Finding a Germany Tax Loophole for Crypto
Ways to Reduce Tax

Some believe cryptocurrencies are likely to become the future way to make and receive payments. Some others see it as a trend or perhaps a quick speculative investment to make some money. Governments are undecided yet.

One of the biggest benefits of digital coins is the lack of a centralized system. There are no banks or intermediaries, meaning there are no fees for these entities. Instead, fees are incredibly low and only used for blockchain maintenance.

Cryptocurrencies are difficult to follow, especially by governments. But on the same note, more and more countries appreciate their popularity and have decided to regulate this market. It is a difficult task, but some of them are getting there.

Germany, for example, is among the countries that charge an income tax for transactions. Imagine buying a Bitcoin for €30,000 and selling it for €60,000 later on. If you are in Germany, they will want a piece of your big cake.

The BZTs – an acronym for the local federal central tax office – has recently implemented harsh regulations for those who deal or trade with digital coins. Luckily, you can always find a Germany tax loophole for crypto, but it requires proper planning and attention.

On the same note, it is worth noting that cryptocurrencies are difficult to track, so governments – including the German one – keep updating their laws and regulations on a regular basis, with the one and only purpose to ensure they cover everyone.

Understanding the income tax in Germany​

Germany is among the strongest economies in the world – partly because of taxes and the government, partly because of its hardworking people. The income tax rate is average for the European Union and will affect all kinds of gains.

The law targets both short and long term gains. In terms of cryptocurrencies, everything will be targeted. Now, the income tax is calculated based on how much money you make over a year. Certain limits imply different percentages.

The tax rate is null for single individuals making less than €9,744 a year. Married individuals should make less than €19,488 a year to avoid tax. Then, most people fall in the average category – making less than €57,918 a year as singles or up to €115,836 as married couples.

This category will pay anywhere between 14% and 42%. There are more stages for tax, and the ultimate one covers singles who make over €274,612 or couples who make more than €549,224 a year. These categories will pay 45% of their income – almost half goes to the government.

It is important to know that the tax system is extremely comprehensive in Germany. For example, apart from the income tax, people will also have to pay a solidarity tax, which is 5.5% of the income tax. Everyone pays it – just more money towards a greedy government.

Again, keep in mind that income taxes, caps, and limits tend to change on a yearly basis, based on inflation. If you are the type who plans everything in the smallest details, you will have to keep an eye on these numbers as they get updated.

Explaining cryptocurrency taxes in Germany​

To find a Germany tax loophole for crypto, you need to understand how cryptocurrency taxes work in this country. Before digging deeper, you should know that cryptocurrencies have been defined as assets by the German law.

Compared to other countries, Germany charges an income tax for money resulting from digital money transactions. Other countries will charge a capital gains tax. Now, here is a catch you need to know – Germany will tax cryptocurrency profits if the asset is bought and sold throughout the same year.

In other words, the government is trying to charge speculative investors or traders. Those who purchase cryptocurrencies as long term investments will avoid tax – you might as well sell your coins after a year and a day.

With these thoughts in mind, mining is obviously taxed. The same goes for staking, not to mention short and middle term trades. On the other hand, buying a Bitcoin this year and selling it the next year will not get you taxed – a great Germany tax loophole for crypto.

Furthermore, while taxing cryptocurrency gains is seen as an abuse by many traders, the truth is Germany has some chilled laws when compared to other countries. If cryptocurrencies had been as property, everything would have changed.

Instead, it goes under the other asset category. Getting rid of your digital coins is defined as private disposal. Here comes another good thing – getting rid of assets comes with all sorts of tax benefits in this country.

All in all, what you need to remember is that digital coins – as well as other things going in the same category – become tax exempt if you hold them for at least a year. Sell them the day after a year has passed, and you will be fine.

On another note, it is also important to know that just like income tax, this cryptocurrency tax comes with some caps. If you make less than €600 per calendar year, you will not have to pay any tax at all – things change once you exceed this limit.

When used as a financial investment with long-term purposes, cryptocurrencies are usually kept for more than a year. At this point, the digital coins are not relocated because the profits they generate in Germany are not taxed at all.

As a general rule of thumb, the German government is not interested in what you buy, what digital coins you prefer, how many of them you get, or when you purchase them. What the government cares about is the holding period of time. Politicians are trying to tax traders and speculative investors.

