We may be in a deep downturn, but regulation continues to advance. The German Federal Ministry of Finance has published the so-called “BMF letter,” which explains how income tax on cryptocurrencies can be handled. This is the first time such detailed guidance has been published regarding cryptocurrencies.
What is this letter?
The Ministry of Finance describes the letter as a “legally secure and easy-to-use guide on the treatment of income tax for virtual currencies and other tokens,” according to the federal finance ministry’s website.
“The letter sets out issues related to cryptocurrencies that are explained and classified under income tax law. It not only provides information about trading cryptocurrencies, but also addresses income tax treatment for mining, staking, loans, hard forks, airdrops, utility and security tokens, and employee income.” In short, the ministry provides thorough guidance.
After one year, sales of BTC and ETH are tax-exempt
A notable decision in the letter is that the two largest coins can be sold tax-free after one year. “For private individuals, the sale of purchased bitcoins and ether after one year is tax-exempt,” Finance Minister Katja Hessel told parliament. However, this letter is not necessarily definitive for the future—rules could still change.
“Of course, the imminent official publication of the BMF letter does not mark the end of our discussions on this issue, but is an interim result. The rapid development of the ‘crypto world’ ensures that new questions will continue to arise. There is already an additional letter concerning cooperation and registration obligations.”
For those interested in reading the letter, it is available from the ministry. You will need a good command of German or a reliable translation tool to consult the original document.
Germany ranks number one for cryptocurrencies
According to Coincub, Germany ranks first as the best cryptocurrency country in the world. The country even scores higher than El Salvador, which made headlines for adopting Bitcoin as legal tender. Germany’s lead reflects the fact that crypto investments there are already integrated into the domestic savings sector.
Germany also leads in the number of Bitcoin nodes and has had a progressive tax policy toward crypto. With the publication of this BMF letter, the Federal Ministry of Finance has taken a further step toward clarifying tax treatment and strengthening regulatory certainty for market participants.