Crypto Taxes in Germany

With its strong and unwavering legal framework, many FinTech companies regard Germany as a secure choice. From strong government-level encouragement to funding opportunities and tax exemptions, the conditions for establishing and growing a business in the country are welcoming for both startups and industry old-timers alike.

Especially regarding establishing and operating a crypto business in Germany, it should be underlined that crypto is an attractive long-term investment, with a 25% tax exemption from the usual amount taxed from capital gains for transactions of cryptocurrency that hold for at least one year.

Taxes in Germany are controlled by the Finanzamt – Tax Office – which is a local authority responsible for collecting the taxes, except the customs duties, on behalf of a particular municipality, federal state, and federal government. Among all others, a Finanzamt is supposed to put a new business into the register and collect a number of taxes, including business tax.

The tax year in Germany is the same as the calendar year. Annual tax returns are due by the 31st July of the year following the accounting period to which the return relates – e.g. 31st July 2023 for the year 2022. There is no necessity to make any return of taxes during the course of the year – other than VAT, which must be returned quarterly.

Normal tax rates:

• Company tax: 15% plus solidarity surcharge at 5.5%
• Trade tax – 3.5% + municipal tax rate (8,75 – 20.3%)
• Value added tax – 19%
• Social security contributions – 19.325%

Germany has more than 70 international agreements on the elimination of double taxation, which enable those who work abroad to avail of the preferential tax rate or tax exemption. To do so, a certificate of residence proving the location of the taxpayer’s seat for tax purposes must be provided.

Corporate income tax

There are two kinds of taxes applicable to the profits of a German business: corporation tax, or in German,, and trade tax. As a resident German crypto company, you are liable to pay corporate income tax on your worldwide income, whereas for a non-resident company, only the income sourced in Germany is taxed. If your firm’s statutory seat or place of management is in Germany, then it will be considered a resident.

This is anticipated upon the expiration of the tax year, and it includes the annual declarations of income tax, which must be filed with the tax office. Corporate income tax has to be calculated concerning the income obtained during the mentioned tax year by the transfer of virtual currencies.

The rate of corporation tax is the same throughout the country, being a fixed rate of 15% plus 5.5% solidarity surcharge. Trade tax does, however, depend on the municipality where the company is registered.

The trade tax rate is made up of two different variables: a uniform tax rate of 3.5% and one municipal tax rate (Hebesatz). The latter depends on the place of the business registration. Generally speaking, for municipalities with over 80,000 inhabitants, the trade tax rate amounts to a value between 8.75% and 20.3%.

Value added tax

Companies registered in Germany for crypto need a VAT number because of taxation. Today, they are responsible for 19% of VAT – the uniform tax rate.

Anyway, German legislation is in conformity with EU law, and therefore, it follows the rule created by the Court of Justice of the European Union, which allows for exemption from the exchange of cryptocurrencies for fiat money and vice versa from VAT. Other crypto products and services supplied in Germany might be taxable with VAT.

Social security contribution:

In the German Social Security System, equal shares are paid by the employer and the employee, with both of them contributing to health insurance, as well as pension and long-term care and unemployment. The amount to which each party is obliged to make is 19.325% of the gross salary of the employee.

Tax deduction and research allowance

Generally, all fixed assets and intangibles are depreciable or amortizable.

Usual business deductions include interest expenses, hiring, and personnel expenses, and operating materials and work equipment. Also, businesses support research and development with extra tax deductions. To be more specific, since 2020, companies in Germany could receive an annual research allowance of up to EUR 1,000,000.

Also, when research and development is carried out by the company’s own employees, the corporation gets credited for 25% of the salary costs, including tax-free social security contributions, against annual tax liability. Any surplus amount is refundable.

Subsidy from reimbursement might considerably contribute to the help of the companies, while making up for unrealized profit during loss-making phases, this benefit provides a unique competitive edge to the start-ups.

With its strong and well-established legal framework, many fintech companies consider Germany a safe bet. From the strong encouragement at the government level to funding opportunities and tax exemptions, conditions for establishing and growing a business in the country are friendly both for startups and industry old-timers alike.

It is very important to note, in this regard, that when establishing and operating a crypto business in Germany, crypto-asset transactions held for at least a year receive an exemption from the usual amount taxed from capital gains by 25%, therefore making crypto an attractive investment if considered in the long term.

