Germany With Clear Income Tax Rules For Cryptocurrency And Virtual Assets

Europe, which is still lagging behind in crypto legislations, seems to have cracked its scrutiny, as Germany’s Federal Ministry of Finance (BaFin) posted a 24-page document on Tuesday. The document essentially defines income tax rules for cryptocurrency and virtual assets for acquiring, selling, and trading cryptos.

Furthermore, the document outlines that if crypto holders decide to acquire cryptos and hold them for more than 12 months, they would no longer have to declare any gains for Bitcoin (BTC) and Ethereum (ETH).

Katja Hessel, Parliamentary State Secretary, highlighted some of the problems, concerning the long-term staking of cryptocurrencies.

“For private individuals, the sale of purchased Bitcoin and Ether is tax-free after one year. The deadline is not extended to ten years if, for example, Bitcoin was previously used for lending or the taxpayer provided ETH as a stake for someone else to create their block.” Hessel added.

Germany’s efforts in creating crypto taxation began in mid-2021 when the Federal Ministry called upon companies to add their input into crypto taxations, as well as questions about staking and lending protocols.

The new tax legislation clears out a subject from the Germany Income Tax Act. In the Act, under Section 23, former legislation stated that the windfall of any asset that is sold after a year since its acquisition is tax-free.

However, specialists and enthusiasts in Germany questioned whether lending or staking virtual assets would lead to an extension of the period of taxation, as the German Finance Ministry stated that the 10-year period does not apply to cryptocurrencies.

Also, Bitcoin miners would fall under the waived tax payments legislation.

“The Federal Ministry of Finance would continue to issue further guidance on the use and trade of cryptocurrencies. Of course, the upcoming official publication of the letter is not the end of our discussion of the topic, but an interim result. The rapid development of the 'crypto world' ensures that we do not run out of topics. A supplementary letter on the obligations to cooperate and record is already in progress." Hessel added.

Germany is one of the few countries that took a proactive approach to cryptocurrency regulation and oversight, as the country’s government already adopted a national blockchain strategy back in 2019, while since 2020 cryptocurrency service providers including exchanges and custody platforms were required to obtain licenses from BaFin — ensuring the sector operates to the same standards as conventional financial service providers.