What is meant by fiscal leeway?
Taxation of cryptocurrencies such as Bitcoin, Ether, Tether etc.
Bitcoins, Ether, Tether, Ripple etc. have one thing in common, despite some differences: They are cryptocurrencies that are purely digital and trigger uncertainties about taxation among many participants. While you "used to" keep your money in your wallet or money box, nowadays you store your digital coins in a wallet. Unlike gold or silver coins, you never have physical access to these coins. The more difficult is the idea that the cryptocoins or tokens have to be entered in the tax return in some way. You will look in vain for a line or even a form with the question about cryptocurrencies in the tax forms. There is also not a single tax law that even provides an approximate description of what cryptocurrencies are and how they are treated for tax purposes. In fact, the financial authorities are having an extremely difficult time dealing with this issue. There is a leaflet from BaFin and a BMF letter from February 2018, in which at least the VAT treatment is clarified, but otherwise one is more or less in the dark. Since March 2019, and thus for almost two years, there has been a draft of an administrative instruction on how the issue should be dealt with in terms of income tax (e.g. in the context of income tax). The fact that two years are an eternity in the digital world should be neglected here, because the mills of the financial administration have always not grinded really fast - but that one falls back on the term "electronic debt securities" instead of simply being clear about the child Calling them by name probably shows the way forward: It won't be any easier in terms of taxation.
As of today, the taxation of cryptocurrencies does not result explicitly from the tax laws. The financial administration has been helping itself for many years with descriptions and administrative instructions. It is no longer uncommon to own crypto currencies. Bitcoin in particular is subject to extreme fluctuations in value and has become the object of private and institutional speculation. Anyone who deals with Bitcoins and other crypto currencies must therefore always ask themselves the question: "How are my crypto currencies actually taxed". That is why I would like to answer the most important questions below in order to clear the first uncertainties out of the way. In any case, tax advice is worthwhile - because unintended profits can be very expensive!
How are Bitcoins & Co taxed?
In the absence of specific rules in tax law, section 23 (2) of the Income Tax Act ("private sales transactions") applies to private individuals. This was actually launched to tax private speculative transactions (e.g. with vintage cars). But it also works with gold, silver and cryptocurrencies. It is important that the cryptocoins or tokens are actually in your own possession, i.e. are in the wallet. If you only speculate on the price development without actually owning a single coin, the rules of the capital gains tax apply in the case of profits.
If you are the owner of your own coins and they are sold, they are not immediately subject to taxation. There must first be a "profit", that is, the selling price must be higher than the purchase price and the selling must take place within one year of buying the coins (so-called holding period or minimum holding period). If coins are sold at a profit after one year, all profits are tax-free.
If you get the coins as a gift or inherit them, the time of the gift or inheritance does not count as the valuation time for the acquisition costs and the start of the holding period, but the time at which the donor or testator acquired the coins. In addition, inheritance and gift tax aspects may also have to be taken into account in such a case.
If you now have a profit, it is actually subject to taxation if it is more than 600 euros. Nothing is taxed below this exemption limit. But above that, every single cent - at the personal tax rate, which varies greatly depending on income and family circumstances.
In return, however, you can also assert losses and offset these with later profits from private sales transactions - but not with profits or surpluses of other types of income, such as those from normal salaried employment.
I sold bitcoins, do I have to pay taxes now?
There is no general answer to the question. If you bought these at a profit and within a year, you will probably have to pay taxes. However, if you have had the Bitcoins in your wallet for more than a year, the sale is tax-free even if a considerable profit has been made. Because taxation only occurs within the holding period of one year.
If you have several coins in your wallet that you bought at different times, the so-called fifo principle (first-in, first-out) applies. The financial administration assumes that you sell the coins that you bought first - that can sometimes have advantages and sometimes disadvantages. As a rule, the tax office does not allow other investigative procedures. Therefore, you also have to record exactly when you bought and sold which coins and at which price.
Can the holding period be extended to 10 years?
If you sell Bitcoin & Co within a year, taxes are usually due. But even after that, it may be that the tax office asks to pay. This is always the case when the cryptocurrencies serve as an (additional) source of income. This does not mean a profit on the sale, but the use of the coins as a passive source of income. This happens, for example, when you receive interest for lending your coins (coin lending) or actively participating in staking. This can even be doubly bad: First of all, the holding period increases to 10 years and you also have to subject any interest to capital gains tax, which is usually 25%.
Do I have to pay capital gains tax or withholding tax for Bitcoins?
If you sell Bitcoins & Co, you will not have to pay capital gains tax or withholding tax. But if you lend your bitcoins, for example, in order to receive interest, or if you take part in coin staking, you also have to pay capital gains tax. If the interest comes from a bank or insurance company based in Germany, you don't need to worry about anything else, because this is where the withholding tax applies. The bank already withholds 25% + solidarity surcharge, if applicable, and pays this to the tax office. You only have to take action if the interest comes from abroad and declare the capital income to the tax office - this should be the rule in most cases, because there are hardly any banks in Germany that are active on the crypto market.
Furthermore, capital gains tax plays a major role for you if you do not buy the coins directly, but, for example, acquire a fund share that maps the price trend or you yourself speculate on the price trend of cryptocurrencies on certain trading platforms. It is important to distinguish here, however, because there are also crypto funds that contain different crypto currencies, but are issued as coins themselves (C20, for example). If you are involved in such a crypto fund, the private sales transactions come into play again.
I bought bitcoins through my company. Are there any special features?
As a matter of fact! Cryptocurrencies represent so-called intangible assets that have to be activated in both the trade and tax balance sheets. If the profit is determined by means of an income surplus calculation (Section 4 (3) EStG), there is no activation and the purchase of coins immediately represents a business expense (similar to goods), but they are part of business assets. Regardless of whether it is accounted for or the profit is determined in accordance with Section 4 (3) EStG, there is no holding period or the like. Any profit, no matter after what time, is taxable - because it is income from commercial operations according to §15 EStG or profit from freelance work (§18 EStG). Likewise, a loss is then also of an operational nature, which allows scope for tax structures. You should request appropriate advice here.
Bitcoins and sales tax
Although cryptocurrencies are not legal tender, they can in principle be used as a means of payment. If cryptocurrencies are used for normal purchases, there is of course no sales tax. The exchange, for example, from euros to Bitcoin and vice versa is also exempt from sales tax. However, this does not result directly from the law, but there is a ECJ ruling and based on it a BMF letter of February 27, 2018, which regulates the special features with regard to crypto currencies and sales tax.
In summary, one can say that the taxation of cryptocurrencies is by no means uniformly regulated and is certainly not easy to understand. Well-founded tax advice can save a lot of money in case of doubt!
Yours, Tobias Siemssen, LL.M.
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