Taxation of Staking and Block Rewards in Germany
No extension of the holding period from one to ten years for staking
Cryptocurrencies are becoming increasingly popular as a source of income. However, this includes not only the trading of cryptos but also other operations such as
- staking
- lending or
- the operation of masternodes.
If the holding period of one year is exceeded when trading cryptocurrencies in Germany, the profit from this is tax-free.
For quite some time, it has been repeatedly discussed whether the holding period will be extended to ten years for inflows of cryptocurrencies originating from lending, staking or masternodes. This has now finally been settled by the published final letter of the German Federal Ministry of Finance (BMF) on the taxation of cryptocurrencies.
BMF letter on the holding period
In addition to many tax offices, the BMF, in its draft version of the BMF letter on the taxation of cryptocurrencies, was of the opinion that the holding period for cryptocurrencies with which income is generated (e.g. in the context of staking or lending) is extended to ten years.
Surprisingly, the new German government has now decided to remove the holding period extension from the BMF letter. All crypto investors can therefore breathe a sigh of relief and confidently forget the feared holding period extension. In any case, the holding period of one year will remain for cryptocurrencies used for staking. Since the publication of the final BMF letter dated May 10, 2022, all tax offices in Germany are bound by this administrative instruction.
How are staking rewards taxed in Germany?
The tax assessment of block/staking rewards in Germany is currently problematic. Staking is no longer a completely new phenomenon. Despite this, the law is still tenuous in this area. However, we can make the following considerations:
- Classification of premiums from staking as commercial income
The concept of commerciality from § 15 Para. 2 of the German Income Tax Act is the requirement for the assumption of commercial income. If there is commercial income, this is also subject to trade tax. Under German law, however, there are high demands for the commercial nature of the business. In particular, independence must exist. This may regularly be denied in the case of staking. Anyone who makes their crypto assets available to the network no longer has any power of disposal over their coins. The selection of the participants appointed for verification as well as who is thereby allowed to earn income at all is a randomized process. This means that the participant has no control over the income from staking. This speaks against a self-employed activity and thus also against a classification as commercial income.
Nevertheless, it has occasionally transpired in the past that, contrary to these arguments, the tax authorities have classified an operation as commercial in individual cases. The German Federal Ministry of Finance also takes this view in a draft of a Finance Ministry letter. A final decision, however, has yet to be made.
- Classification of staking premiums as income from other services
Rather, it is a convincing argument to tax the income from the staking as income from other services pursuant to § 22 No. 3 of the German Income Tax Act at the inflow value. This standard is very broadly defined, so that, in principle, every action, tolerance or omission is taxable, provided that it triggers a return service. This includes participation in staking. The participant provides their crypto assets to the network to serve the network collateral and, in turn, is paid a premium in some circumstances. However, according to § 22 No. 3 of the German Income Tax Act, income from staking is only taxable if the income exceeds the exemption limit of EUR 256. Above that limit they are taxed at their personal tax rate.
The BMF takes a differentiated approach in its BMF letter. The BMF distinguishes between two different types of staking. Proof-of-stake mining (so-called forging) refers to a process in which the staker actively participates in the block creation. In this case, the BMF generally assumes that the process is commercial.
The second type of staking is called cold staking. In this case, the staker waives his surrendered units of the cryptocurrency for a certain period of time, although no active participation in the creation of a block takes place. For the cases of cold staking, however, the BMF generally denies the commercial nature. Rather, it is a case of private asset management, which is why taxation must take place in accordance with Section 22 No. 3 EStG (income from other services).
Your experts for the taxation of staking in Germany
The German tax authorities still do not handle income from the operation of masternodes, lending and staking in a uniform manner. Therefore, we recommend that crypto investors do not declare income from the aforementioned transactions without sound tax advice. We are happy to support you with our expertise in the preparation of your income tax return.
Benefit from our many years of experience with the taxation of cryptocurrencies. Contact us by telephone (+49 69 76 75 77 85 28), by e-mail (info@winheller.com) or fill out our contact form on the taxation of cryptocurrencies.
