German government releases guidance on income tax treatment of crypto-assets

The Federal Ministry of Finance of Germany has issued a circular giving legally binding guidance on the income tax treatment of virtual currencies and other tokens.

The guidance, issued jointly with the federal states’ supreme tax authorities, is the first nationwide and uniform administrative advice to be made available on the topic. It covers not only the purchase and sale of cryptocurrencies such as Bitcoin and Ether but also technical issues including block creation (also known as mining), staking, lending, hard forks, airdrops, utility and security tokens for income tax purposes and tokens as employee income. The principles of the guidance are declared to apply to all open cases.

In particular, the new guidance addresses a key discussion about virtual currency taxation, says professional services company PwC.  The circular answers the question of whether transactions such as lending and staking can lead to an extension of the period during which a private sale of virtual currency is taxable as a private disposal under s.23 of the German income tax act. The ministry of finance definitively states that the view of the states’ tax authorities is correct and the required ten-year holding period between acquisition and disposal does not apply to cryptocurrencies.

A supplementary circular on the cooperation and record-keeping obligations of virtual asset service providers (VASPs) and holders is being drafted.

Separately, the Belgian authorities have announced that VASPs in the country must be registered with the Financial Services and Markets Authority as of 1 May 2022. Moreover, VASPs may only provide professional virtual asset exchange services or custodian wallet services in Belgium if they are governed by the laws of a European Economic Area jurisdiction.

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