Crypto Taxes in Germany

As a strong and well-established legal framework, Germany is considered as a reliable option by many fintech companies. 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 startups and industry old-timers alike.

When it comes to establishing and running a crypto business in Germany, it’s especially important to note that cryptocurrency transactions that hold for at least a year receive a 25% tax exemption from the usual amount taxed from capital gains, promoting crypto as an attractive long-term investment.

German taxes are administered by the Finanzamt (tax office). It is a local authority that administers taxes (except for customs duties) on behalf of a respective municipality, federal state and federal government. It is responsible for registering new businesses and collecting several types of taxes, including business taxes.

In Germany, the tax year coincides with the calendar year. Annual tax returns must be filed by the 31^st July of the following year (for example, by the 31^st of July 2023 for 2022). There’s no requirement for filing tax declarations throughout the year – except for VAT (value added tax), which must be declared on a quarterly basis.

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 over 70 international agreements on the elimination of double taxation, which allow 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

German business profits are subject to two tax categories: corporation tax (Körperschaftsteuer) and trade tax (Gewerbesteuer).

German tax resident crypto companies are subject to paying the corporate income tax on their worldwide income, while non-resident companies are taxed only on the income sourced in Germany. If your company’s registered office or place of management is in Germany, it’s considered a resident.

Once the tax year has ended, companies in Germany are expected to submit annual income tax declarations to the tax office. Corporate income tax is calculated based on the income earned in that tax year from the transfer of virtual currencies.

Corporation tax is the same country-wide. It’s set at a fixed rate of 15% + 5.5% solidarity surcharge. Trade tax, however, varies based on the municipality that the company is registered in.

The trade tax rate includes two separate variables: a uniform tax rate of 3.5% and a municipal tax rate (Hebesatz). The latter depends on where the business is registered. Typically, in municipalities with at least 80,000 inhabitants, the trade tax rate varies between 8.75% and 20.3%.

Value added tax

Crypto companies registered in Germany must obtain a VAT umber for tax purposes. Currently, they are subject to a standard VAT tax rate of 19%.

However, since German legislation is aligned with EU law, it follows the rule by the Court of Justice of the European Union (CJEU), which states that the provision of services involving the exchange of cryptocurrencies for fiat money and vice versa is exempt from VAT. Other crypto products and services supplied in Germany might be subject to VAT.

Social security contributions

In the German Social Security System, equal contributions are made by the employer and the employee. The two parties split health insurance costs, pension and long-term care contributions, and unemployment contributions.

The total amount that each party must contribute amounts to 19,325% of the employee’s gross salary.

Tax deductions and research allowance

Fixed assets and intangibles are, in most cases, subject to amortization or depreciation.

Common tax deductions for businesses include:

•  Interest expenses;
•  Hiring and personnel costs;
•  Operating materials and work equipment.

When it comes to research and development, businesses also receive support and additional tax deductions. More specifically, since 2020 companies in Germany are eligible for an annual research allowance of up to EUR 1,000,000.

Furthermore, in cases where the company’s own staff is responsible for research and development, 25% of salaries (including tax-free social security contributions) are credited against the annual tax liability. Any remaining surplus is reimbursed.

Subsidy from the reimbursement can be of significant help to companies, making up for unrealized profit during loss-making phases. This benefit offers a unique competitive edge for start-ups.

How do I pay taxes on crypto in Germany in 2024?

In 2024, the taxation of cryptocurrency income in Germany continues to attract the attention of both investors and the country’s tax authorities. Germany, recognising the growing importance of digital assets, is keen to create a clear and fair tax environment for their users. Here’s a detailed guide on how to pay taxes on cryptocurrency income for German residents in 2024.

Basics of cryptocurrency taxation in Germany

In Germany, income from cryptocurrencies is categorised and taxed depending on the type of income and the circumstances of receipt. The main categories include capital gains from the sale of cryptocurrencies and income from mining. It is important to understand how each type of income is taxed in order to declare them correctly.

Tax on capital gains

Gains from the sale of cryptocurrencies in Germany are subject to capital gains tax if less than a year has passed between the purchase and sale. In 2024, if you hold cryptocurrency for more than one year before selling it, capital gains are exempt from tax. This makes long-term investments in cryptocurrency tax attractive in Germany.

Income from mining and staking

Income from mining and steaking of cryptocurrencies is generally considered professional or business income and is subject to taxation according to the general income tax rate. The tax rate depends on the taxpayer’s total annual income.

Tax calculation

To calculate tax, taxpayers must accurately track the dates of purchase and sale of cryptocurrencies, as well as their value in euros at the time of the transactions. This ensures accurate calculation of gains or losses for the tax return.

Income declaration

All income from cryptocurrencies must be declared in a tax return. Taxpayers should use official forms to declare capital gains and other related income. German tax authorities are actively working to simplify the process of declaring cryptocurrency income, including the development of electronic services.

Retention of documentation

It is important to keep and retain thorough documentation of all cryptocurrency transactions, including buying, selling, exchanging and mining proceeds. These documents may be required to support information on tax returns and should be kept for a minimum of 10 years.

Importance of consulting with a tax advisor

Given the complexity of tax laws and the ever-changing landscape of cryptocurrencies, it is highly recommended to consult with a qualified tax advisor or auditor specialising in cryptocurrencies. This will help ensure the accuracy of tax returns and optimise your tax burden.

Conclusion

Taxation of cryptocurrency income in Germany in 2024 requires careful record keeping and an understanding of the tax rules. Proper declaration and payment of taxes will help avoid penalties and promote favourable tax practices for cryptocurrencies.Germany’s tax system provides for a variety of taxes, including income tax, capital gains tax, value added tax (VAT) and 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.