Yesterday, May 11, the Federal Ministry of Finance (BMF) published a guide on income taxation of virtual currencies and tokens. The 24-page document contains legal definitions and tax classifications for virtual currencies and tokens, mining, staking, lending, airdrops, wallets, master nodes, hard and soft forks and ICOs.
The official letter does not constitute a law as it was not passed by the Bundestag or the Federal Council, but it is nonetheless of a legal nature. This means that the tax office must comply with the content of the guide.
What’s left, what’s coming?
Profits from exchanges in fiat currencies such as the euro or US dollar and in another cryptocurrency, such as Bitcoin (BTC) or Ether (ETH) are included private sales transactions and is subject to a personal tax rate plus church tax, if applicable.
Located between buying and selling cryptocurrencies more than a yearthe victories are complete tax free. If you sell your cryptocurrencies before this deadline, you will have to pay tax on your profits.
As with all other private sales transactions exemption limit of 600 euros per calendar year. As long as the taxpayer stays below this limit, his profits are tax-free and should not be stated in the tax return. However, if the profit only exceeds this exemption limit by 1 euro, the entire capital gain must be reported.
- The new is also that average method in addition to the FIFO method (“First in – first out”) is allowed. FIFO assumes that the taxpayer is selling the coins that were bought first. With the average method, the profit is determined on the basis of the average price of, for example, all purchased bitcoins.
In addition, the principle applies to the calculation methods such as these every wallet and cryptocurrency to be used.
When determining profits, the price of a trading platform (eg Coinbase, Bitpanda, Kraken) or a portal such as Coinmarketcap is accepted.
- Extension of the holding period from 1 year to 10 years by using cryptocurrencies for efforts and lending Not translated. For example, if the private investor buys Cardano (ADA) and uses the cryptocurrency in his wallet to bet, he can sell it again tax-free after one year. There are no changes here, according to Parliamentary State Secretary Katja Hessel:
“For private individuals, the sale of purchased Bitcoin and Ether is tax-free after one year. The deadline will not be extended to ten years if, for example, bitcoin has previously been used for lending, or the taxpayer has given ether as an effort for someone else to create their block. ”
- However, there is still some news in terms of staking. So BMF has a distinction active (forging) and passive effort introduced.
Active efforts: Counterfeiters, also known as validators, operate staking nodes themselves, and their earnings from this activity are classified as Business income classify The trader must in this case register a trade, prepare a profit provision and submit a business declaration. The counterfeiter must pay tax on the profits from the sale or exchange.
Passive effort: Participants receive compensation from counterfeiters who charge the block reward and transaction fees. This type of effort, where you do not participate in the block creation yourself (eg through pool providers or crypto exchanges), is considered private wealth management. That is, profits are recorded as Second income treasure.
- Sale of profits from through lending Coins received, ie. when units of a cryptocurrency are made available for use for a fee are also taken into account Second income considered.
- Operation of a master node will as commercial activity considered.
- When generating revenue from mining BMF is also of one commercial activity out. In BMF’s view, newly created shares are considered “acquired” and taxed accordingly. Participants in a mine pool are media entrepreneurs and thus also in the commercial sector.
Driving force for innovation or not?
The new BMF letter is now “binding on all tax offices throughout Germany” and is “a very good and important step” towards innovation and legal certainty, as Werner Hoffmann, co-founder of the company Pekuna, which specializes in crypto-taxation, writes. Passive private investors in particular can now breathe a sigh of relief: the 1-year holding period remains in place, so Germany remains attractive for tax purposes. “It is also particularly positive to note how openly the administration and government approached the crypto community and actually implemented the feedback received,” Hoffman says.
On the other hand, the new BMF letter does not contain any legal classifications for non-fungible tokens (NFT) or the area of decentralized finance (DeFi). Therefore, despite all the joy, the script can not be understood as a driving force for the development of the German crypto industry.
More on the subject:
Taxes on Bitcoin, Ether and Co .: What Private Investors Need to Know
Federal Ministry of Finance: U-turn on taxation of deposits and loans
Mining and taxes: What should cryptocurrency miners in Germany consider?
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