On Tuesday, the Federal Ministry of Finance (BaFin) released a 24-page paper explaining specific income tax laws for bitcoin and virtual assets. Tax professionals, corporations, and individual taxpayers now have a comprehensive understanding of the tax implications of acquiring, trading, and selling cryptocurrency.
The main point is that individuals who sell BTC or ETH more than 12 months after purchase are not required to pay taxes on the transaction if they make a profit. Katja Hessel, Parliamentary State Secretary, also addressed concerns about long-term cryptocurrency staking:
“For private individuals, the sale of purchased Bitcoin and Ether is tax-free after one year. The deadline is not extended to ten years if, for example, Bitcoin was previously used for lending or the taxpayer provided ETH as a stake for someone else to create their block”
In mid-2021, Germany requested comments from enterprises, organisations, and individuals on tax issues around the use of cryptocurrencies, as well as staking and lending procedures. A key focus was a specific provision in the German Income Tax Act. Section 23 provides that any asset that is sold after a year of acquisition is tax-free.
Many people wondered if lending or staking virtual assets would result in a longer period during which a private sale of the virtual currency used for this reason is taxable. According to the German Finance Ministry, the 10-year period does not apply to cryptocurrencies.
Furthermore, Bitcoin miners that purchase newly created BTC will have their tax payments cancelled after a year of ownership. Hessel also stated that the Federal Ministry of Finance will continue to establish new guidelines on the use and trading of cryptocurrencies.
Germany has adopted a proactive stance on bitcoin legislation and monitoring, announcing a national blockchain plan in 2019. From January 2020, bitcoin service providers, including exchanges and custody platforms, were needed to get BaFin licences, ensuring that the sector adhered to the same regulations as traditional financial service providers.
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