German Income Tax on Virtual Currencies

Last week, the Frankfurt School of Finance & Management hosted CryptoTax for a seminar on the German taxation regime. The key points have been summarized here for the benefit of a global audience.

The trading of crypto currencies is exempt from consumption tax
However, exchange services are not — since crypto currencies are a form of payment, but not a financial instrument, the exchange services are viewed as “technical services” and should be subject to VAT
If you are mining (more than just trying it out for a short period), you should register as a business, and hence would be subject to business/commercial tax as well (and need to join a chamber of commerce in Germany)
Staking/Lending would qualify as other income, with a EUR 256 threshold for reporting
There are two different paragraphs in the tax law in Germany, one covering financial instruments, one covering private property
Financial instrument transactions are taxed at the source, subject to a 25% tax that represents your total tax obligation, i.e. no need to pay anything further, independent of your personal tax rate, and independent of the holding period, i.e. both for short- and for long-term holdings
Private property is taxed at your personal tax rate, which can be up to 45% (similar to the “other income” treatment in Japan), BUT there is a one-year “speculation period”, after which any income is tax free; virtual currencies and tokens are covered within this paragraph

Taxable events

Closing transaction vs. fiat
Trade against other crypto-currencies
Possibly also the transfer between exchanges and wallets — they stated that this needs to be well-documented to avoid taxation, since from the perspective of a single wallet (equivalent to a single “account”), there would simply be an outflow/divestment

Other items

Hard forks should be treated just like stock splits, i.e. allocate the acquisition based on market value at the time of the split, consider original acquisition date for the calculation of the one-year period
Air drops should be treated as zero acquisition cost, but the acquisition date is the time of the air drop
They presented also some complicated examples that included the treatment of the exchange fees as expenses under different scenarios, etc. — it gets wild pretty quickly