Germany’s Federal Ministry of Finance issued its first guidelines on the treatment of cryptocurrencies in terms of income tax. This is the first regulation of its kind adopted in the country, but it is already quite attractive to investors.
This is because Germany has established a tax exemption system on profits made from cryptocurrencies. More specifically, profits from borrowing or staking transactions will be exempt if they are held for more than one year. And that is not all.
Germany exempts cryptocurrencies from taxes
For example, an investor acquires BTC or Ether today (13/05/2022) and holds these assets in loans. If he withdraws the earnings and exchanges them only after (14/05/2023), the earnings will be tax free.
The same rule applies to the capital gains tax on the sale of cryptocurrencies. If this sale takes place more than one year after the date of purchase, no tax will be charged. The new rules were parliamentary Katja Hessel in a statement.
The legal document also deals with other aspects of the cryptocurrency market. In this regard, mining activities, forks and airdrops, as well as the tax treatment of the purchase and sale of BTC and ETH, the Ministry of Finance said.
According to the document, the one-year period applies even to cryptocurrencies that have been lent or used by someone else as a stake to create new ETH blocks. In this way, income from future mining via Proof of Stake (PoS) will also be exempt.
At the same time, the project exempts utility tokens from income tax, crypto-assets that entitle them to a specific service. This is the case with fan-tokens, which can be exchanged for good or exclusive access to a team’s games.
As the Ministry of Finance pointed out, a 2018 court judgment aimed to classify these tokens as holders’ securities. But the verdict was that redeeming the tokens does not count as a sale under German income tax law.
More flexible rules
The current rules are an advance over what was initially proposed in the country. Many expected cryptocurrencies to be regulated, for tax purposes, like real estate. However, the tax exemption in this case required a much longer period: about 10 years from the date of purchase.
However, Hessel discarded the application of this rule, which applies to goods such as land, and announced the news. As a result, Germany now has a more attractive tax law, especially for long-term investors.
This tax exemption rule after a certain time also applies in other countries such as Croatia. There, the full tax exemption occurs after a 2-year retention period for crypto assets. In case of withdrawals before this period, the tax charged is 10% on profits.