Crypto Regulation and Taxes in Germany (2024 Guide)

While Germany isn’t one of the easiest countries for determining the amount of crypto taxes you owe, it is considered to be crypto-friendly.

In fact, Germany even has a way to bring down the amount of crypto taxes you owe to ZERO. 

Here’s everything you need to know about crypto regulation and taxes in Germany in 2024.

Key Takeaways

• Definition of cryptocurrencies: According to German law, cryptocurrencies are a digital representation of value that is neither issued nor guaranteed by any public authority.
• Crypto taxes: Germany taxes crypto based on a progressive tax on your crypto income. It ranges from 0% to 45%, depending on the total sum you’ve earned throughout the given year.
• Strategies for reducing your tax liabilities: In Germany, you may be exempt from tax if you gift your crypto to a spouse or other close relative. Also, reporting your crypto losses may help reduce your tax burden.
• Trade crypto without taxes: Crypto earnings below €600 are not subject to taxation. In addition, you don’t have to pay taxes on the crypto that you hold for more than a year.

How Does German Law Define Cryptocurrencies?

Germany’s Banking Act defines cryptocurrencies as digital representations of value that are neither issued nor guaranteed by any public authority or central bank. 

This law further states that cryptocurrencies are not legal tender. However, individuals and businesses are free to use them for exchanging value, payment, or investing purposes.

It’s also completely legal to transfer, store, or trade crypto in electronic format in Germany.

An interesting fact is that Germany has its sights set on digitizing securities. In doing so, it follows the example of many other European countries. 

The German Electronic Securities Act, which came into force in June 2021, introduced a new category known as “electronic securities.” 

This new law has forced changes to many of the existing policies governing the financial sector. At the same time, it signifies a serious shift in the government’s strategy regarding blockchain regulation.

Local vs. European Laws Regulating Crypto in Germany

In Germany, the Federal Financial Supervisory Authority (BaFin) is the primary regulator responsible for the financial sector. 

Established in 2020, it governs the work of crypto exchanges within the region. It also specifies the rules for crypto custodians, including their Anti-Money-Laundering (AML) and Know Your Customer (KYC) obligations.

In addition, a number of other laws are also applicable to those who wish to launch a crypto business in this region. These laws include:

• Kreditwesengesetz - Banking Law (“KWG“).
• Geldwäschegesetz - Anti-Money Laundering Law (“GWG”).
• Kryptowertetransferverordnung (Regulation on enhanced due diligence in the transfer of crypto-assets; “KryptoWTransferV”).
• The BaFin Guidelines for crypto custody business.

As an EU member, Germany is also bound by the rules set in place by the European Parliament. 

In April 2023, the EU put forth a new regulatory framework. Known as the MiCA (the Markets in Crypto Assets), this regulation was released to protect investors and contribute to financial stability.

This recent law defines rules for the licensing of cryptocurrency exchanges, custodial wallet providers, and other entities dealing with customers’ digital assets. 

As this law is about to come into force this year, Germany will be required to implement these policies as well.

How are Cryptocurrencies Taxed in Germany?

As a private individual investing in crypto, you are obliged to pay taxes on any profits you earn.

This statement is true as long as you reside in Germany, which is defined as staying within the country for more than 180 days in a given year.

The amount of tax you owe is progressive, as it depends on your yearly income. Individuals who’ve made more than €11,604 have to pay an additional 5.5% tax known as the solidarity surcharge.

In addition, your marital status plays an important role; married people have higher tax thresholds. 

As of press time in 2024, Germany’s tax rates are represented in the table below:

Source: Einkommensteuer Grundtabelle 2024

How to Reduce Crypto Taxes in Germany

Crypto regulation in Germany imposes rather high taxes on investors. Yet, there are some legal methods you may use to reduce the tax burden or, in some specific cases, avoid it entirely.

These methods include:

• Earning less than €600. In Germany, any crypto earnings below €600 are considered tax-exempt.
• Holding crypto for more than a year. In this case, you get a full exemption, too.
• Harvesting losses. If you hold your crypto for less than 12 months and bear losses during this period, you may write them off to reduce your taxes.
• Gifting crypto. You may give away your crypto as a gift to your spouse, any other relative, or a friend. This method purportedly grants full tax exemption for any sum below €500,000.

Which Crypto Transactions Are Taxed in Germany?

As mentioned earlier, holding your digital assets for more than a year is tax-free. 

But that’s actually not the only type of crypto activity that isn’t taxed in Germany.

Some examples of other transactions that are not currently subject to taxation under Germany’s crypto tax framework include:

• Purchasing crypto for fiat.
• Donating crypto to charity.
• Holding your assets.
• Transferring assets between your own wallets.

How to Calculate Your Crypto Taxes

If your profits from trading crypto exceed €600 and you hold them for less than a year, you have to pay taxes on your income. 

In Germany, both crypto-to-fiat and crypto-to-crypto transactions are considered taxable events in this case.

To get a better understanding of how crypto regulation in Germany works in practice, let’s review the following example:

Assume your total annual earnings equal €50,000, which means your tax rate will be 36%.

During the taxable period, you’ve purchased €10,000 worth of bitcoin and sold it in 4 months for €14,000. In this case, your profits can be calculated as €14,000 - €10,000 = €4,000.

In this case, you can determine your tax obligation as €4,000 x 36%, which would mean that you owe €1,440 in taxes.

During this process, you can deduct fees and losses. To simplify this process, it might be worth consulting with a tax professional.

When Should I Report Crypto Taxes in Germany?

In Germany, the tax year corresponds with a calendar year. In other words, it starts on January 1st and ends on New Year’s Eve.

Just like with any other sources of income, you should report your annual crypto earnings by July 31st of the following year. 

If you need more time, you can apply to your local tax office to grant you an extension.

Alternatively, you may apply for a tax advisor’s services. In this case, you may be able to get an extension until February of the following year.

What Happens if I Don’t Pay Crypto Taxes in Germany?

Just like in many other regions, there may be serious consequences in Germany for those who evade the taxes they owe. 

A person found guilty of this crime usually faces a fine. In more serious cases, however, tax evasion may result in a prison sentence. This can be set at anywhere between 6 months to 10 years, depending on the severity of the tax offense.

If you miss paying your crypto taxes in time but do it later, you face a penalty of 0.25% of your unpaid tax liability per month.

FAQ

Is Germany crypto-friendly?

Germany has introduced clear guidelines for businesses and individuals dealing with crypto, which makes it a crypto-friendly country. As for Germany’s crypto taxes, one may get a full exemption for crypto earnings held for more than a year and for earnings below €600.

Is crypto investment legal in Germany?

Yes, one may invest in crypto while staying in Germany in a fully legal way thanks to clear guidelines specified by local regulators: BaFin and KWG. 

Which crypto exchanges are allowed in Germany?

Some of the most popular centralized crypto exchanges that legally operate in Germany include Coinbase, Kraken, Crypto.com, and BitPanda. However, there are many other exchanges that operate in line with the country’s crypto business regulation, so it is important to do your own research to find the best option for you.

Is Bitcoin legal tender in Germany?

No, bitcoin and other cryptocurrencies are not legal tender in Germany–as is the case in most countries. However, it is completely legal to invest in, buy, spend, and trade crypto.

How much tax do I have to pay on crypto in Germany?

Crypto gains held for less than a year are subject to regular income tax rates. These vary from 0% to 45% depending on your earnings. There is a solidarity surcharge of 5.%, which you have to pay if your annual income exceeds €11,604.