How is Crypto-Lending Taxed in Germany?

If the interest income received through crypto-lending is income from other services pursuant to Section 22 No. 3 EStG, an exemption limit of EUR 256 applies. Amounts above this are taxed at the personal income tax rate of 18 to 45 percent. In addition, the subsequent sale pursuant to Section 23 (1) No. 2 EStG of the cryptocurrency obtained through lending would not be taxable due to the lack of an acquisition transaction.

In Germany, however, the taxation of the interest received through crypto-lending has not been conclusively clarified. On the one hand, it is discussed whether this is capital income pursuant to Section 20 (1) No. 7 EStG, since the surrender of the cryptocurrency is a classic, interest-bearing loan. On the other hand, tax offices repeatedly assume that the interest income generated by lending is income from other services pursuant to Section 22 No. 3 EStG. Henceforth, the tax offices are bound to such administrative practice by the BMF letter dated May 10, 2022.

The cryptocurrency received in the form of interest is to be valued at the time of the inflow. It is therefore not capital income, since the gift of cryptocurrency is not a gift of capital, but rather a payment in kind. This is justified by the fact that a capital claim must refer to a monetary payment, but not to a payment in kind, as is the case with cryptocurrencies.

With lending, the lender allows other users of the respective platform to use part of his cryptocurrency for a defined period. In return, the lender receives interest in the given or another cryptocurrency. The amount of this interest is based on a predetermined percentage value, which in turn depends on the number of cryptocurrencies provided.

The following are agreed in advance

• the amount of interest,
• the amount of coins to be awarded and
• the duration of the transfer of use.

After expiry of the agreed period of time, the lender receives back the cryptocurrency loaned, including interest.

It was controversially discussed for a long time whether the lending of a cryptocurrency leads to an extension of the holding period according to Section 23 (1) No. 2 Sentence 4 EStG. Crypto investors no longer have to fear this. Although the Federal Ministry of Finance had still advocated a holding period extension in the first draft of the BMF letter, this was deleted from the final BMF letter. The consequence of this administrative instruction for all tax offices in Germany is that they will no longer accept extensions of the holding period in the future.