Update from 08.05.2023: We updated the part about lock-up periods according to the latest BMF letter. See section 2 – staking.

Dear Radixradar Community,

the sharp rise in cryptocurrencies is increasingly leading to rapidly increasing profits and growing wallets. However, the tax aspects must always be considered, otherwise the profits would have to be quickly transferred to the state in large proportions.
In the following I will give you essential information about the taxation of crypto currencies briefly and concisely (! No tax advice here and not conclusive). Always send requests and comments to me. Greetings Robert

1. Holding

The tax calculation

Cryptocurrencies are in accordance with Section 23 of the Income Tax Act (EstG) to be classified as private sales transactions (OVG). It is therefore another economic good. In contrast to the so-called investment income (interest, shares, ETF, etc.), the personal tax rate (marginal tax rate) is relevant for cryptocurrencies and not the normal 25% of the investment income tax.

Calculation of the personal tax rate and marginal tax rate: Link to the calculator
For example, starting from 57.919 Euro p.a. (Update 2023 62.810 Euro) brutto income each additional Euro is taxed with 42 percent marginal tax rate.

• Crypto lending / staking – Lend cryptocurrency: see attached video from 12:37 min
• Crypto mining : see attached video from 15:22 min

When do I have to pay taxes?

Profits are generally tax-free after a 1 year holding period. (Example 1)
Profits of up to 600 euros per year are also tax-free ¹ as with gold. (Example 2)
If the exemption limit is exceeded, the total profit is taxed at the personal marginal tax rate. This means that from 601 euros, 601 euros are taxed. (Example 3)

Tip: Document times. When was the cryptocurrency purchased and when it was sold (for inquiries from the tax office).

¹ Attention: do not confuse this with the tax exemption for investment income (e.g. shares) of 801 euros per person – everything from 802 euros is taxed at 25 percent .

Examples

	eRDX	Purchase date	Purchase price (€)	Date of sale	Selling Price (€)	Gross profit (€)	Taxes (€)
1)	10.000	01.04.2021	0,10	02.04.2022	0,20	1000	0
2)	10.000	01.04.2021	0,10	31.12.2021	0,16	600	0
3)	10.000	01.04.2021	0,10	31.12.2021	0,20	1000	420

Conclusion and strategy in holding

• Hold cryptocurrencies for more than a year
• If the sale is necessary beforehand, then the profit should not exceed 600 euros
• Lending, staking and mining require special attention
• Documentation is very important (First-In-First-Out (FIFO))

Further information on 1. hold

2. beams

In June 2021, the German Federal Ministry of Finance (BMF) published a draft letter on the taxation of cryptocurrencies. This has brought a bit more clarity to the taxation at proof-of-stake.

Important: This is only a draft and has not yet become law. However, it is expected to be adopted similar to the draft.

Update: There is acc. the BMF a view that a Staking/Lending does not lead to the “infection” of the existing Stake.
“For individuals, the sale of purchased Bitcoin and Ether is tax-free after one year. The time limit does not extend to ten years even if, for example, Bitcoin was previously used for Lending or the taxpayers provided, for example, Ether to another for their block creation as a Stake.”

Rewards at Stakern

Gem. According to the BMF letter, the receipt of cryptocurrencies by way of proof of stake leads to taxable income from other services. according to § 22 No. 3 EStG, provided there is no commercial activity. This concerns both the staker who validates himself and the staker who puts his coin into a lock.

Thus, the entries in Lending or Staken are treated as other income and not as income from capital gains. I.e. not 25% on profit, but the personal tax rate is to be applied (see above at 1st holding),

Sale of the staking reward

The BMF goes one step further in the case of mining/lending or staking, which means that the units of a virtual currency acquired are considered to be “acquired” (exchange-like transaction). A subsequent sale of the Staking Reward within the speculation period of Sec. 23 EStG would therefore in principle be taxable.
Note: All rewards are taxable over 256 Euro/year

Holding period 10 years (update BMF not for private individuals)

Basically, the following applies: The increase of the holding period of the cryptocurrency results from Section 23 I No. 2 Sentence 4 EStG. Accordingly, the divestment period is extended from one year to 10 years if income is generated from the source of income in at least one calendar year.

This applies to private individuals in accordance with the letter of the BMF dated 11.05.2022 no longer. After this, the holding period is no longer increased (no “infection by staking”)

Note: Increase the holding period of Crypto from 1 to 10 years (even if one year has already passed).
Update: This applies acc. BMF not for private individuals
Tip: Document when which coin was acquired so that proof can be provided later to the tax office and tax-free partial sales can be made if necessary.

Holding period for rewards/”dividends”?

Depending on how the rewards are handled, the holding period increases again to 10 years if they are used again in staking. Otherwise, this is then to be treated as for “holding” and thus 1 year holding period.
Update: This does not apply to private individuals (see above).

Are the rewards taxable?

Gem. the above-mentioned draft, profits from lending/staking are to be treated as other income for tax purposes. This means that they are entered in the tax return in the SO annex and are taxed like income at the personal tax rate.

Conclusion and essential information:

• In case of piling, the holding period increases to 10 years (exception, no profit intentions [ohne Rewards])
  • Update: BMF letter dated 11.05.2022: not for private individuals (see above). Here only one year holding period
• Any profit (rewards/generated coins) if more than 256 euros/year is taxable.
• Documentation of the profit is important, because on the one hand it has to be declared in the tax return and on the other hand in case of later sale of the coins the profit or loss will be referred to it.
• Before the start of stacking (after one year holding period) sometimes it makes sense to sell and buy again, if the price has risen and consequently taxes are saved

More info about 2. staking

Questions from the community

• How rewards are taxed when distributed
  • The profit (inflow) is put on your annual income tax return with your personal tax rate (see above at 1. Hold).
    • Documentation of the distribution with the respective rate is important here! (Practically difficult)
      
• Does the holding period for Staking extend if the holding period of one year prior to Staking has already been exceeded?
  • According to the BMF, the 10-year period starts from the beginning of the acquisition. I.e. bought in 2019, start staking in 2021, end holding period in 2029
  • Other views, but not yet confirmed by the courts: After one year, staking is tax-free
    
• How will rewards be taxed if profits are taken later? Which holding period applies here
  • Gem. BMF currently yes (but still controversial). Here, the day of distribution is then considered by the Stake in relation to the sale. Should the reward be clocked again, then the holding period is also 10 years, otherwise only one year
    
• How can I avoid the holding period or taxed on Cryptos through other structures abroad?
  • For this I’ll soon write a new article