Three points are decisive in practice:
- the one-year holding period is abolished; capital gains become taxable irrespective of any holding period
- the special (flat) tax rate on investment income of 25 % (plus solidarity surcharge) replaces the personal tax rate of up to 45 % (where applicable, plus solidarity surcharge)
- domestic crypto-asset service providers and operators will be obliged to apply withholding tax on investment income.
These changes, however, only cover exchange crypto-assets acquired or received after December 31, 2026 (New Holdings). For exchange crypto-assets acquired before that date (Legacy Holdings), the existing rules remain unaffected. Withholding tax on investment income is only to be applied from January 1, 2028.
Overview of the Draft Bill
Definition of exchange crypto-assets
Under Section 20 para. 1 no. 12 sentence 2 of the draft GITA (GITA-Draft), exchange crypto-assets are crypto-assets within the meaning of Art. 3 para. 1 no. 5 of Regulation (EU) 2023/1114 (also referred to as the Markets in Crypto-Assets Regulation, MiCAR) which are accepted as a means of exchange without being issued or guaranteed by a central bank or another public authority—that is, for example, Bitcoin and Ether. E-money tokens issued under Title IV MiCAR are excluded. For non-fungible tokens, security tokens and other crypto-assets that represent a real-world value, the rules governing the represented value continue to apply.
Substantive classification as investment income within the meaning of Section 20 GITA
To date, in the absence of specific statutory rules, exchange crypto-assets have been treated as other income under Section 22 GITA: current income was taxed as recurring payments under Section 22 no. 1 GITA or as income from services under Section 22 no. 3 GITA, and disposals were taxed as private disposal transactions (privates Veräußerungsgeschäft) under Sections 22 no. 2, 23 para. 1 sentence 1 no. 2 GITA.
In future, Section 20 para. 1 no. 12 GITA-Draft will cover recurring income from granting the use (Überlassung) of exchange crypto-assets and from participating in transaction processing (Teilnahme an Vorgängen zur Transaktionsverarbeitung). According to the explanatory memorandum, the latter is intended to cover in particular lending and passive staking, but also decentralised business models.
Under the Draft Bill, gains from the disposal of exchange crypto-assets are taxed under the new Section 20 para. 2 sentence 1 no. 9 GITA-Draft irrespective of any holding period, i.e. without the previous one-year holding period. Claims for the transfer of exchange crypto-assets that have been made available are themselves treated as exchange crypto-assets. The subsidiarity of investment income vis-à-vis income from a trade or business remains unaffected.
Collection by way of withholding tax on investment income under Sections 43 et seq. GITA
From a procedural perspective, the Draft Bill subjects this income to withholding tax on investment income at a rate of 25 % (Sections 43 para. 1 sentence 1 nos. 8b and 13, 43a para. 1 sentence 1 no. 1 GITA-Draft). Pursuant to Section 44 para. 1 sentence 4 no. 1a GITA-Draft, the parties obliged to withhold are domestic crypto-asset service providers and operators within the meaning of the German Crypto-Asset Tax Transparency Act (Kryptowerte-Steuertransparenz-Gesetz), as well as domestic branches of foreign providers.
Implications of the Draft Bill
Implications for taxpayers
The Draft Bill creates, for the first time, a specific statutory basis for the taxation of exchange crypto-assets and thereby replaces their classification as other income under Section 22 GITA and, in particular, the taxation of disposals as private disposal transactions under Section 23 GITA. The previous classification as “other assets” (andere Wirtschaftsgüter) within the meaning of Section 23 GITA had been confirmed by the German Federal Tax Court (Bundesfinanzhof, BFH), after initial uncertainties, in its judgment of February 14, 2023 (IX R 3/22).
Of particular practical significance is the abolition of the one-year holding period: under the Draft Bill, gains from New Holdings would always be taxable irrespective of the holding period (Section 20 para. 2 sentence 1 no. 9 GITA-Draft).
For New Holdings, the special tax rate for investment income of 25 per cent (plus solidarity surcharge) replaces the individual tax rate of up to 45 per cent (where applicable, plus solidarity surcharge). For taxpayers with high incomes, the new rules therefore have a relieving effect. Long-term investors, by contrast, lose the ability to realise gains tax-free on New Holdings after the holding period has expired.
For New Holdings, the scope for offsetting losses also changes. Losses from New Holdings may, in principle, only be offset against investment income. In addition, the loss carry-back previously available is abolished for New Holdings. For Legacy Holdings, the old regime continues to apply unchanged.
As a result of the allocation to Section 20 GITA, the prohibition on deducting income-related expenses under Section 20 para. 9 GITA also applies to New Holdings: only the saver’s lump-sum allowance (Sparer-Pauschbetrag) of EUR1,000, or EUR2,000 for spouses filing jointly, is deductible. The deduction of actual income-related expenses is excluded. The favourable-treatment test (Günstigerprüfung) under Section 32d para. 6 GITA is not affected by the Draft Bill; according to the case law of the BFH, however, the deduction prohibition applies within its scope as well.
The prohibition on deducting income-related expenses may become particularly problematic for taxpayers who wish to claim especially high energy costs for tax purposes in connection with their participation in blockchain-based consensus mechanisms (e.g. mining), to the extent that such activity does not already qualify as a trade or business.
In the case of gratuitous acquisitions, the acquisition costs are to be set at EUR 0 (Section 20 para. 4b GITA-Draft). The explanatory memorandum refers in this context in particular to airdrops and bounties, where exchange crypto-assets are transferred without any action on the part of the taxpayer or merely in return for minor activities. The taxation of the benefit obtained is thus deferred to the subsequent disposal, the gain from which is captured in full. It appears problematic that, under the Draft Bill, inheritances and gifts are also to fall within the scope of this rule as “gratuitous acquisitions”. This prevents the carry-over of acquisition costs (Fußstapfentheorie) and would therefore lead to excessive taxation.
Implications for the parties obliged to withhold
The greatest practical challenge for withholding is likely to lie in the underlying data. For exchange crypto-assets, Section 43a para. 2 sentences 16 et seq. GITA-Draft refers, in principle, to the market price (Marktpreis), without defining that term in more detail; the detailed requirements are left to a statutory ordinance subject to the consent of the Bundesrat. Where the acquisition costs and the acquisition date are not known to the paying agent, it may rely on the taxpayer’s information as long as it has no data to the contrary. If the party obliged to withhold cannot rely on the taxpayer’s information, the Draft Bill deems the holding to be a new holding and assesses the withholding tax on the basis of 50 per cent of the disposal proceeds. Investors therefore effectively bear the documentation burden.
For domestic crypto-asset service providers and operators, the Draft Bill shifts tax collection into an operational mass-processing procedure. They become parties obliged to withhold and must not only process price and acquisition data, but also “generate” liquidity for the withholding where the investment income is not received in cash. In order to cover the withholding tax, they may therefore, pursuant to Section 44 para. 1 sentence 8 GITA-Draft, collect and liquidate corresponding crypto-assets. In addition, Section 45a para. 2 sentence 1 no. 2 GITA-Draft extends the obligation to issue tax certificates.
Application rules
The substantive new rules apply to all exchange crypto-assets acquired or received after December 31, 2026. This also applies to inflows from lending or staking activities after that cut-off date, even where the underlying crypto-assets continue to be subject to the previous legal position as Legacy Holdings. For such Legacy Holdings, Sections 22 and 23 GITA otherwise continue to apply. The provisions on withholding tax on investment income apply for the first time from January 1, 2028. This later application takes account of the fact that the parties obliged to withhold need time to implement the procedures required for the withholding.