Investors who have purchased all sorts of digital coins and kept them for more than a year should not even bother about any planning – instead, they must focus on how to gain as much as possible from their investments. They will not be taxed.

Staked cryptocurrencies are different, though. The holding period requirement is much higher – 10 years or more. Sell your stakes digital coins within 10 years, and you will have to pay tax on your profits if they exceed €600.

Considering the taxes you must pay in Germany​

If you have lived in other countries or spent time as a tax resident, you will soon realize that Germany has a unique system that stands out in the crowd. It is far from what you may find in countries like the USA, UK, Canada, or Australia – just to give you a few examples.

Such countries have capital gains tax laws and regulations. While similar to the income tax from some points of view, the truth is they are different. Germany does not have such a policy, which makes things much easier to understand.

Countries trying to regulate the digital coin market put cryptocurrencies in different categories. The above-mentioned countries will most likely charge you for capital gains. On the other hand, there is no such thing in Germany, meaning you will only need to worry about the income tax – if applicable, of course.

Have you bought and sold cryptocurrencies within the last financial year? If the answer is yes, you must declare the totals on an income tax return form. Cryptocurrency gains are considered other forms of income and will have their own separate form.

When it comes to reporting, you should know that the tax year in Germany is the same as the calendar year. It starts on the 1st of January and goes until the 31st of December. The good news is you do not have to rush and report everything on the first day of the year.

Instead, the tax deadline is the 31st of July. However, it depends on what day it falls on. If the 31st of July is on a weekend, the tax deadline is the next working day. Simply put, you have seven months to do everything.

Hiding your cryptocurrency transactions from the BZSt​

Now, this is one of the most exciting things about cryptocurrencies – they do not use a centralized system. They do not rely on banks or other financial institutions, so no one can really figure out how much money you have or where you keep it.

However, to buy or sell cryptocurrencies, you will need to do a few different things. While not the only method out there, most people rely on different digital currency exchanges. You could buy cryptocurrency stored on a memory stick too, for instance – no one would know about that.

But if you use an exchange, things could change – it depends on the exchange, though. If it is a European exchange, chances are your data has already been reported to the BZSt. At this point, trying to break the law could seriously get you in trouble.

Over the past years, the European Union has come up with more AML (Anti Money Laundering) directives. The sixth one was released in the summer of 2021 and came with a significant change – a better regulation of digital coins.

This means that every company out there offering financial support and services to customers using cryptocurrencies will have to report everything. Laws and regulations are much harsher, and everyone must comply by identifying customers and reporting such transactions.

Everyone in the European Union will share the information, and believe it or not, even countries outside the union have decided to join in and sign such agreements. The idea is to reduce money laundering activities. However, if you use an exchange that does not share such data, the BZSt will never find out.

Now, things have gone even further. As governments realize the potential of digital coins, things are even stricter these days. A new directive has been introduced with the purpose of data sharing – the so called Dac8.

The new directive is not fully implemented yet, but it can kick in anytime – most specialists believe it will become a reality this year. This directive will give the BZSt even more power and can actually check if people own digital coins or not.

This new directive allows the BZSt to reach to cryptocurrency companies and actually look into their accounts, find even more data, and ensure everyone is reported – welcome back to 1949. This directive will most likely affect German crypto companies and not the international ones.

Reporting for cryptocurrency taxation in Germany​

The cryptocurrency is reported just like any other type of regular income – whether it comes to gains or losses. You will need to report everything that involves cryptocurrencies, from trades and sales to actual swaps. Indeed, even swaps must be reported.

The BZSt must know about all sorts of activities that involve cryptocurrencies in one way or the other. You need to report your income, as well as your profits. Sure, you can do it yourself, but you can also hire an accountant for the job.

There are more ways to report for taxation in Germany, but most people use the digital way – easy, straightforward, and intuitive. Known as Elster, the platform has been developed by the BZSt and involves no queues or paperwork – everything is done online.

Of course, if you are not too tech savvy, you can always do it by post. There are some forms that allow you to report your crypto gains – print them, complete them and post them to the local tax office. It will take a few days for your info to be updated.

• Hauptformular ESt 1 A – the general tax form is for everyone who has made some sort of income or capital gains. This form is not exclusively made for cryptocurrency gains only, but they are also included.

• Anlage SO – this form is for everyone who has generated other forms of income within the last year. The digital coin income is considered other income by local authorities, so this form must be completed.

