Germany is one of the many European countries where laws are still a bit grey. That hasn’t stopped investors from turning a healthy profit. Crypto trades are made on bitcoin.de and bitstamp.net. However, those healthy profits will soon probably take a drop after the Bundesfinanzhof – Germany’s highest fiscal court, found them taxable under German income tax law.
What this means is that tax authorities are taking action on crypto trades from now on. According to latest reports, they’ve collected data from over 4,000 people who earned over €50,000 in revenue in North-Rhine Westphalia between 2015 and 2017. Tax evasion is a serious crime in Germany under criminal law, and with the new ruling, crypto enthusiasts will have to bite the bullet.
German Tax Laws
Up until now, crypto trades have not been taxed under German laws. All profits generated from selling or trading cryptocurrencies are taxable under section 23 of the income tax act. Everyone who has sold or traded cryptocurrencies within 12 months of acquiring them and made profit over €600 should pay a certain fee. Profits from this are tax free after 10 years, but that’s a long time – certainly more than enough to get you into trouble with the tax authorities.
This fee is not determined in percentages as expected. It’s determined by the difference between the price on acquisition and the price at the selling point. All taxable profits must be declared in full. Failing to do so results in a risk of exposure. Germany’s criminal law aims to go after dishonest investors. By ways of mutual legal assistance, the country can also seek data from foreign crypto exchanges. Technically, investigators could trace individual transaction records dating back years under the new laws.
If they catch anyone for crypto tax evasion, investigators can open up a case against them within 5 years after the offense. This must be concluded at a maximum of 10 years after the offense. In some cases, this can be extended to 15 and 37.5 years.
Of course, not every crypto investor is a reckless tax evader as the law tries to paint them. In reality, many traders simply didn’t have a lot of information regarding these laws, which ultimately led to tax evasion. Declaration errors could occur if the court finds that investors were not aware of tax liability. Crypto is a new trading phenomenon, and it should be treated as one.
On a national level as of 2023, cryptocurrencies in Germany are viewed as private money. However, contrary to popular belief, they are not legal tender. They are classified as a financial asset or instrument which makes them subject to various laws. In the past, Germany was believed to turn into a European crypto heaven, but with the new regulations, we highly doubt it. The new taxation law on securities and investments allows you to make profit up to €600 per year. Everything over that number should be taxed within a year.
Overall, Germany remains a crypto-friendly country, although it remains to be seen what investigators do with all the new data. Here’s hoping it won’t be a witch hunt.