Germany plans to eliminate duty-free sales of cryptocurrencies in a year

How will Germany change its cryptocurrency tax policy?

Germany is preparing to end one of Europe's more favorable tax rules for long-term cryptocurrency investors. According to a proposal from the German Ministry of Finance, even if newly acquired bitcoin and other digital assets are held for more than a year, the gains generated by them will be included in the tax scope. Under current rules, individual investors can usually sell cryptocurrencies tax-free after holding for at least 12 months. However, a draft bill drafted by the Federal Ministry of Finance stipulates that cryptocurrencies acquired after December 31, 2026 will no longer enjoy this exemption.

The proposal aims to include the proceeds of newly purchased cryptocurrencies into Germany's fixed withholding tax system (Abgeltungsteuer). The tax rate is 25%, plus a solidarity surcharge equivalent to 5.5% of the tax amount, so the effective tax rate is approximately 26.375% before applying any church tax. In addition, income generated through crypto-lending and pledges will be classified as capital gains and included in the same tax framework.

Who may face higher tax burdens under the new regulations?

Long-term Bitcoin investors will face the most obvious disadvantages. People who purchase Bitcoin starting in January 2027 will not be able to exempt themselves from tax liability simply by holding it for more than a year. That would weaken a tax incentive that had encouraged some German investors to hold cryptocurrencies rather than trade frequently. However, short-term traders may benefit.

Currently, the proceeds of cryptocurrency sold within a year are usually taxed at the investor's personal income tax rate. For high-income earners, this tax rate can be up to 45%. Converting eligible cryptocurrency gains to a 25% withholding tax plus a solidarity surcharge may reduce the effective tax burden for certain active traders.

The proposal does not appear to cover all types of digital assets. Under the draft framework, non-homogeneous tokens (NFTs), certain stablecoins, security-based tokens, and some tokens linked to real-world assets will remain outside the new system. This draws an important line between widely traded cryptocurrencies such as Bitcoin and Ethereum and other classes of tokens, whose tax treatment will continue to follow separate rules.

Investor Points

The December 31, 2026 deadline will classify German cryptocurrency holdings into two tax categories. Existing qualified positions can be retained for a one-year tax holiday, while newly purchased assets will face capital gains tax no matter how long investors hold them.

When will cryptocurrency platforms start withholding taxes?

The new rules are scheduled to take effect in January 2027, but cryptocurrency service providers will be given an additional year to automatically withhold taxes. Automatic withholding will begin in 2028, giving exchanges, brokers and other cryptocurrency platforms time to modify their systems and collect the acquisition data needed to calculate investors 'taxable income.

The proposal also solves a practical problem that arises when customers transfer cryptocurrencies between different platforms. When assets are transferred from another exchange or wallet, service providers can rely on the purchase price and acquisition date provided by investors. If investors cannot provide adequate access records, they may face a fixed tax rate of 25%. This makes accurate transaction history increasingly important, especially for users who have moved Bitcoin or other assets between multiple exchanges and self-managed wallets over the years.

Therefore, the operating burden is not limited to investors. Cryptocurrency platforms serving German customers need the system capabilities to record cost bases, track transfers, and apply withholding rules in markets where assets are typically not within a single financial institution.

How much can Germany increase fiscal revenue?

The German Ministry of Finance expects the proposed changes to generate approximately € 160 million in additional tax revenue that year as automatic withholding begins in 2028. By 2031, as more cryptocurrency positions are included in the new rules and assets acquired before the 2027 deadline shrink as a proportion of investors 'portfolios, annual revenue may rise to approximately € 350 million.

The proposal would also narrow the tax gap between cryptocurrencies and traditional financial investments. Although Germany has long regarded many privately held cryptocurrencies as similar to private property, the new system will bring Bitcoin and Ethereum closer to the tax treatment applicable to securities investment income. For the crypto market, timing is crucial. If investors who already hold qualifying assets before the end of 2026 can retain valuable tax advantages, purchases made just a few days later could be taxed indefinitely. If the proposal becomes law in its current form, the deadline could affect the behavior of German investors until January, especially long-term buyers seeking to retain existing tax exemptions.