Taxation of Bitcoin, Ether, Litecoin and Co.: Taxable income for cryptocurrencies – however nonetheless, personal buyers can breathe a sigh of aid!

After a year of wrangling, the German Federal Ministry of Finance (BMF) has finally published explanations on how virtual currencies (e.g., Bitcoin, Ether, Litecoin and Co.) and other tokens (hereinafter: cryptocurrencies) are to be treated for German income tax purposes.

A 24-page circular dated May 10, 2022, explains the tax implications of the acquisition, sale/exchange, and use of cryptocurrencies. The BMF also addresses the taxation of special activities such as mining (proof of work), forging (proof of stake), staking, lending, and special acquisition processes such as acquisition through airdrops or hard forks. The circular also devotes 10 pages to technical explanations in order to clarify the underlying terminology.

Cryptocurrencies As Assets

The German tax authorities assume that the individual units of cryptocurrencies are economic goods that are attributable to the owner, usually the holder of the private key. In the case of online providers where the wallet is accessed via the browser and the private key is managed by the provider or used on the instructions of the customer, the asset is accordingly attributable to the customer as the beneficial owner.

Distinction Between Private Asset Management and Commercial Activity Is Decisive

Depending on the structure, the acquisition, sale, or exchange of cryptocurrencies (crypto-to-fiat currency, but also crypto-to-crypto) and their use by natural persons can lead to income from business operations, from private sales transactions, but also to wages, capital income, or other income. The BMF explains in detail the respective income tax classification of the different transactions (block creation in the context of mining/forging, use for staking or for lending, operation of a masternode, sale, initial coin offerings and acquisition in the course of hard forks or airdrops).

For the concrete tax consequences, it is quite decisive whether transactions take place in the private sphere or in the context of a commercial activity, in particular whether the cryptocurrencies are held as business assets or as private assets.

It is true that, in principle, both private investors and commercially active persons are subject to taxation. However, a significant difference arises in particular with regard to the legal consequences of a sale.

The BMF has now clarified that investors who hold their cryptocurrency as private assets can sell such assets tax-free, provided that a holding period of at least one year (also: speculation period) is observed.

In various preliminary drafts, the BMF still held the controversial view that there would have to be an extension of the speculation period to 10 years for private investors as soon as cryptocurrencies are used as a source of income. This would be the case, for example, if private investors use their cryptocurrency for lending or staking. A sale would then not be tax-free after one year, but only after 10 years. The fact that the BMF has now distanced itself from this view after all is very welcome.

This one-year period does not apply if the cryptocurrency is held as business assets.

Also for acquisitions through hard forks or airdrops, the allocation to business or private assets is decisive with regard to the tax consequences.

However, the distinction between commercial trading and private asset investment remains complex and highly dependent on the individual case. In this respect, the BMF circular only creates partial legal certainty, as it only makes general reference to tax law principles that apply to traditional securities and foreign exchange trading. According to these principles, the continued purchase and sale of securities is not sufficient in itself, even if it is on a considerable scale and extends over a longer period of time, for the assumption of a commercial enterprise, as long as it still takes place in the ordinary forms that are customary among private individuals. However, what is supposed to constitute an “ordinary form” of trading in cryptocurrencies among private individuals remains unanswered by the BMF. This silence of the BMF, especially against the background of the fast-moving nature of trading in the crypto sector and the sometimes massive fluctuations in value, which require quick action from the holder, continues to lead to legal uncertainty, but also allows a certain scope for argumentation.

If cryptocurrencies are held by a domestic corporation (e.g., a GmbH), the income is always considered to be commercial, and the cryptocurrencies are always considered to be held as business assets.

Mining and Forging Basically Commercial Activities and Acquisitions

For activities in the context of mining (proof of work) and forging (proof of stake), in which block rewards and transaction fees are collected in return for the block creation, the German tax authorities regularly assume a commercial activity. In these cases, the cryptocurrencies used and received are to be allocated to the business assets – with the aforementioned taxation consequences.

