When many cryptocurrencies reached their record highs in late 2017 / early 2018, risk-taking investors were able to make substantial profits. Even if the digital currencies are still far from their historic high, they are attractive to many investors due to the low interest rates for traditional investments.
If you trade cryptocurrencies, you should pay attention to the cryptocurrency tax. The cryptocurrency tax in Germany can be saved by observing various regulations. Selling cryptocurrency is different from selling stocks. There is no flat rate tax as for income from capital assets. Cryptocurrencies are taxed like art and valuables.
Table of contents
- Special features of cryptocurrency tax
- Cryptocurrency tax in Germany on profits for private investors
- Various options for cryptocurrency sell tax
- cryptocurrency tax in Germany when exchanging or paying with crypto-foreign exchange
- cryptocurrency tax for companies
- cryptocurrency tax during mining
- Taxes on the sale of coins generated by mining
- Cryptocurrency tax on the income from cloud mining
- Conclusion: Cryptocurrency tax - a complex process
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Special features of cryptocurrency tax
Trade digital currencies and achieve attractive profits, should you think of the cryptocurrency tax. There is no special cryptocurrency tax in Germany, but profits from selling cryptocurrency are subject to tax. So you have to claim the income in your tax return.
There are no separate columns for the cryptocurrency tax, but it depends on in which attachment of the tax return you state the profits. As many cryptocurrency traders mistakenly assume, the profits from the sale of cryptocurrencies are not income from capital investments.
So you don't have to pay a flat tax on profits from the sale of cryptocurrencies. Cryptocurrencies are not considered legal tender, but they are classified by the Federal Ministry of Finance as private money. Cryptocurrencies are considered to be intangible assets.
Taxation treats profits from cryptocurrencies in the same way as profits from the sale of art and valuables. You must state the profits in Appendix SO of your tax return as other income. What you have to pay for cryptocurrency tax depends on various factors.
Profits are taxed at your personal income tax rate. In addition, the solidarity surcharge and, if applicable, church tax are levied. A cryptocurrency tax in Germany can be used not only when selling digital currency against the euro, but also when
- mining cryptocurrency
- cloud mining cryptocurrency
- exchanging a cryptocurrency against another
- income from masternodes
. With regard to the cryptocurrency tax in Germany, a distinction is made between whether you are a private investor or an entrepreneur.
Cryptocurrency tax in Germany on profits for private investors
For private investors, profits are taxed from the sale of cryptocurrencies based on how long the cryptocurrencies will be held after purchase. These are private sales transactions, which are also referred to as speculative transactions. It does not matter whether you sell the cryptocurrencies you have bought via a crypto exchange or privately directly to another trader.
The cryptocurrency selling tax is regulated in paragraph 23 paragraph 1 number 2 of the Income Tax Act. This is not specifically about the cryptocurrency tax, but generally about private sales transactions.
If you keep the digital currency for at least a year after you buy it before you sell it, there is no cryptocurrency tax. It doesn't matter how high the profit is.
It will be a little more complicated if you sell the crypto currency within a year of the purchase. An exemption limit of 600 euros applies here. This exemption limit applies not only to cryptocurrencies, but also to the sale of art and valuables.
Within one year after the purchase of cryptocurrencies and valuables and their sale, you must achieve a profit that exceeds 600 euros You pay taxes. It does not matter how high the profit from the sale of cryptocurrencies is.
If the profit achieved exceeds the € 600 limit by just one euro, you pay tax on the entire profit. Taxation is based on your personal income tax rate. In order to determine the profit, acquisition and advertising costs, which include trading fees on exchanges, are deducted from the proceeds.
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Different options for the Sell cryptocurrency tax
Usually, traders buy cryptocurrencies several times a year from crypto exchanges, such as Naga Markets. The cryptocurrency tax in Germany can be handled differently if the digital currency is sold again within a year of the purchase:
- Fifo method (first in, first out) - the coins that are acquired first sold first
- Lifo method (last in, first out) - the most recently purchased coins are sold first
- method of weighted average values.
It is not legal prescribed which method is used for the cryptocurrency tax. The FIFO method is often chosen. In order to avoid any difficulties with the tax office, you should carefully document all purchases and sales of cryptocurrencies with the date, exchange rate and amount.
If extensive transactions with digital currency are carried out within a year, there is a risk that the tax office classifies it as a commercial activity. The holding period of one year does not apply to commercial trading in cryptocurrencies.
Since the purchase of digital currencies takes place at different rates, profits are not always made on sales. If you want to sell off a cryptocurrency quickly, as the price slips further and further down, there may be losses in the sale. Such losses can be offset.
They can also be carried forward for years to come and offset against the profits from private sales transactions. If you sell the digital currency within a year of the purchase, it depends on which method is chosen.
Cryptocurrency tax in Germany when exchanging or paying with crypto-foreign exchange
You don't just have to pay tax on cryptocurrency sales if you sell the cryptocurrency within a year. The one-year holding period also applies to private investors if you exchange the cryptocurrency for another cryptocurrency one year after purchase or pay with this cryptocurrency in an online shop.
Use the crypto motto within one One year after the purchase for exchange for another digital currency or for payment in an online shop, the cryptocurrency tax is due if the exemption limit of 600 euros is exceeded. The Fifo method, Lifo method or the weighted average method can also be selected here. However, this is more complicated than selling a digital currency for euros or another fiat currency.
When exchanging a digital currency for another digital currency, the rate is relevant to whether you are making a profit. You should therefore note the business and the rate.
