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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 

If the holding period of one year is exceeded when trading cryptocurrencies in Germany, the profit from this is tax-free. For some time now, there has been discussion about whether the holding period should be extended to ten years for inflows of cryptocurrencies originating from lending, staking or masternodes.

Extension of the holding period: What is the background?

The extension of the holding period is regulated in § 23 Para. 1 no. 2 clause 4 of the German Income Tax Act (Einkommensteuergesetz, EStG) and always applies if an asset was acquired after December 31, 2008 and is used as a source of income, consequently generating income.

The background to the standard and thus the extension of the holding period is the Corporate Tax Reform Act (Unternehmenssteuerreformgesetz) of 2008, which was intended to put an end to container leasing models. In these cases, income was not only generated from the leasing of these containers but rather income from the tax-free sale of the same containers as well after one year. According to this, the regulation on the extension of the holding period is purely an abuse provision for the leasing of movable assets.

Transferability to cryptocurrencies?

There is now a controversial discussion as to whether the extension of the holding period will also affect the cases of the operation of lending, staking and masternodes in Germany. In order to be used as a source of income, the assets in question would have to constitute an independent source of income. Aside from the question of whether cryptocurrencies have the character of an asset at all, the decisive factor at this point is whether income is generated with the cryptocurrency.

In the case of lending in particular, however, income is generally generated from the lending transaction (as income from the claim) and not from the asset (= cryptocurrency) itself. Albeit, in these cases, there is no abuse, which is why an extension of the holding period to ten years can be unsuitable.

This assessment is also supported by a statement from the Bavarian State Tax Office, which does not classify the interest received as an outflow of the “other asset of foreign currency credit” but rather as an outflow of the actual capital claim.

One year holding period for staking for there is no income from the asset

The same occurs with cryptocurrencies used for staking or masternodes. With proof-of-stake-based cryptocurrencies or when operating masternodes, users must withdraw a certain portion of their cryptocurrency from the disposal authority and provide it to the network as collateral. The network collateral is guaranteed by the fact that irregular behaviour results in the loss of the collateral (cryptocurrency). In these cases as well, no income is generated from the asset itself but rather for the blocking of the disposal authority, i.e. as revenue (block reward or staking reward) from the claim. The holding period of one year applies here as well.

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:

  1. 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.
     
  2. 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. 

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. Your contact persons are

Benefit from our many years of experience with the taxation of cryptocurrencies. Contact us by telephone (+49 69 76 75 77 80), by e-mail (info@winheller.com) or fill out our contact form on the taxation of cryptocurrencies.

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