Tax rules in Germany require crypto investors to keep record of transactions

A circular with tax rules issued by Germany’s finance ministry draws investors’ attention to their obligations to record and report all cryptocurrency transactions. Violations of the guidelines can be treated as tax evasion, the German press reported, quoting experts providing clarity on the update.

The letter, published by the Federal Ministry of Finance (BMF) earlier in March, revisits the taxation of crypto-related profits three years after the matter was initially addressed by the department. Experts quoted by the business news magazine, Wirtschaftswoche, noted that the document answers outstanding questions.

Long-term Bitcoin investments yield tax benefits in Germany

According to the circular, investors who sell cryptocurrencies more than a year after their purchase will not pay tax on the positive difference. Profits of less than €1,000 from all private sales during the calendar 2024 are also tax-free. Earlier, that annual threshold stood at €600.

“This letter brings more clarity to everyone who trades cryptocurrencies,” commented Werner Hoffmann, founder of the crypto tax service provider Pekuna. “Existing points have been formulated and supplemented in more detail” with the refreshed tax rules, he added on social media.

Hoffmann highlighted some of the amendments in a Linkedin post. These include replacing the term “virtual currencies” with the EU-adopted term “crypto assets,” making a clearer distinction between various types of digital tokens and providing additional information on the tax treatment of airdrops and hard forks.

A report by the German crypto news outlet BTC Echo further noted that income from staking and lending remains tax-free if the one-year holding period is exceeded. It also emphasized that only the sale of BTC and the like for fiat currencies like the euro or their exchange into other cryptocurrencies are taxable, while internal transfers between individual crypto wallets are not subject to taxation.

Breaking the tax rules may lead to tax evasion charges

“Anyone who violates the guidelines is, in the worst case, guilty of tax evasion – and must expect consequences,” warns Wirtschaftswoche. The tax rules suggest that crypto owners should document every operation with their digital assets, concludes the German weekly.

Crypto tax consultant Matthias Steger highlighted that taxpayers should keep accurate records of all transactions, including paid fees, as the revenue service may ask for such records alongside evidence of crypto holdings at the end of the year.

Investors are also expected to be ready to share information about any existing accounts on centralized platforms, such as cryptocurrency exchanges, as well as an overview of the buy and sell prices of individual crypto positions, the Wiwo article unveiled on Sunday.

BMF opens door for agreements with crypto taxpayers

In a recent post on LinkedIn, Steger also pointed out that under the updated tax rules, high earners can potentially conclude contractual agreements with the tax office. While not exactly stating a lump sum as compensation for due taxes like in other jurisdictions, this option, called “actual agreement,” binds the two sides to contractually stipulated facts, the expert explained.

The agreement can serve to establish cooperation with the tax authorities on closing gaps already declared on tax returns. For example, this could be the case with income generated during previous tax periods from trading on a platform that no longer exists, like an exchange that went bankrupt, which makes it harder to determine the tax base.

“I think that if you avoid the criminal proceedings cleanly through appropriate disclosure and wording, such a contract has charm. You try to find an appropriate solution and, of course, not to collect a penalty estimate; you reach a binding agreement on a matter and thus on the tax, and both sides have legal peace,” Matthias Steger elaborated.

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