Staking taxes in Germany: BMF ensures clearer rules for cryptocurrencies

On May 12, 2022By Garmin Philip

Federal Ministry of Finance on Bitcoin, Ethereum and Co.

The Federal Ministry of Finance (BMF) is creating more uniform regulations for taxes on crypto profits, especially for processes such as staking and lending.

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The Federal Ministry of Finance (BMF) has published a first guide for financial administrations that regulates the taxation of cryptocurrencies more uniformly. So far it is known and remains: Anyone who buys cryptocurrencies, trades them and makes a profit of over 600 euros a year after the sale usually reports and pays to the tax office in accordance with income tax law. If a year elapses after the purchase – without you trading with it – the profit after a sale is tax-free. So far, so simple: for private individuals.

What is staking and how is it taxed now?

In addition to cryptocurrencies such as Bitcoin, there are other coins or tokens that use the so-called staking enable. Depending on the coin, network, technology and the underlying financial system, “rewards” – i.e rewards – be distributed by making your coins available to third parties. These rewards are also subject to the tax liability. This is possible, for example, with Cardano/ADA (for more ADA units), NEO (for GAS) or VeChain (for VTHO). Ethereum should follow in Q3 and forgo GPU mining (staking is already possible with ETH2).

Staking taxes in Germany: what now applies?

So far, the cryptocurrency units used, which are “staked” to generate profit, were no longer one-year, but one ten-year holding period are subject to before they become tax-free. The Federal Ministry of Finance has the latter now tiltedas a writing documented.

The following statement by Parliamentary State Secretary Katja Hessel is highlighted: “For private individuals, the sale of purchased Bitcoin and Ether is tax-free after one year. Even then, the period is not extended to ten yearsif, for example, bitcoin was previously used for lending or the taxpayer provided ether as a stake for someone else to create their block.“

For example, if you buy ADA and use it in your wallet for staking, you can sell these coins tax-free after one year. The rewards received up to the point of sale are still subject to regulations that still need to be clarified on a case-by-case basis.

That “intermediate result” of the BMF still needs further clarification, for example on the correct documentation of income from staking. This will follow later.

Is staking even possible as a private individual?

The regulation therefore applies to private individuals, just as it is the case with the topics of holding periods and allowances. Depending on the staking amount, duration and the amount of the incoming staking rewards, the tax office could also classify you as a commercial person – especially if you “with the intention of making a profit“ staking. Then other regulations would be required. Not to be scoffed at is that staking is usually done to generate passive income. It is then best to contact a tax advisor for your individual situation.

What happens when staking? How are rewards taxed?

It is and remains unclear how the rewards will be valued in individual cases and how they will be treated for tax purposes. Because those rewards can come in myriad ways from financial mechanisms.

In one case, users can make their coins available for liquidity, in other cases crypto units are lent directly (lending) and more. rewards can then from fees for third-party transactions or from trading profits from exchanges come (usually to adjust market prices).

Staking can also be used simply to Validation of blockchain data serve in that a user with a computer as a node “parks” a large amount as security and is rewarded for this – also from third-party transaction fees.