Cryptocurrencies have been enjoying increasing popularity for years. This is not only because they enable a higher degree of anonymity in business transactions, but also because considerable profits can be made by buying and selling Bitcoin, Ripple, Monero, Ether, etc.
Initially, neither individuals trading in cryptocurrencies nor the tax authorities gave much thought to the taxation of cryptocurrencies because the legal situation was unclear and the crypto market was not very transparent, but trading in cryptocurrencies is now frequently the focus of audits by the tax authorities.
The taxation of cryptocurrencies is not explicitly regulated by law in Germany. The general tax regulations therefore apply, although these are not always clear and unproblematic due to the novelty of these assets (Bitcoin, Ether, Polygon, Solana, etc.).
With regard to the relevant type of tax, it is relevant whether the cryptocurrency is held as private or business assets.
If the cryptocurrencies are held as private assets, the resulting gains from the sale within the one-year speculation period are taxable as income from private sales transactions of “other assets” in accordance with Section 23 22 no. 2, 23 para. 1 no. EStG. This is subject to an exemption limit of EUR 600 per year, up to which all sales transactions in the assessment period remain tax-free. The profits generated are not subject to capital gains tax.
If cryptocurrencies are held as business assets, i.e. trading in the cryptocurrency is carried out commercially, this activity is always subject to income or corporation tax and trade tax. The profit realised results from the difference between the purchase price and the sale price. With regard to trade tax, Section 11 (1) sentence 3 no. 1 GewStG provides for an allowance of EUR 24,500.
Failure to declare profits from cryptocurrency trading can have consequences not only under tax law but also under criminal law.
If profits from cryptocurrency trading that exceed the annual exemption limit are concealed, incorrectly or incompletely declared in the tax return, this constitutes tax evasion in accordance with Section 370 (1) AO.
In subjective terms, it is sufficient for criminal liability that the taxpayer considers it possible that these profits are taxable. Only if the taxpayer has merely acted recklessly is the behaviour not punishable, but is punished as an administrative offence.
A conviction for tax evasion can have considerable consequences. On the one hand, depending on the amount of tax evaded, a fine or prison sentence of up to ten years may be imposed. Secondly, in addition to repayment of the evaded taxes, interest and late payment penalties must also be paid.
If a tax return is submitted in disregard of the profits from crypto transactions to be declared, it is possible to make a voluntary disclosure with exemption from punishment. This has the effect of exempting from punishment if it is received by the tax authorities before the tax return is processed and contains all missing information in full.