The block creation leads to an acquisition (not to a production!) of the asset, which has to be recognized at the market price at the time of acquisition (profit-increasing). Only at the time of the realization of the proceeds from a future sale are any acquisition costs to be deducted from the profit.

Only the staking (without taking over the block creation), as well as, if applicable, the participation in mining and staking pools or a cloud mining service may again fall within the scope of private asset management. However, again, this depends on the individual case.

Airdrops Held As Private Assets May Be Subject to German Income Tax or Even German Gift Tax

Furthermore, the German tax authorities assume that the acquisition of cryptocurrencies received by private investors in the context of airdrops (as is often the case in the context of marketing campaigns for the launch of virtual currencies) may also be relevant for German tax purposes, provided that the recipient of the airdrop has to provide something in return for receiving the airdrop. The BMF already considers it sufficient for this purpose that the recipient is required to provide contact details in an online form. If there is no such “consideration,” there are no German income tax consequences, but the BMF pointed out that, in such a case, German gift tax consequences may arise. However, as a rule, the value of such free-of-charge airdrops should not exceed EUR 20,000, so that no German gift tax should regularly be levied.

Facilitation of Valuation and Sequence of Use

With regard to the documentation requirements, the new circular offers some simplifications.

For example, it is now sufficient for the valuation of the cryptocurrency to provide only one price from one trading platform (e.g., Kraken, Coinbase, and Bitpanda) or a web-based list (e.g.,, instead of the average price from three different trading platforms that was formerly discussed.

Also, it is no longer mandatory to apply the so-called FiFo method, which assumes that those units of cryptocurrency that were acquired first are also those that were used first in the private sale transaction (“first‑in‑first-out”). The average method can now also be applied here. However, the method chosen will then apply on a wallet-by-wallet basis.

The circular applies to all cases that are still open, so taxpayers and the tax authorities must observe it with immediate effect.


The BMF circular is to be welcomed, as it now brings clarity, at least to a large extent, for the income tax treatment of certain crypto income. It remains to be seen whether later circulars will also include explanations on Non‑Fungible Tokens (NFTs), Stable Coins (such as Tether, Gemini Dollar), or Decentralized Finance (DeFi).

For private investors, the possibility of a tax-free disposal after the expiry of the speculation period, which is only one year and cannot be extended, is particularly pleasing.

The simplified documentation requirements are also to be welcomed.

However, it would have been desirable to have more detailed answers on the German tax authorities’ view of the practical distinction between commercial and private asset management. The BMF circular also does not answer the question of whether and to what extent further cooperation and even reporting obligations exist for crypto transactions.

However, it can be assumed that the circular now published is the prelude to further pronouncements by the German tax authorities on the subject of crypto and that the tax authorities will continue to update their view over time.

Outlook – What Taxpayers Must Now Consider

In the future, holders of cryptocurrencies will have to very carefully examine and document which cryptocurrencies they hold and in what form, in order to determine how acquisition, use, and sale affect them for tax purposes. Even facts that are not entirely obvious (e.g., airdrops) can trigger tax obligations, if applicable. Practical uncertainties, especially in the all-important distinction between commercial activity and private asset management, should not be underestimated.

However, since the BMF’s comments on the taxation of cryptocurrencies are still relatively “new” territory, at least from a German tax law perspective, and since there is a only a small number of decisions by the German fiscal courts so far, further developments, in particular the opinion of the fiscal courts, should be kept in mind. For example, the view of the BMF that cryptocurrencies qualify as assets that can lead to income from private sales transactions is currently the subject of a case pending before the Federal Fiscal Court (Ref.: IX R 3/22).

In individual cases, it should be considered to keep any tax assessment notices open by way of appeal in order to have the tax authorities’ opinion reviewed by the tax courts insofar as it deviates from the prevailing opinion in the literature.

We will be happy to support you in all questions regarding the new BMF circular, as well as in all aspects of the taxation of cryptocurrencies.