VoltVirtual currencies such as Bitcoin have long been a topic for private investors because they quickly become speculative targets for those willing to take risks. Since January 2019, the Stuttgart Stock Exchange has been providing a free application for trading Bitcoin & Co.
The same is true in tax law, this new phenomenon is now becoming more and more common in daily life. On June 17, the Federal Ministry of Finance issued a draft BMF letter aimed at regulating individual issues related to virtual currencies and tokens. As it is a draft, it may still be changed due to prompts or criticisms from practitioners. Oliver Braatz, tax consultant of Möhrle Happ Luther, has dealt with the details of the draft, because the tax treatment of cryptocurrencies is one of his main areas of work. What do these rules mean for investors?
Expert Braatz pointed out that the most important thing is that the withholding tax applicable to securities investments does not apply to crypto investments. Braatz said: “As a result, investors here cannot benefit from the flat tax rate and simple taxation that the custodian is responsible for almost all aspects.” Instead, they must declare their transactions with Bitcoin & Co. as private sales in their tax returns. . These are taxed at an individual tax rate, which may be significantly higher than the flat rate withholding tax of only 25%, depending on the total income.
In both cases, according to religious beliefs, there are church taxes and solidarity surcharges, which have not been cancelled for particularly high incomes. In addition, a lump-sum payment of 801 euros or 1602 euros in savings does not apply to married couples who are jointly assessed for tax purposes. This applies to dividends, interest or capital gains on securities, but not to private sales transactions. “Anyone who invests money in stocks, bonds or ETFs has become accustomed to the fact that custodians are responsible for almost all tax issues,” Bratz said. “However, through investing in cryptocurrencies, investors must take care of many things for themselves.”
Tax exemption after speculation period
According to tax consultant Braatz, there is another advantage of classifying as a private sale: investors can benefit from a speculative period, which also applies to physical gold investments. “Encrypted profits realized with a holding period of at least 12 months are tax-free”Bratz said. Therefore, there must be a year between sales and purchases. However, this also means that losses cannot be deducted from the tax after the speculation period ends-even if the BMF letter does not comment on the loss issue.
According to the assessment of tax consultant Braatz, the BMF letter is fiscally oriented, that is, driven by the idea of taxing the cryptocurrency phenomenon as broadly and completely as possible. “BMF experts know exactly what they are talking about because they have dealt with the new technology in detail,” Braatz said. This is reflected in the definition in the detailed explanation section of the letter. This can even be recommended to investors who want to deal with the technical and economic foundation of cryptocurrency.
According to the definition of BMF, an important aspect of virtual currencies is that they are not issued or guaranteed by any central bank or public institution, and they are not legal tender. However, they are accepted as a medium of exchange and can be traded electronically. From the perspective of investors seeking protection from virtual currency inflation, this independent state and central bank approach is attractive. With the government’s crackdown on digital currencies and financial regulators calling for stricter regulation, the argument of independence has recently been severely cracked down. In May of this year, Turkey and most recently China took drastic measures against cryptocurrencies.