating the German government’s proactive attitude towards cryptocurrency regulation.
5. **Summary and Outlook**
In terms of tax systems, Germany exhibits an inclusive and friendly attitude towards cryptocurrencies, aiming to balance innovation incentives with risk management. This is mainly reflected in tax exemptions for small profits, tax benefits for personal investments, and VAT exemptions. In the future, Germany may continue to optimize its cryptocurrency tax policies to adapt to market developments and international cooperation needs.
In terms of regulatory systems, Germany’s cryptocurrency regulatory environment is considered one of the friendliest in Europe, providing a safe and transparent investment environment for cryptocurrency investors. As the cryptocurrency market and related technologies rapidly develop, Germany’s regulatory framework will need to remain adaptive to meet emerging challenges and opportunities. Germany may strengthen cooperation with other countries and international organizations in cryptocurrency regulation to promote the uniformity of global regulatory standards.
In short, the development of Germany’s cryptocurrency tax and regulatory systems is providing increasingly clear guidance and incentives for the country’s cryptocurrency industry. We believe that Germany can create an ecosystem conducive to the healthy development of cryptocurrencies, thereby contributing to the prosperous development of its economy.
