Crypto Taxes in Germany: Ultimate Guide 2023

The rapid adoption of crypto assets has led to an increasing need from investors to find out what their tax obligations are in any given financial year. Often, tax laws can be obscure and many people are used to their employer automatically deducting income tax from their salary — in crypto, however, tax obligations need to be self-declared.

Crypto taxes in Germany certainly align with this, so it’s important to find out what laws apply to you. Germany has never released a framework for taxing cryptocurrency specifically, which means that profits earned from crypto fall into the same capital gains tax framework as other investments such as stocks, shares, and real estate.

This article will provide a comprehensive look into crypto tax laws in Germany, including what actions trigger a taxable event, how much tax needs to be paid in various circumstances, and also when these taxes are due for payment.

Tax season is a joy, of course. But instead of pulling your hair out and scratching the table with frustration when trying to file your tax return, this article should hopefully provide you with a good idea of what you need to do way in advance. You may want to grab a coffee before getting started because, unfortunately, there are only two things that are certain in life…

Key takeaways:

• Germany treats profits from crypto investments as an extension of personal income, and profits, therefore, need to be declared when filing a personal tax return at the end of the financial year.
• There are three forms of taxes that apply to crypto profits in various circumstances, including Capital Gains Tax, Solidarity Surcharge, and Church Tax.
• Any profits gained from cryptocurrency that exceed €600, when the period of ownership has been less than 12 months, will be subject to capital gains tax in Germany.
• Calculating the amount of tax owed is relatively simple in isolation, but it can get time-consuming if you have a large portfolio of assets that has been managed actively during the fiscal year.
• With proper tax planning, there are some ways to reduce the total amount of tax owed in Germany.

Types of crypto assets recognized by Germany

Germany generally considers Bitcoin and other cryptocurrencies to be private money, which means they are subject to income tax laws on the basis of capital gains. Since Germany has yet to release a tax framework for digital assets specifically, there is no clear guidance for which kinds of crypto assets count as private money and which don’t.

However, the capital gains framework in Germany is comprehensive. All owned assets would be liable to capital gains tax once certain conditions have been met. With that in mind, it’s safe to assume that all crypto assets — from utility tokens, to governance tokens, to non-fungible tokens, and others — are subject to capital gains tax in Germany. This is similar to how some other countries deal with crypto, including India’s crypto tax regulations, which are one of the most modern in the world (albeit not very friendly to crypto investors).

Types of crypto taxes you need to be aware of

Income tax is the primary type of crypto tax in Germany, as all profits from owned assets are classified as personal income. These profits are referred to as capital gains, where gains are a positive change in value during the time between an asset being bought and the same asset being sold.

In addition to capital gains tax, two other taxes may also apply in certain circumstances. In total, there are three kinds of crypto taxes in Germany:

• Capital gains tax, where a flat tax is applied to all profits that have been made within a certain time frame.
• Solidarity Surcharge (Solidaritätszuschlag), where a 5.5% surcharge on capital gains can be taken in addition to capital gains tax. This applies within both the income tax and corporation tax frameworks.
• Church Tax (Kirchensteuer), where members of a recognized religious community may need to pay an additional rate on their capital gains.

We’ll dive into Germany’s capital gains tax framework in more depth below.

Capital gains tax (applies when you dispose of a crypto asset)

Capital gains tax in Germany only applies when an asset has been sold after being owned for less than one year. For any owned crypto assets that are held for more than 12 months, there is no obligation to pay tax, and therefore, the effective rate on capital gains in this situation is 0%. Additionally, the capital gains tax rate is also 0% when the amount of profit earned is less than €600. That is similar to how crypto taxes work in the UK, for example.

For assets that are bought and sold within a given 12-month period, any profits above €600 will contribute towards the total income earned for the financial year. Since all capital gains are classified as income in Germany, the capital gains tax rate depends on the total amount of personal income that has been made for the year, including profits from investments.

*Base tax rate for the second bracket is variable and can be between 14% and 42% depending on various factors, including what kind of health insurance the individual pays for, what kind of employment they have, and other similar factors.

Selling crypto accrued from investments for a profit

Selling cryptocurrency will trigger a taxable event in Germany when the total profit earned is greater than €600 and the period of ownership is less than 12 months.

Only profits are subject to tax, and these profits are considered an extension of personal income. This means that a positive difference between the sale price and the purchase price is added to any other form of income earned during the financial year, and a flat tax rate is then applied to the total income earned during the period.

Swapping crypto for crypto

A taxable event is triggered when swapping cryptocurrency in the same way as selling cryptocurrency for fiat. Once the original asset is no longer owned, any profits gained during the period of ownership would be classified as personal income and should, therefore, be declared in an annual tax return.

Spending or receiving crypto for goods and services

Using cryptocurrency to pay for goods and services is considered a disposal event in Germany, which means that capital gains tax still applies. As above, any profits gained during the period of ownership should be added to annual income and declared in a tax return.

Gifted crypto

There are certain circumstances in which gifting cryptocurrency is tax-free. Germany’s gift tax considers the personal relationship between the gifter and the giftee and classifies these relationships into certain tax classes.

For example, a spouse, child, or grandchild would fall into class one, while parents, grandparents, and children-in-law fall into class two. Unrelated beneficiaries would fall into class three.

The tax-free allowance for class one ranges from €200,000 to €500,000, while the tax-free allowance for classes two and three is €20,000. To find out whether your cryptocurrency gift has triggered a taxable event, it’s best to consult an accountant to avoid any disputes.