German taxes are administered by the Finanzamt (tax office). It is a local authority, which levies taxes – with the exception of customs duties – on behalf of a respective municipality, federal state, and federal government. Every Finanzamt is responsible for the registration of new businesses, as well as for the collection of various kinds of taxes, among them business taxes.

In Germany, the fiscal year is the same as the calendar year. Annual tax returns should be submitted no later than the 31st July of the subsequent year, which for example would be the 31st of July 2023 for 2022. No obligation to submit tax declarations during the year exists – with an exception of VAT (value added tax) which is to be declared quarterly.

Standard tax rates:

• Corporation tax – 15% + solidarity surcharge of 5.5%
• Trade tax – 3.5% + municipal tax rate (8.75% – 20.3%)
• Value added tax – 19%
• Social security contributions – 19.325%

Germany has more than 70 international agreements on the elimination of double taxation, which enable those working abroad to use the preferential tax rate or tax exemption. For this purpose, a certificate of residence is required to prove the location of the taxpayer’s seat for tax purposes.

Corporate income tax

German business profits are, in principle, subject to two tax categories: corporation tax and trade tax.

Resident crypto companies in Germany shall be liable to pay corporate income tax on their worldwide income, while a non-resident company is only taxed on the income sourced in Germany. Any company that has its registered office or place of management in Germany is considered a resident.

In Germany, after the end of every tax year, it is obligatory for companies to file annual declarations of income tax with the tax office. The corporate income tax levies virtual currencies’ income derived in a particular year.

Corporation tax follows the same nationwide rate; that is, 15% plus 5.5% solidarity surcharge fixed. Trade tax is imposed depending on the municipality in which the company was registered.

This means that the trade tax rate consists of two different variables: a 3.5% uniform tax rate and the municipal tax rate (Hebesatz). The latter depends on the location of the business. In principle, the trade tax rate in municipalities with more than 80,000 inhabitants is 8.75% – 20.3%.

VAT – Value added tax

All crypto companies registered in Germany should, for the purposes of taxation, be able to provide a VAT number. They are currently charged 19% tax, which is the standard VAT tax rate.

However, given that German legislation is aligned with EU law, it follows the rule by the Court of Justice of the European Union, which says that in cases where services are supplied against transfer of cryptocurrencies into fiat money and vice versa, no VAT is charged. Other crypto products and services supplied within Germany may be subject to VAT.

Social security contributions

German Social Security System: In Germany, equal contributions are given by the employer and the employee. Both parties share health insurance costs, pension and long-term care contributions, and unemployment contributions. The total amount which each party is obliged to contribute amounts to 19.325% of the gross salary of the employee.

Tax deductions and research allowance

Amortization or depreciation is applicable in most instances for fixed assets and intangibles.

Common business tax deductions are:

• Interest payable;
• Labour costs and personnel;
• Operating materials and workplace instruments.

Businesses are incentivized and also obtain an additional tax deduction for research and development. In more detail, from the year 2020, enterprises in Germany can benefit from a research allowance of up to EUR 1,000,000 per year.

Moreover, if the research and development staff are employed by the company itself, 25% of their salaries, including tax-free social security payments, are credited against the annual tax liability. The overbalance is reimbursed.

Subsidy from reimbursement may prove substantial assistance to the company, replacing the unrealized profit during a loss-making period. This advantage gives different competitive power to the start-ups.

How Do I Pay Taxes on Crypto in Germany in 2024?

During 2024, the tax treatment of revenues from cryptocurrencies in Germany remains in the focus of investors and German tax authorities. Germany, being conscious of the increasing role of digital assets, is eagerly willing to provide a clearly regulated and just tax environment for the users of such assets. You will find below the detailed guide of how in 2024 German residents can pay taxes on their cryptocurrency income.

Conclusion

For the year 2024, Germany levies a sophisticated taxation on cryptocurrency income, which has to be thoroughly recorded and the inherent rules fully understood. Proper declaration and payment will prevent penalties for non-compliance and foster good tax practices for digital currencies. The German taxation system includes different levels, such as income tax, capital gains tax, and value-added tax among several other minor ones, including social contributions.

Overview of the main tax rates in Germany 2024

These rates are subject to change and German tax law provides many exemptions and exclusions for different categories of taxpayers and types of income.

Also, lawyers from Regulated United Europe provide legal support for crypto projects and help with adaptation to MICA regulations.