Preliminary legal notice: The following information does not constitute tax advice in accordance with the German Tax Advice Act (Steuerberatungsgesetz). Rather, it is information of a general nature that may become erroneous or outdated, or may not be applicable to every individual tax case. You should always seek advice from a tax or legal advisor regarding your personal tax situation, particularly with regard to the specifics of your country of origin. This information does not replace tax or legal advice.
German tax authorities also have something to say when it comes to Bitcoin & Co. After all, in principle, profits made from trading cryptocurrencies are liable to tax. This applies to companies that buy and sell cryptocurrencies, but also to private individuals. To make it easier for users to settle their accounts with tax authorities, BISON provides an annual Info Report documenting all trading activities.
Anyone who trades in Bitcoin is subject to tax – but there are some important exceptions
As a rule, taxes apply to all private income. This includes profits made from buying and selling cryptocurrencies. Anyone who buys and sells Bitcoin, or other coins, must therefore keep their tax liability in mind – every taxpayer is obligated to proactively provide accurate information when filing his or her tax return.
What do cryptocurrencies mean to the state?
According to its official definition, cryptocurrencies are “digital representations of value that are not issued or guaranteed by any central bank or public body, and do not have the legal status of currency or money, but are accepted by natural or legal persons as a means of exchange or payment or are used for investment purposes by virtue of an agreement or actual practice, and can be transmitted, stored, and traded electronically.” [§1.11.10 Credit Union Act. (Kreditwesengesetz)]
For the state, cryptocurrencies are neither shares nor normal monetary currencies, but rather things that are bought and sold – like stamps, model trains, or gold – with one important distinction: Cryptocurrencies are, in fact, “digital representations of value”. So the state does indeed recognize that these physically intangible “things” have value. You could compare them to software: PC programs can’t be touched either, but they have value. You have to pay something in order to use them.
Profits made from crypto transactions are taxed by tax authorities
The state thus assumes that, in principle, cryptocurrencies are digital assets based on an agreement governed by private law. This agreement consists of a concrete transaction, i.e. when there is a trade of fiat money, such as the euro, in exchange for cryptocurrencies between two parties, or vice versa. For tax purposes, the expenses and the income in euros that are moved in such a transaction are considered relevant. These are to be offset against each other: The expenses are deducted from the income. The result at the end of the year is either a profit or a loss in euros. Profits are taxable, while losses (e.g. fees for the transactions, etc.) may be claimed for tax reduction.
Private bitcoin investors get preferential tax treatment
Private individuals who have made profits from trading with Bitcoin & Co are currently only liable for tax if they have held the acquired cryptocurrencies for less than 12 months. So if you trade every day in the BISON app with any of the current 5 cryptocurrencies and make a profit, you have to declare it to tax authorities in your income tax return. But the state is generous with small amounts: There’s a tax-free exemption limit of 600 euros. Anyone who does not exceed this limit is not required to pay any taxes. However, this exemption limit applies to all private sales transactions. For more detailed information, you should consult a tax advisor. The amount of tax itself depends on the tax rate you pay on your other sources of income. If you pay 10% income tax, you have to pay 10% on the profits from your crypto transactions. If your income tax rate is 20%, you will have to pay 20% on crypto profits.
However, losses from crypto transactions can also have a tax-reducing effect. This means that if you have made a loss of 1,000 euros, your taxable income will be reduced by 1,000 euros. If this seems rather complicated to you at first glance, we recommend consulting a tax advisor.
By the way: The rule that profits from crypto transactions are tax-free as long as the coins have been held for over 12 months before being sold is much more generous than it is for stocks. On stock transaction profits, you always have to pay 25% tax, regardless of how long you’ve owned the shares. The only exceptions are stocks purchased before 2009.
Private bitcoin investors get preferential tax treatment
- If you buy cryptocurrencies and keep them for over 12 months without changing anything, you do not have to pay tax on the profits from a later sale. It is also recommended to document these processes – the tax office may ask for proof.
- Anyone who trades in cryptocurrencies within a 12-month period and makes profits on them is required to declare those profits on their tax return.
- Anyone who trades in cryptocurrencies within a 12-month period and suffers losses as a result is advised to declare them on their tax return.
The BISON Info Report
In order to relieve users of the time-consuming task of documenting their trading activities, BISON has developed the Info Report. In it, all purchases and sales made during a complete calendar year are documented. Users can request this Info Report in the app and receive it as a PDF download via e-mail during the first quarter of the following year.
Please note, however, that this Info Report is not considered legally binding. You are responsible for the final review and disclosure on your tax return. If you have specific questions about your taxes, you should consult a tax advisor.
When documenting trading activities in the BISON Info Report, the First-In-First-Out rule applies. In other words, the stocks that were purchased furthest in the past are also the first to be sold again. Here is an example to clarify this:
- January 15, 2019: An investor buys 1 BTC.
- July 15, 2019: The investor buys 1 BTC again.
- So now, he or she owns a total of 2 BTC.
- February 20, 2020: The investor sells 1.5 BTC.
- For tax purposes, because of the 12-month holding rule, only the share held for a shorter period is taken into account, i.e. 0.5 BTC. He has held the remaining 1 BTC for longer than 12 months. Tax authorities assume that he will sell the BTC he bought first.
- In addition, only the profit from these transactions must of course be taxed, i.e. the amount that results when the purchase price paid at the time of sale and the costs incurred in the process (fees, etc.) are deducted from the sales price achieved.
Here is a theoretical calculation based on the example above:
- The first 1 BTC cost 100 euros.
- The second 1 BTC cost 200 euros.
- The 1.5 BTC were sold for 300 euros.
- So expenses were:
- 100 euros (the complete 1st purchase)
- 100 euros (half of the 2nd purchase)
- So, in total, the expenses amount to 200 euros.
- After deducting the costs, a profit of 100 euros is left over from the 300 euros in sales revenue. These 100 euros are subject to income tax.
Bottom line: The Info Report makes tax returns easier
To clear up any misunderstandings that may arise: BISON does not forward any information about the holdings or activities of BISON users to tax authorities. This can only be requested on grounds of prosecutorial investigations. The Info Report available to users in the app is therefore solely intended for personal use. With it, we make it easier to document any transactions that have been made. This is, of course, extremely helpful, especially if you have a lot of transactions: You can simply trade and don’t have to write everything down. With this Info Report, you are able to provide evidence of your crypto activities in your tax return, thus easily fulfilling your tax obligation.