Summary
- A proposed bill would impose a 25% tax on profits from cryptocurrency sales, plus an additional solidarity surcharge, effective January 1, 2027.
- This tax will only apply to assets acquired after this date, while existing holdings will remain under current regulations.
- Beginning in 2028, banks and financial platforms will automatically deduct the tax from transactions.
In a recent draft bill presented by Vice Chancellor and Finance Minister Lars Klingbeil, Germany plans to implement a flat tax rate of 25% on profits from cryptocurrency transactions, regardless of how long the assets have been held. This proposal was first reported by Welt and is based on a departmental draft from mid-August, as revealed by Handelsblatt.
This new tax structure is set to take effect on January 1, 2027, and will only apply to cryptocurrencies purchased after that date. Any Bitcoin or other cryptocurrencies owned prior to this will continue to follow existing tax regulations, allowing current holders to benefit from the exemption.
At present, individuals in Germany are not taxed on crypto gains if they hold the assets for over twelve months, a policy established by the ministry in 2022 that also includes cryptocurrencies used for staking and lending. Profits realized within that timeframe are taxed as regular income, which can reach up to 42% for higher income brackets. Critics have pointed out that eliminating the holding period disproportionately affects long-term investors rather than short-term speculators.
Under the proposed law, cryptocurrency gains will be taxed similarly to dividends, capital gains, and interest, with a flat rate plus a 5.5% solidarity surcharge, resulting in an effective tax rate of 26.375% before church tax. A €1,000 allowance for savers will apply, and losses can be offset against gains, including those from stocks.
Income generated from staking and lending will also be classified as capital income, according to Welt. However, certain assets like NFTs, security tokens, specific stablecoins, and some tokens representing real-world assets will not fall under this tax regime.
Year for Implementation
The automatic tax withholding process will not commence until 2028, allowing banks and other financial providers a year to develop the necessary systems. When assets are transferred between platforms, providers can rely on the purchase prices and acquisition dates provided by users. If a customer cannot provide this information, the flat tax rate will apply.
The bill suggests that the treatment of cryptocurrencies needs to be updated, stating that crypto assets are increasingly viewed as private capital investments. This change aims to eliminate the special status that has historically categorized them alongside traditional economic goods like classic cars or artworks.
The ministry emphasized the need for this reform, arguing that it is unjust for earned income and capital gains to be taxed while profits from speculative activities involving cryptocurrencies remain largely untaxed.
Projected revenue from this tax is expected to be modest, starting at €160 million in 2028 and potentially increasing to €350 million annually by 2031. The draft bill is still in the preliminary stages of coordination within the federal government and may undergo modifications, although both the Union and SPD have previously agreed on taxing cryptocurrencies during summer budget discussions.