The German Ministry of Finance introduced some changes to its cryptocurrency policy several years ago. Sales of bitcoin, ether and other digital currencies will not be taxed if individuals hold the assets for more than one year. There are other nuances in German law.
Cryptocurrency tax in Germany
In 2022, the German Ministry of Finance published a letter regarding the income tax treatment of digital assets such as bitcoin (BTC) and ether (ETH).
After cooperation with the highest tax authorities of the federal states, legislators decided to exempt the sale of cryptocurrencies from tax. However, there is a catch. These assets must be held by investors for more than 12 months. However, it is worth adding that this policy will apply even if cryptocurrencies were used for staking or lending (previously, digital assets used for staking had to be held for ten years to be exempt from taxation).
But what if someone made money on cryptocurrencies before the year of hodling has passed? When selling cryptocurrencies in Germany, he will pay capital gains tax calculated on the transaction amount exceeding EUR 1,000 (more on this below). Profit is calculated based on the difference between the purchase price and the selling price. The tax office is not interested in whether the profit remains in other cryptocurrencies or whether it has been converted into traditional currency. The personal income tax rate ranges from 14% to 45%.
Entrepreneurs who trade cryptocurrencies professionally (professional traders) must pay income tax on each transaction. Yes, regardless of its value.
To be able to settle your accounts with the German tax office, you must stay in Germany for more than 180 days a year.
The exemption limit is EUR 1,000
Finally, let’s look at one more interesting tax aspect. In Germany, there is an exemption limit of €1,000 which applies to income from private sales transactions. In other words, amounts less than €1,000 are tax-free. However, what matters is the sum of all capital gains in a given year – if it is higher, the full amount is taxed.
To explain it better: if the profit from cryptocurrency trading was EUR 500 per year, you will not pay tax, but if the profit is, for example, EUR 1,010, the entire amount will be taxed, not only the amount exceeding the exemption limit.
And another rule worth remembering: 1,000 euros does not apply only to cryptocurrencies, but to all private sales transactions. This includes the profitable sale of e.g. CDs on eBay, furniture or a car.
