Germany Cryptocurrency Laws Regulation of Digital Currencies: Cryptocurrency, Bitcoins, Blockchain Technology
Digital assets are now acknowledged as financial instruments in Germany, and there are many discussions about integrating blockchain into the stock market to increase their liquidity and enhance legal compliance.[1] The German government passed in December 2020 a new legislation to introduce all-electronic securities as part of the country’s broader blockchain strategy.[2] According to the country’s finance ministry, “the new law relaxes rules forcing issuers and holders of securities to document transactions with a paper certificate.”[3]
Banks in Germany can sell and now store customers’ cryptocurrency in accordance with AMLD5 and AMLD6 requirements.[4] Though, the new German tax regulations set a limit of €10,000 on losses from cryptocurrency derivatives transactions, residents will be able to reduce their income tax base by a maximum of this amount (commutators have suggested that this regulation amounts to a de facto a ban on trading in crypto derivatives).[5]Regulations have been also defined for providers of cryptocurrency ATMs – they need to obtain permission to install the devices in public places (there are currently 52 cryptocurrency ATMs in Germany).[6]
Germany offers a unique take on taxing digital currencies such as Bitcoin.[7] Unlike most other states, Europe’s biggest economy regards Bitcoin as private money, as opposed to a currency, commodity, or stock.[8] For German residents, any cryptocurrency held for over a year is tax-exempt, regardless of the amount.[9] If the assets are held for less than a year, capital gains tax doesn’t accrue on a sale, as long as the amount does not exceed 600 euros ($692).[10] However, for businesses it’s a different matter; a startup incorporated in Germany still needs to pay corporate income taxes on cryptocurrency gains, just as it would with any other asset. But in 2021, a controversial new tax law came into force which effectively kills crypto derivatives trading in Germany, as losses can no longer be deducted.[11] The legislation reflects moves across Europe to regulate derivatives.[12]
P.S. Insights on Cryptocurrency Legal Issues
Most jurisdictions and authorities have yet to enact laws governing cryptocurrencies, meaning that, for most countries, the legality of crypto mining remains unclear.
Under the Financial Crimes Enforcement Network (FinCEN), crypto miners are considered money transmitters, so they may be subject to the laws that govern that activity. In Israel, for instance, crypto mining is treated as a business and is subject to corporate income tax. In India and elsewhere, regulatory uncertainty persists, although Canada and the United States are relatively friendly to crypto mining.
However, apart from jurisdictions that have specifically banned cryptocurrency-related activities, very few countries prohibit crypto mining.
Our Freeman Law Cryptocurrency Law Resource page provides a summary of the legal status of cryptocurrency for each country across the globe with statutory or regulatory provisions governing cryptocurrency. The globe below provides links to country-by-country summaries:
[1] Fintechnews Singapore, How Financial Regulations Have Evolved in 2021, Fintechnews.sg, (Feb. 24, 2021), https://fintechnews.sg/48917/blockchain/how-financial-regulations-have-evolved-in-2021/.
[2] Felipe Erazo, German Bank Donner & Reuschel to Offer Crypto Custody Services in Response to a ‘High Market Demand’ in the Country, Bitcoin.com, (Mar. 9, 2021), https://news.bitcoin.com/german-bank-donner-reuschel-to-offer-crypto-custody-services-in-response-to-a-high-market-demand-in-the-country/.
