Germany imposes a new 25% tax on cryptocurrency gains, targeting tax-free income

Germany plans to impose a flat tax rate of 25% on cryptocurrency gains starting in 2028

The German government has prepared to impose a flat tax rate of 25% on cryptocurrency gains starting in 2028, which may end the country's long-standing policy of exempting bitcoin and other digital assets held for more than a year.

Core content of the new tax system

According to the plan, starting from 2028, cryptocurrency gains will be taxed at a fixed tax rate of 25%, replacing the current tax-exempt system for assets held for more than one year. The new rules will apply to crypto assets purchased after January 1, 2027, and how to deal with previously purchased positions has not yet been determined.

According to Der Spiegel, the German Federal Ministry of Finance has drafted draft legislation aimed at including cryptocurrency gains in Germany's capital income tax system (Abgeltungsteuer). This means that crypto assets will be subject to the same 25% tax rate as stocks and other securities. The draft has been circulated among federal ministries for review.

Tax exemptions and loss deductions

It is expected that personal tax exemptions will remain. Germany currently offers a tax exemption threshold of € 1,000 for private disposal transactions. In addition, once digital assets are included in the capital gains tax system, investors can use cryptocurrency gains to offset investment losses in stocks and other securities.

Impact of removing the one-year exemption period

Under the current system, cryptocurrencies held by individuals do not fall within the scope of Germany's unified capital income tax. Cryptographic assets such as Bitcoin and Ethereum are regarded as "private assets." If it is sold within 12 months of purchase, the proceeds may be subject to tax at the investor's personal income tax rate; the personal income tax rate can be up to 45%. However, crypto assets held for more than a year usually enjoy tax-free treatment.

The new 25% tax rate will eliminate this long-held tax benefit. For some short-term investors, as they currently face higher personal income tax rates, the new tax system may actually reduce their potential tax burden.

Policy Background and Political Game

The German government has been considering adjusting its cryptocurrency tax policy for months. In May this year, it was reported that Finance Minister Lars Klingbeil said in the 2027 federal budget released in April that the government intended to "tax cryptocurrencies in different ways." At the time, the government did not disclose specific plans, but Klingelbill linked the reform to a measure expected to increase taxes by 2 billion euros and strengthen the fight against financial and tax crimes.

The latest draft provides a more specific mechanism. According to Der Spiegel, the Ministry of Finance expects the measure itself to generate approximately 350 million euros in additional tax revenue.

Previously, the German parliament tried without success to cancel the long-term holding tax holiday. In May this year, the Green Party proposed a proposal that crypto-assets no longer enjoy tax-free treatment after being held for more than a year, but the proposal was opposed by the CDU/CSU, the Social Democratic Party (SPD) and the Choice Party (AfD). Although various parties opposed it for different reasons, the final proposal was rejected by the Financial and Economic Committee.

The Choice Party has always supported retaining the 12-month holding period and has submitted relevant proposals in the Bundestag. Recently, the party won nearly 44% of the votes in the election in Saxony-Anhalt, bringing this issue back to attention. It should be pointed out that the Bitcoin tax debate in Germany is a federal matter, and state governments have no right to unilaterally change the tax treatment.

Market data and other regulatory measures

Analyst firm Chainalysis estimates that the potential taxable cryptocurrency activity on the German chain will reach US$24.1 billion in 2025. This includes $15.6 billion in payments,$6.1 billion in realized gains and $2.4 billion in revenue. The company cautioned that this estimate represents activities that may be subject to regular tax laws, rather than actual unpaid taxes.

In addition to tax reforms, Germany is also strengthening regulation of digital assets in other aspects. Since January this year, Germany has implemented the EU's Cryptographic Asset Tax Transparency Act, requiring crypto service providers to transmit customer transaction information to tax authorities. At the same time, compliant encryption services are also expanding. As of August, Germany has become the jurisdiction with the largest number of crypto asset markets (MiCA) authorizations in the European Union, with a total of 79 authorized crypto asset service providers, ahead of France with 35 and the Netherlands with 29.

Follow-up process

On Tuesday morning, Kringelbill submitted the 2027 federal budget to the Bundestag, outlining a spending plan of approximately 550 billion euros, including special funds and approximately 120 billion euros in new borrowing. Cryptocurrency taxation is just one of the income-increasing measures considered by the government. According to reports, the ruling coalition has agreed to introduce or increase taxes and fees in areas such as alcohol and tobacco, while a tax on sugary drinks is still under discussion.

Currently, the draft cryptocurrency tax needs to be reviewed by other federal ministries before being submitted to the Cabinet for review and eventually entering the legislative process of the German Parliament.