Germany plans to impose a 25% tax on cryptocurrencies from 2027

Core Points

This policy change will apply to purchases after 2026. Newly held assets will no longer enjoy a one-year tax exemption. Existing holding records will still retain current rules. According to reports, the withholding tax mechanism is expected to be implemented in 2028. The tax treatment of stablecoins, non-homogeneous tokens (NFTs) and income-based products is unclear.

Germany's proposed tax plan

According to German radio station (Deutschlandfunk) reported on September 9, the German Ministry of Finance is considering taxing the income generated by Bitcoin, Ethereum and other exchangeable crypto assets and incorporating it into the existing capital gains tax system. It is said that the proposal would apply Germany's 25% capital income tax rate to realized gains regardless of the duration of the holding period. In addition, the solidarity surcharge and applicable church taxes may increase the effective tax rate further.

Currently, the Ministry of Finance has not released a specific draft text, so the proposal is not a law and may change before it is submitted to Parliament. The purchase date will be a key factor in determining the applicable tax system.

Date of purchase determines tax system

Under current German regulations, if an individual holds a cryptocurrency that is sold within one year of its acquisition, the proceeds are regarded as "income from private disposal" and subject to tax; if held for more than one year, it is usually exempt. In addition, when the total proceeds from all private disposal transactions during the year are less than 1,000 euros, tax exemption will also remain. However, business activities and income from pledges or borrowings may follow different rules.

The proposal is said to retain existing tax treatment for assets purchased before January 1, 2027. Cryptocurrencies acquired from that date will enter the proposed capital income tax system. Therefore, different purchases of the same token may be subject to different tax treatment depending on the date of acquisition.

Crypto-asset swaps have affected tax records

Under current Treasury guidelines, exchanging one crypto asset for another is considered a waiver of the disposal of the asset and an acquisition of the asset. Using cryptocurrency to pay for goods or services may also constitute disposal. Therefore, investors not only need to keep a record of withdrawals converted into euros, but factors such as the date of withdrawal, conversion value and transaction costs are equally important. The published draft needs to clarify how these rules interact with the proposed capital income tax system.

Why did withholding tax start one year later?

According to reports, automatic withholding taxes will be implemented one year after the new tax treatment takes effect. This delay involves technical arrangements for tax collection and does not necessarily mean a delay in the start of tax obligations. If implemented according to the report, even if the platform does not deduct tax from the transaction, taxable income may still be generated in 2027. The lack of automatic withholding tax does not mean that no tax is required.

Handelsblatt reported that the delay was intended to give service providers time to implement necessary technical processes. Until the operating rules are officially issued, investors should not assume that the exchange accounts for their complete tax status in Germany.

The proposal does not clearly cover all crypto assets

Public reports mainly mention Bitcoin, Ethereum and other "exchangeable crypto assets." It is unclear how the draft will deal with stablecoins, NFTs, tokenized securities, liquidity pool positions and gains from pledges and borrowing. The draft also needs to explain how annual exemptions or deductions work and what gains and losses can be offset. Even if the headline tax rate remains at 25%, these details could have a material impact on active traders.

Automatic withholding taxes raise practical questions

Existing reports do not explain how withholding taxes apply to transactions made through foreign exchanges, decentralized agreements, or self-managed wallets. In addition, it is unclear what information service providers need to collect when assets are transferred between different platforms. These rules will determine which calculations can be processed by service providers and which records must be maintained by taxpayers themselves.

What must be done before the rules can be changed

The measure is still in the early stages of government coordination. The release of the draft will be the first opportunity to verify its definitions, transitional rules and withholding tax requirements. According to reports, the Ministry of Finance expects the reform to increase revenue by approximately 350 million euros per year by 2031. This estimate describes the expected fiscal effects of the market rather than the costs that individual holders may bear.

Germany's plan should not be confused with broader EU tax proposals. Our team previously reviewed an EU proposal involving a levy on crypto transactions, which would operate in a very different way than Germany's plan to impose an income tax on realized gains. Crypto holders should maintain complete records of acquisition and disposal, especially for transactions approaching the proposed deadline, and seek professional tax advice if necessary.

This document is for reference only and does not constitute tax, legal or financial advice.