in ,

Germany’s Cryptocurrency Regulations

Germany will join a small but an increasing number of countries with special regulations for cryptocurrencies. With the European requirements of the Fifth Anti-Money Laundering Directive (AMLD5), the German legislature has revised the country’s regulatory regime for cryptocurrencies: “The Directive Implementation Act amending the Fourth EU Anti-Money Laundering Directive (i) interferes with existing licensing requirements under the German Banking Act (Kreditwesengesetz – KWG) by defining a new category of financial instruments and (ii) introduces a new licensing requirement for custodial services.

Can I buy Bitcoin in Germany?

Germany was among the first nations to successfully regulate cryptocurrencies and to recognize Bitcoin as a financial instrument (unit of account). So, if you buy Bitcoin in Germany, you can use it to make payments just like gold or euros. Bitcoin has been considered “private money” in Germany since 2013.

Germany is one of the first countries to adopt cryptocurrencies and blockchain. The country does not consider bitcoin to be equivalent to foreign currencies, but also does not see digital currencies as a threat to the national currency. Therefore, in this country, your funds are safe as there are no strict laws prescribed in the cryptocurrency market.

Cryptocurrency assets as a new category of financial instruments

The reform covers all cryptocurrencies related to financial markets. To this end, a new category of “cryptocurrencies” has been added to the KWG definition of financial instruments.

The definition of cryptocurrencies is as follows:

  • a digital representation of security
  • issued or guaranteed by a non-central bank or government body
  • without legal status as money or currency
  • agreed or accepted in practice as a medium of exchange or currency
  • accepted as a medium of exchange or means of payment; or
  • used for investment purposes
  • Can be electronically transferred, stored and exchanged.

Certain monetary goods, as defined in the Electronic Money and Payment Services Control Act (Zahlungsdienste-Kontrollgesetz – ZAG), are expressly excluded from its scope. The new definition covers a wide range of payment tokens/virtual currencies and security/investment tokens. Regarding tokens for use, the explanatory memorandum states only that “simple electronic tokens for the purchase of goods and services” are excluded, provided that they are not used for investment purposes. There is already a question in the legal literature as to whether at least some utility tokens are not covered by the new definition.

The new category is introduced as an umbrella term. According to the previous administrative practice of the German supervisory authority (BaFin), cryptocurrencies such as bitcoin are already considered as other (existing) categories of financial instruments under German banking law.

The revised definition of financial instruments covers the types of banking transactions and related financial services. In particular, the reform confirms that trading activities targeting the German market, such as the operation of virtual currency exchange platforms (VCEPs), are subject to a German license.

Cryptocurrency custody as a new financial service.

In addition, the reform introduced a new regulated financial service called “cryptocurrency custody,” which requires a license under the KWG.

Cryptocurrency is defined as: the storage, management, and protection of cryptocurrencies or private cryptocurrencies used to store, safeguard, or transfer cryptos as a service to others.

A commercial cryptocurrency storage license is required to engage in each of the three activities of storage, management, and security. The explanatory memorandum explains the three options in more detail:

  • Storage refers to holding cryptocurrency for clients; this service involves holding cryptocurrency for clients without their knowledge of cryptocurrency.
  • Administration refers to the ongoing management of the rights associated with cryptocurrency.
  • Security refers to both the digital storage of cryptographic keys provided by third parties and the physical storage of the data carrier of these keys. However, simply providing data storage space cannot be considered cryptographic storage.

Because cryptocurrencies may also be classified as other types of financial instruments, storage services related to certain tokens may also be linked to other regulated activities. According to the explanatory memorandum, these other licensing requirements override the general licensing requirement for cryptocurrency storage activities. Specifically, to the extent that a security token may be considered a security under civil law, a banking license would be required for storage activities, rather than a financial services license for cryptocurrency activities.

Securities services companies that engage solely in cryptocurrency storage activities are exempt from certain KWG requirements (e.g., certain reporting, remuneration, or capital and liquidity requirements).

How cryptocurrencies are taxed in Germany

In Germany, cryptocurrency is treated as a private asset, which means that it is taxed based on individual income and not capital gains tax. It is most important to know that Germany only taxes cryptocurrency if it is sold in the same year in which it was purchased.

So while Germany does tax some cryptocurrencies, such as short-term transactions, mining and pledging, the tax rules for cryptocurrencies are much more relaxed than in other countries. This is because Bitcoin and other cryptocurrencies are not considered assets under German tax law.

Instead, cryptocurrencies are classified as “other goods” and their sale is a “private alienation”. This distinction is important because private sales of real estate are tax favored in Germany. As a “private sale” in Germany, gains from cryptocurrencies are completely exempt from taxation after a holding period of one year.

In addition, gains from cryptocurrency sales of up to €600 per calendar year remain tax exempt. Therefore, cryptocurrency traders who use cryptocurrencies for long-term financial investments and do not transfer them frequently can earn tax-free profits in Germany.

The Golden Capitalist is powered by Global RCG, the leading provider of mobility assets in America. Reach out if you want to know more about 2nd residence & citizenship.

What do you think?

Written by Piyush GRCG


Leave a Reply

Your email address will not be published. Required fields are marked *



Coinbase Posts Record $1.8 Billion In Revenue As Crypto Market Shoots Past $2 Trillion

Gibraltar Seeks to Expand Digital Asset Regulatory Principles