If the digital currency is used as a means of payment in the online shop or at an online service provider, it is also a matter of sale on which the cryptocurrency tax is paid in Germany must become. Here you should specify the value of the goods or service and the current exchange rate so that you do not have any problems with the tax office.
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Cryptocurrency tax for companies
The holding period of one year does not apply to companies that trade in digital currency. The cryptocurrency tax applies regardless of how long the digital currency is held until it is sold. Transactions in digital foreign exchange from business assets are subject to tax liability in accordance with paragraph 15 of the Income Tax Act.
Profits are deemed to be income from business operations. The cryptocurrency tax in Germany is in addition to trade tax and is paid by sole traders and partnerships as income tax and by corporations as corporate tax.
In addition, the sales tax for companies in transactions with digital currency should not be forgotten. The treatment of sales tax for companies has not yet been fully clarified for cryptocurrency tax in Germany. The European Court of Justice (ECJ) ruled in 2015 that the exchange of digital currency in conventional currency is not subject to VAT. In this case, Union law applies.
The cryptocurrency tax for businesses is a complex issue. In addition to trading cryptocurrencies, companies also tax mining, cloud mining and other services with digital currencies. To be on the safe side, companies that do business with digital currency should get help from a competent tax advisor in good time.
You should also seek advice as a private person if you are big on digital currency
Cryptocurrency mining taxes
Blockchain-based cryptocurrencies, such as Bitcoin, Bitcoin Cash, Ethereum or Litecoin, are generated by mining. The miners are rewarded with digital currency for the provision of computing capacity. You get the digital currency without having to buy it. However, mining involves costs for hardware, software and energy.
When it comes to the cryptocurrency tax on mining, a distinction must also be made between whether the mining is private or commercial. As the Federal Government stated in a parliamentary question, income from mining in the private sector can be treated as other income in accordance with paragraph 22 number 3 of the Income Tax Act. However, it is not clear whether this income is only the transaction fees paid to the miners or the reward for finding a block.
The coins received from the mining are considered income, You are taxed on the cryptocurrency tax in the form of income tax if you do the mining privately. It is irrelevant whether you are performing standalone mining alone or have joined a mining pool to mine more efficiently.
Hardware and software expenses and electricity costs are deducted from the revenue generated by mining, Mining Bitcoin incurs high electricity costs as well as high hardware costs, so that a tax is not always payable for the coins obtained.
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Taxes on sales of the coins generated by mining
If you sell the coins that you received through private mining as a private person, there is no cryptocurrency tax. It does not matter how long the coins are held. There is no cryptocurrency tax in Germany because the digital currency generated was not acquired through purchase. The cryptocurrency tax does not apply if you exchange the coins generated by mining for another digital currency or use them for payment in an online shop.
The situation is different with cryptocurrency tax in Germany, if Mining them with the intention of making a profit. The mining office can view mining as a commercial activity. In this case, the cost of mining is tax deductible, just like private mining. A tax may then be payable on the sale of the digital currency generated. The holding period of one year does not apply to commercial mining.
There is no sales tax for companies on the digital currency generated by mining, as it is not a charge for an entrepreneurial service.
The income from masternodes also differentiates whether it is a private or commercial activity. The operation of masternodes ensures that the network works. There is no regulation on how income is taxed on a private activity. In most cases, there is no cryptocurrency tax, since the earnings are often only negligible.
Cryptocurrency tax on the earnings from cloud mining
In cloud mining, you conclude a contract with one Providers to rent or buy computing power for mining. You do not invest in hardware yourself and do not bear the necessary electricity costs. Such a contract is usually valid for a term of one year.
Often the entire amount for the rent is paid when the contract is signed. You receive digital foreign exchange depending on the rented or purchased computing power. The cryptocurrency tax may apply for cloud mining. Whether you have to pay the tax depends on the contract. It is not exactly clear what the cryptocurrency tax looks like in Germany, since the providers of cloud mining are often based abroad.
The taxes are payable in the country in which the permanent establishment is located. The place of business is the place where the server used for cloud mining is located. Details are regulated in the double taxation agreement. Perhaps you do not have to pay cryptocurrency tax in Germany on the income from cloud mining.
If the cryptocurrency tax is payable in Germany, the costs incurred when the contract for the purchase or rental of the computing power is concluded are considered as advertising costs, Having the earnings from cloud mining paid out to your wallet counts as a purchase. So you have to pay the cryptocurrency tax when you sell the generated coins. In this case, the holding period again decides whether you have to pay the cryptocurrency tax.
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Conclusion: Cryptocurrency tax - a complex process
If you trade digital currencies or generate cryptocurrency through mining, you may be wondering whether a cryptocurrency tax is due. For cryptocurrencies that were acquired through purchase, the holding period of one year applies to private individuals. If these digital currencies are sold after one year, there is no cryptocurrency tax.
A cryptocurrency tax in Germany is due, however, if the digital currencies purchased are sold again within one year of the purchase. The cryptocurrency sell tax is not a flat tax, but income tax with your personal tax rate. In addition, you have to pay the solidarity surcharge and, if applicable, church tax.
The profits from the sale of cryptocurrencies are taxed like the profits from the sale of valuables if they exceed the exemption limit of 600 euros. For companies trading cryptocurrencies, tax is payable on selling cryptocurrency regardless of whether the digital currency is held for a year.
A cryptocurrency tax may also apply if you mine the digital currency. Hardware and electricity costs can be deducted. A tax is not payable if you sell the coins generated by mining.