The price rally in cryptocurrencies, especially Bitcoin, is leading to more and more private individuals investing accordingly. Provided that an investment in Bitcoin takes the form of a security, the tax treatment is simple. The domestic custodian has to withhold 27.5% capital gains tax on a corresponding capital gain. This unfolds the so-called final taxation for the investor – meaning: no inclusion in the personal income tax return is required.
However, what is the situation if Bitcoins per se are held as currency via a so-called wallet?
Transactions of Bitcoins held as private assets
Bitcoins held as private assets lead to a tax liability if so-called speculative gains occur. Two conditions must be met for this:
- first, a profit must be generated by the sale of Bitcoins.
- in addition, the period of time between the purchase and the sale of the Bitcoins must be less than one year.
The following three transactions count as sales in this context:
- Exchange of the Bitcoins for Euros
- Exchange into another cryptocurrency
- Exchange for goods / services
If there is such a sale with speculative profits, these are in principle taxable. There is an exemption limit of 440 euros per year. If this is exceeded, the profits must be included in the tax return as other income (speculative profits). The taxation then takes place, together with any other income, with the progressive income tax rate.
If crypto assets are assessed as interest-bearing, realized changes in value (both interest and realized increases in value) are taxable at 27.5%. An interest-bearing investment takes place by lending crypto assets to other market participants. If an additional unit of crypto-asset is promised in return for the transfer, this represents “interest” and is therefore taxable as income from the transfer of capital.
However, if Bitcoins held in private assets lead to losses, these can only be offset against profits from other speculative transactions within the same year.
Important: In order to provide evidence to the tax office, it is necessary that the transactions are precisely recorded (euro value at the time of purchase and sale, date of the transaction, etc.). Compared to a securities account, this is not easy because there is no such thing as a securities account including statements / statements / tax reports etc. Evidence can therefore be provided, for example, with the aid of an Excel or with software especially suitable for this.
Transactions of Bitcoins held as business assets
If Bitcoins are held as business assets, the holding period is irrelevant for the taxation of profits. A profit from a sale is always taxed at the progressive rate. For corporations, this means taxation at 25% corporate income tax.
The statements on interest-bearing investments apply accordingly in the operational area (see above).
Treatment of mining
Mining is generally understood to mean the creation of new units of cryptocurrencies. According to the tax authorities, this activity is to be classified as a commercial activity and therefore also treated accordingly for income tax purposes, i.e. included in the income tax return. When determining the income, the market value of the units created is to be applied. As business expenses, for example, the depreciation of hardware purchased for this purpose or also pro rata electricity costs can be claimed.
In addition to including the mining activity in the tax return, it should be noted that the start of the activity must be reported to the tax office within one month by means of an opening questionnaire.
According to the current case law of the European Court of Justice and the interpretation of the tax authorities, no VAT is due
on this activity. Therefore, no input tax deduction is available.
You can also find important information in our article tax alert on crypto taxation.
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PS: Please note, that we are no native speakers and that our blogposts were translated with the help of google translate.