Berlin federal authorities target tax-free cryptocurrency profits

German federal government plans to impose a tax on long-term cryptocurrency investment income

The German federal government is planning to impose a tax on currently tax-free long-term cryptocurrency investment profits. According to a bill drafted by the German Federal Ministry of Finance, a 25% capital gains tax will apply in the future even if digital assets are held for more than a year before being sold.

Melz's cabinet wants to tax all cryptocurrency gains from 2027

According to German media reports, Berlin's administrative agency plans to start taxing the resulting cryptocurrency investment income from January 1, 2027. To date, these gains have been tax-exempt as long as they are held for more than one year; however, if they are sold within 12 months of purchase, personal income tax will be payable on the profits.

The coalition government led by Friedrich Merz now wants to repeal the exemption and impose the 25% tax rate that applies to traditional capital gains such as dividends, stocks and interest. This means that approximately 7 million holders of Bitcoin, Ethereum or other cryptocurrencies in Germany, regardless of the length of time they hold the currency, are required to pay taxes to the state on their profits.

The above measures stem from a draft law proposed by Social Democratic Party (SPD) Finance Minister Lars Klingbeil. The Social Democratic Party is the main partner in Melz's centre-right and conservative Christian Democratic Union (CDU/CSU) cabinet.

Die Welt was the first to report on the future legislation, which has not yet been passed by the ruling majority in the German parliament. If lawmakers pass the bill, it will take effect on the first day of next year and apply to all cryptocurrencies purchased thereafter, while previously acquired assets will still be subject to the old rules.

Berlin target: collect 160 million euros in cryptocurrency taxes by 2028

Handelsblatt pointed out in an article that starting in 2028, banks and financial institutions will automatically withhold such taxes like other capital income. The business newspaper noted that this would give service providers enough time to prepare systems and procedures to collect and transfer deductions to the state.

The German Federal Ministry of Finance (BMF) hopes to receive 160 million euros (approximately US$186 million) in taxes in 2028. Revenue is expected to grow in subsequent years and eventually reach € 350 million in 2030.

Although the current progressive income tax applicable to short-term cryptocurrency investments is up to 42%, capital gains tax is fixed at a flat rate of 25%. However, this certain rate will apply to all coin-related profits. In addition, in some cases, additional "solidarity surcharges" and even church taxes will be payable.

publisher remark said the new bill is still being coordinated within the federal government and some provisions may be revised in the coming weeks. This was formulated after the coalition government parties reached an agreement on changing the tax regime for cryptocurrency transactions during summer budget negotiations.

According to estimates relayed by German media in July, Berlin officials plan to raise an additional 1 billion euros next year by "fighting financial and tax crimes and introducing cryptocurrency taxes." These reports refer to the draft federal budget for 2027, fiscal plans to 2030, and legislative proposals, some excerpts of which were released by the Treasury Department.

At the time, citing sources familiar with the matter, the German Bitcoin news website BTC Echo emphasized that the Federal Ministry of Finance expected budget revenue related to cryptocurrencies to reach nearly 1 billion euros by the end of the decade.

Cryptocurrency tax change becomes a major political issue in Germany

The fate of holding period exemptions for cryptocurrency investments has become a political hotspot in the Federal Republic of Germany. Earlier, an attempt by the Green Party to abolish the immunity was blocked by the Bundestag in May, and it had been previously reported.

The main opponent of the government's proposed tax increase is the Alternative for Germany Party (AfD), which recently won elections in Saxony-Anhalt. The opposition Alternative for Germany, labeled as a far-right political force by more mature rivals, now aims to win more than 40% of the votes in the next national vote in 2029.