Germany has published favorable tax guidelines for cryptocurrency users in the country; with the earnings of long-term holders of Bitcoin and Ether becoming tax-free.
The Federal Ministry of Finance (BaFin) published a 24-page document on Tuesday outlining clear rules on income tax for cryptocurrencies and virtual assets. Tax professionals, businesses and individual taxpayers now have clear guidance on the tax requirements for buying, trading and selling cryptocurrencies.
The most important thing is that people who sell BTC or ETH more than 12 months after the original purchase will not have to pay taxes if they make a profit. Parliamentary Secretary of State Katja Hessel also addressed the issues regarding long-term cryptocurrency staking:
“For natural persons, the sale of purchased Bitcoin and Ether is tax-free after one year. The term is not extended to ten years if, for example, the Bitcoin was previously used for loans or the taxpayer provided ETH as participation for that someone else created your block (staking)”.
In mid-2021, Germany called on companies, institutions, and individuals to provide tax considerations around the use of cryptocurrencies, as well as staking and lending protocols. One of the main points of attention was a specific clause in the German Income Tax Law. Article 23 establishes that the unexpected gain of any asset that is sold after one year from its acquisition is tax-free.
Many wondered if lending or staking virtual assets would lead to an extension of the period in which a private sale of virtual currency used for this purpose is taxable. The German Ministry of Finance stated that the 10-year term does not apply to cryptocurrencies.
What’s more, Bitcoin miners who acquire newly minted BTC will also be tax-exempt after one year of holding. Hessel also indicated that the Federal Ministry of Finance would continue to publish further guidance on the use and trading of cryptocurrencies.
Germany has taken a proactive approach to cryptocurrency regulation and supervision, adopting a national blockchain strategy in 2019. As of January 2020, cryptocurrency service providers, including exchanges and custody platforms, are required to obtain licenses from BaFin, ensuring that the sector operates to the same standards as conventional financial service providers.
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