There are three forms of taxes that apply to crypto profits in Germany, including Capital Gains Tax, Solidarity Surcharge, and Church Tax.

Other kinds of crypto taxes in Germany

Solidarity Surcharge (Solidaritätszuschlag)

Solidarity Surcharge is an additional 5.5% tax that applies to income, capital gains, and corporate tax in Germany as long as the total income earned for the year exceeds the tax-free threshold.

The tax was introduced in 1991 to help in German reunification efforts following the collapse of the Soviet Union. There has been talk of the tax being reduced or even abolished in recent years, but as things stand, Solidarity Surcharge still applies to all capital gains when total income exceeds the tax-free threshold of €10,908.

Church Tax (Kirchensteuer)

Germany’s Church Tax is the third and final tax that might apply to capital gains made from investing in crypto assets. If a German citizen is a member of a religious group or organization. The German government collects the tax primarily on behalf of the Roman Catholic Church and the Protestant (Evangelical) Church.

Church Tax does not apply to all citizens by default. Instead, it applies when a citizen has an affiliation with one of the religious organizations that receive the tax. If an individual is a registered member of one of the organizations, then Church Tax applies on all income, including capital gains.

How to calculate crypto tax in Germany

Calculating Capital Gains Tax

Capital gains are not taxed in isolation and are instead treated as an extension of personal income. A simple formula is used to calculate the amount of capital gains earned over the course of a financial year.

For any and all investments in crypto assets, capital gains can be calculated by subtracting a given asset’s purchase price from its sale price. The remaining amount is the total profit (or loss) made during the period of ownership.

How to calculate capital gains tax?

Capital gains = Asset sale price – Asset purchase price

Total capital gains for the financial year are added to any other forms of income earned during the period, and taxed according to whichever tax bracket the individual falls into. In other words, the tax rate depends on the total income earned for the year as opposed to the total profits made from investments.

To demonstrate this:

• One crypto investor earns a €50,000 salary and makes €6,000 profit by selling a crypto asset within 7 months of it being purchased.
• Assuming no other sources of income for the financial year, Germany considers that the crypto investor has made €56,000 in income.
• The base tax rate for the crypto investor is 14%, as the crypto investor’s income falls into the second tax bracket.

Calculating Solidarity Surcharge

As with the capital gains example given above, Solidarity Surcharge applies to total income earned for the year and not just crypto profits. Total personal income includes salary, capital gains, and additional forms of income that may be earned over the course of the year.

If the total exceeds €10,908, then a 5.5% rate applies to capital gains and all other forms of income. This rate is taken from the total amount of income tax paid for that year.

To demonstrate this:

• One crypto investor earns a €50,000 salary and makes €6,000 profit by selling a crypto asset within 7 months of it being purchased.
• Assuming no other sources of income for the financial year, Germany considers that the crypto investor falls into the second tax bracket with €56,000 in income.
• Taxable income is €56,000 minus the tax-free threshold. €56,000-€10,908=€45,092
• Assuming a 14% income tax on €45,092, total income tax paid is €6,312.88.
• The 5.5% solidarity surcharge is then applied to the total income tax paid. In total, Solidarity Surcharge equals €347.21 for the year.

Calculating Church Tax

Like Solidarity Surcharge, Church Tax is taken as a percentage of total income tax paid as opposed to total income. To demonstrate this:

• Taxable income is €56,000 minus the tax-free threshold, which equals €45,092
• Assuming a 14% income tax on €45,092, the total income tax paid is €6,312.88.
• An 8-9% Church Tax is then applied to the total income tax paid. Let’s assume 8.5% for this example: Church Tax equals €536.59 for the year.

FAQ

How to cash out crypto without paying taxes in Germany?

It’s rare that any jurisdiction does not require that a person pay taxes on capital gains and/or income earned from crypto assets. In Germany, however, there are certain circumstances in which a 0% tax applies to capital gains, including when cashing out crypto.

If a specific crypto asset is owned for a period of more than 12 months, then the effective capital gains tax rate is 0%. Similarly, there is no capital gains tax when total profits earned are less than €600 for the financial year.

To learn more about how to reduce your personal tax burden through tax planning, it would be best to consult a specialized crypto accountant.

Do you pay tax on crypto gains in Germany?

All profits made from cryptocurrency ownership are subject to capital gains tax in Germany when the total profit exceeds €600 and the period of ownership is less than 12 months.

When do I pay tax on crypto in Germany?

Capital gains need to be declared in personal income tax filings at the end of the financial year. In Germany, the financial year runs from 1st January to 31st December — equivalent to the calendar year.

How is crypto taxed in Germany?

In Germany, capital gains are added to the total income earned for the year. Once total income is determined, the individual is taxed according to various tax brackets.

The bottom line

Crypto taxes in Germany follow a relatively simple framework in which capital gains are classed as additional personal income. This means that any profits made from crypto ownership may trigger a taxable event when they’re sold. The only exceptions to this rule are when the period of ownership is longer than 12 months and when the total capital gains is less than €600.

Filing personal tax returns can get complicated, as crypto investors rarely purchase a single asset on just one occasion during the financial year. With that in mind, it’s important for German residents to know exactly when a taxable event has been triggered and to plan accordingly. For example, you may want to start setting aside a portion of your gains well in advance of filing your annual tax return to make sure that there are no legal breaches.

Anyone seeking to find out more about their personal income tax obligations may want to seek support from a professional crypto accountant. There are some great options out there, and we’ve put together a list of the best cryptocurrency accountants that you can check out now.

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