Germany tax loophole for crypto – How to pay less tax​

Some refer to it as a German tax loophole for crypto. However, there are, indeed, ways to pay less tax without really cheating on the system. The secret is to play by the rules but stretch them to suit your needs. Here are a few simple ways to reduce your tax.

Deducting losses

This is the easiest way to ensure you pay less tax. Make sure you deduct everything you can from your taxable income. All the trades you lose must be deducted. A loss is not an actual income, so it goes against it when preparing for tax.

Here comes the interesting part. Losses are not all about trades. Instead, you can also count all the fees associated with your trading activities or exchanges. Got a wallet? If you are charged to use it, that counts as a loss.

Ledgers and calculators are also part of the game. How about gas fees to travel to your trading office? If you are using certain calculators and other tools in trading, their costs can be deducted too. And here comes an even more interesting part…

Training is considered an expense. This is the best way to reduce your income tax – keep training. If one of your friends has a training company established in a jurisdiction with no international income tax, you can simply float money around in a legal way, without any of you to pay tax.

Now, your losses do not necessarily need to go into the negative. Basically, you should not always deduct until it looks like you are on a negative balance. Instead, like mentioned before, you will not pay tax if your profits are under €. Try to keep them in that range, and you will be fine.

Holding cryptocurrencies for over a year​

This is not really a loophole, but just following the law to avoid tax. Digital coins making a profit within a year will be taxed if you sell them. Basically, if you buy crypto today and sell it more than a year later, you will avoid tax – simple as that.

The system is aimed at traders and speculators. If you count yourself in this category, simply trade over longer periods of time. It makes no difference what kind of coins you have – even altcoins go in the same category.

You could make €1 in profit, as well as €10 million. No one will be bothered. If there is more than a year between the buying point and the sale, you will not pay a single cent in tax on that income. Only short term gains are taxed.

Keeping separate accounts​

Getting involved with cryptocurrencies can become confusing. There are both long term investments and quick trades for profits. However, things can get messy and mixed in – at some point, you risk losing your head in everything you do.

Now, the German system is aimed at short term gains, so how about keeping separate accounts? Get an account for your long term investments, as well as another account for short term trading. You do not want to end up paying tax by mistake, do you?

Dealing with stolen cryptocurrency​

Hacked or stolen cryptocurrency can also be deducted. Obviously, you do not want it to happen, but if it does, you can avoid paying tax on it. There are also people who pretend to lose cryptocurrency – illegal, of course.

You will have to come up with some evidence in order to claim this loss. For example, you must provide the wallet address, the buying date, the loss date, as well as the cost of recovering after this unfortunate event.

You must prove that you were the legal owner of the wallet too, not to mention the total amount of cryptocurrency in the wallet. Transactions to the wallet from an exchange will also be used as evidence – the exchange must obviously be linked to you.

Getting tax residency in another country​

This is probably one of the simplest ways to avoid the German tax on digital coin transactions, yet it involves some effort. You are leaving your home, family, and friends. You move abroad, and you start all over – find accommodation, settle in, and so on.

Is it worth it? It is totally up to you. If you make small amounts of money or perhaps a few thousands, it may not always be worth it. But if you are investing big and you plan to make a fortune, you might consider seeking tax residency in another country.

Find a jurisdiction with no income tax – or even easier, a jurisdiction that does not tax cryptocurrency gains. There are plenty of them out there. It is worth moving there and getting tax residency, making your money, then going back to Germany.

When seeking tax residency in another country, it is worth knowing how the German system works. Just because you leave Germany, it does not mean that you no longer need to pay taxes there. You must apply to give up the tax residency in Germany.

Conclusion

As a short final conclusion, the German tax on digital coins can be avoided with a little attention to small details. Whether you make less than €600 a year or you keep your coins for more than a year (over 10 years for staked coins), you will be tax exempt.

The Germany tax loophole for crypto becomes an option if you want to reside in Germany and make a fortune out of trades. Trying to find a loophole will also work if you are a trader – at this point, holding digital coins for over a year is not really an option.

On the other hand, lots of people choose exchanges in tax havens – the types of exchanges that will not report to Germany. They try to keep their activities out of Germany in order to keep the government out of their business – doable, but not legal.

As a general rule of thumb, try building your crypto empire slowly. See how things go and analyze your options as you gain experience and discover your options – plus, everything must be done with your personal goals in mind.