As one of the world’s largest economies, Germany is a key player in the global cryptocurrency market. Just like any other market, however, there are a few key details that need to be taken into account when it comes to crypto taxes. First and foremost, you should always consult with an attorney to get a better understanding of what exactly is being taxed. Additionally, keep in mind that crypto taxes can differ greatly in various situations and as this is a fairly new technology. Therefore, Laws are being written and changes in these law are made quite often. So make sure you have all of your ducks in a row before starting your tax preparations!
How Crypto Taxes Work in Germany.
Cryptocurrencies in Germany are tax-free if they are sold after a 1-year holding period. This holding period starts from the day of your purchase. If the holding period before the sale were less than 1 year, this sale would have tax implications. The taxes that you would have to pay on the sale mainly depend on two things
1.) Was There any Profit with Crypto trading?
If there were a loss in the crypto sale, no taxes would be applied. In fact, you can also adjust this loss in your tax return. However, there are certain conditions that apply, for example, if you sold the crypto at a loss after 1 year of its purchase, this crypto is not applicable for any tax laws (be it profit or loss). The next thing would be that you can only adjust this loss against any profits made from assets falling under “Sonstige Einkünfte” according to § 22 Nr. 2 EStG
2.) What is your Tax Class in Germany?
The tax percentage would be based on your tax class if you sell your crypto before the 1-year holding period is over. In most general cases someone who is earning more than 58000 Euros per year and has tax class 1, would have to pay 42% tax on their crypto sale profit. You can learn more about Tax Classes in Germany in this detailed video on YouTube
Exactly How is Crypto Taxed in Germany?
As we mentioned earlier you only have to pay taxes on crypto in Germany if you sell before the 1-year holding period and if a profit is involved. Lets take an example of how to calculate the profit.
How to Calculate Profit on Crypto?
To calculate profit on crypto you simply take your selling price, subtract your buying price, and subtract any exchange fees that took place during both the buying and selling process.
For example, you bought 100 euros worth bitcoin and the exchange fee was 1euro fee (along with the credit card fee if you bought using a credit card) you sold it for 120 euros, but there was again 1 euro transaction fee for selling so here your profit would be
120 – 1 – 100 -1 = which would be 18 Euros. Now the tax would be applicable on these 18 Euros
This was pretty simple but this doesn't happen as many people buy at crypto at various interval, and you cannot distinguish if you bought 100 euros worth crypto 5 time and then later on you sold a small amount.
LIFO and FIFO strategies for Crypto Tax Calculation
FIFO and LIFO are two strategies or techniques most people apply while calculating profits for tax calculations. FIFO means First IN First OUT and LIFO means Last in First Out. These two mean exactly as they sound. In FIFO, you are saying that whichever crypto you are selling is the first one you bought and the opposite for LIFO.
Example of LIFO and FIFO
Let’s say that if you bought 100 Euros worth of bitcoin at three different intervals. That 300 euro worth Bitcoin has now increased in value. Now you want to sell 100 Euros worth from this new amount. You can say that you are selling this amount from the first bitcoin order or the last one. In many cases, FIFO is the preferred method because of the long-term tax rate on crypto.
Now going back to our example if one of our orders is older than 12 months we can always say that we are selling that 1-year-old crypto thus making the profit tax-free.
You can obviously decide to use LIFO, maybe all your buying orders are less than 1 year old and the newer crypto is on a higher cost basis meaning that less tax would apply on that. You can also use LIFO to reduce your taxable amount.
How to Make Crypto profit handling Easy
One thing you can do here is that you can have separate exchanges for your long term and your short-term trades.
For example, use binance for the long term crypto holding and eToro for crypto trading, as in eToro you can easily distinguish each of your trades.
When are Taxes Applicable on Crypto?
Now you know how much taxes you may need to pay but selling cryptocurrencies isn’t the only time when taxes are applicable. Taxes are applicable each time a Taxable event occurs.
1.) Selling Crypto for Fiat
The first taxable event is Crypto selling against fiat currency. As we mentioned before if you bought some crypto, and you sold it against fiat (EURO, DOLLAR etc.) within a year at a higher price. This profit would be taxable. It doesn’t matter if you transfer the profit to your bank, keep on the exchange or move to another exchange. Taxes will be applicable.
2.) Crypto Conversion
Another taxable event would be converting from one crypto to another. For example if you convert from Bitcoin to Ethereum and a profit was involved i.e. you bought the bitcoin at, let's say 40k and now at the time of converting, it is worth 50k, this conversion would be taxable even if you don’t sell the Ethereum.
3.) Transactions using Crypto
Next taxable event would be if you buy anything with your crypto. When we say buying we mean anything: a Software, Computer hardware Even if you buy a burger with your bitcoin this can be taxable if at the time of buying the burger the value of your bitcoin was higher than when you bought it.
4.) Staking
Putting your crypto into staking is not a taxable event. Earning staking rewards might be or might not be considered taxable as there is a lot of debate happening. Depending on your tax case officer, they can consider either.
You can argue that selling the staking reward is not taxable as no buying took place but as we have mentioned that it depends on the case officer.
Moving your crypto from one staking provider to another is not a taxable event.
5.) Holding or Moving Crypto
What isn’t a taxable event is holding your cryptocurrency, moving it from one exchange to another , moving it to a hot wallet or cold wallet or the other way round. All these things are not taxable events.
How to File Cryptocurrency Taxes in Germany
Filing taxes for crypto can be a big headache if you have a high number of transactions or taxable events. Creation of a tax report is the best thing you can do and submit it along with your tax return.
How to Create a Crypto Tax Report?
You can create a crypto tax report using any format or software you want, there are no specific requirements for that. The most important things you need are the buying price in euros, the time of buying, the selling price, the time of selling, and any fees incurred during the buying or selling process. This was the easy part, but you need all this information for every single transaction you had! You can use paid software like Koinly to generate a tax report for you
How to File Crypto Taxes?
When it comes to filing crypto taxes, you can use a regular tax return to mention all of your crypto profits or losses. You can use the Free platform Elster from the German Government and use the Anlage SO to mention your crypto trades. Additionally, you can use Web apps to submit your tax return for example Wunderdax.
Conclusion
Crypto taxes in Germany can be a challenge, but it's important to have a long-term investment strategy and be prepared for volatility. By having a diversified portfolio and being up-to-date on financial news, you should be able to withstand any cryptocurrency Tax related problems. If you are looking for Investing and Personal Finance in Germany, you can always look up our friend’s website Ahsan Finance on the web to get an overview of investment and stocks in Germany.
