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Lately, there is a lot of talk about crypto taxes, and the case of Germany and its exemption is often mentioned.
It is necessary, however, to specify clearly what it is about, because it is not a simple exemption applicable to all crypto taxes.
Summary
The case of crypto tax exemption in Germany
As in many other countries, in Germany any capital gains from the sale of cryptocurrencies are taxed.
Yet there is an exemption.
It must be specified that we are only considering the taxation of any capital gains, because the German exemption concerns this.
The idea of the German government was to impose taxation on crypto capital gains only on those who engage in trading, and not on long-term investors.
And so, with chapter 23 of the EStG, it introduced tax exemption for criptovalute sold after a holding period of at least one year.
Not by chance is this period called the “speculative period,” because it assumes that those who engage in speculation have a shorter time horizon for selling the financial assets they purchase.
Chapter 23 of the EStG
The chapter 23 of the Einkommensteuergesetz states that for the sale transactions of non-real estate goods, with the exclusion of everyday use items, this speculative period of one year applies.
In fact, it specifies that taxes on profits are due if the period between acquisition and sale does not exceed one year.
Therefore, the holding period begins the day after the purchase date, and from that point, it will be possible to make a tax-free sale only starting twelve months after the purchase date. Thus, the calendar year does not matter, but the purchase date and the complete twelve-month period do.
Then it adds that any profits (that is, capital gains in the case of financial assets) remain exempt from taxes if the total profit realized from private sale transactions in the calendar year is less than 1,000 euros.
Capital gains on investments in cryptocurrencies
Such taxation applies only in the case of capital gains.
In the financial field, “plusvalenze” refers to the profits derived from sales.
Therefore, first of all, there cannot be capital gains in the event that there is no sale.
Secondly, taxation occurs only if the taxpayer has made a profit from such a sale, and it is calculated as a percentage of that profit.
The profit is obviously calculated by subtracting the purchase cost from the sales revenue, paying close attention to carefully calculating this purchase cost.
The fact is that to calculate it, you need to take the purchase prices of the tokens sold and multiply them precisely by the number of tokens sold.
The problem is retrieving the purchase prices, especially if you sell tokens purchased a long time ago, and particularly if you sell at the same time tokens purchased in the past at different times.
How to take advantage of the crypto tax exemption in Germany
When performing these calculations, in Germany it is necessary to use the so-called FiFo method (First-in-First-out), which allows starting to calculate costs from the tokens purchased first. This greatly helps to take advantage of the one-year exemption, because if, for example, one buys Bitcoin both one year and the following year, in the case of a sale shortly after the second purchase, one already falls within the exemption if the first purchase was made at least 12 months before the sale.
Therefore, those who purchase crypto and then resell them can continue to purchase even afterwards, and can still take advantage of the exemption provided that they only sell the tokens purchased at least 12 months earlier, and continue to hold for at least 12 months those purchased later.
Obviously, all this does not apply to those who trade in the short term, because it is unlikely that they will end up holding crypto for at least 12 months. In fact, with the FiFo system, they are forced to consider the tokens purchased earlier as sold, and this effectively removes the possibility of considering them sold later in a tax-free manner.
The other countries
Unfortunately, it does not seem that many countries are introducing the “speculative period” in the imposition of capital gains taxes, so as to avoid taxing the profits of holders.
It should also be noted that there are significant differences in the rates at which financial capital gains are taxed.
For example, in countries like Switzerland, there are none, meaning the rate is 0%. However, it is necessary to specify that these are relatively few cases worldwide.
In the vast majority of countries, however, financial capital gains are taxed, including those from crypto.
Just as there are few countries that do not tax them, there are also few that have added the exemption after the “speculative period”. Therefore, most states do not follow the example of either Switzerland or Germany.
Furthermore, there are countries that apply relatively low rates, at 25% or even less, while others exceed 30%, reaching up to 40%.
There are also some, although fortunately they are few, who are considering taxing even the unrealized potential capital gains, that is, even in the absence of a sale. In this case, it would effectively be a tax on mere ownership, but fortunately, for now, there do not appear to be any civilized countries that have dared so much.