Staking in Foundations in Germany
Profiting from staking in family foundations, corporate foundations, and more
Not only can private investors generate current income with crypto investments, but foundations can do this as well, provided that the foundation’s assets include the appropriate coins or tokens.
Staking is particularly popular among crypto investors. In staking, investors refrain from disposing of their coins for a specified period, effectively “locking” them. In return for this, they receive a reward, known as staking rewards, typically in the form of coins of the same “currency”.
Not just private investors - Foundations can invest too
Family foundations, for instance, enjoy the significant tax benefit that they do not inherently generate commercial income - unlike GmbHs (German LLC), for example. A foundation does not generate commercial income, which is also subject to trade tax, by virtue of its legal form, but only if it actually carries out commercial activities as defined by Section 15 of the German Income Tax Act (Einkommensteuergesetz, EStG).
Instead, family foundations in Germany can realize the same income as private investors. For example, a family foundation - like a private individual - can sell its coins completely tax-free at a profit after a holding period of one year. This would not be possible in a GmbH, where any sale at a profit, regardless of timing, would be subject to tax (approximately 30 percent corporation tax and trade tax).
Staking is not commercial
Family foundations that hold cryptocurrencies as assets often also participate in staking. Staking is generally still used for private asset management and is therefore not a commercial activity. This means that the tax consequences are the same as for private investors, i.e. the foundation generates income in accordance with Section 22 No. 3 EStG. The advantage: this income is taxable in the foundation at only 15 percent plus solidarity surcharge - significantly lower than in a GmbH (approximately 30 percent) and generally also significantly lower than in private assets (tax rate of up to 42 or 45 percent).
Staking <> Forging
However, staking is not always private asset management. Specifically, block creation itself can also be commercial. A distinction must be made: If investors “lock” their coins and make them available to a so-called forger via a staking pool, this is usually not more than private asset management. However, the actions of the forger and their income for creating a new block (staking rewards and transaction fees) are typically commercial in nature.
If the foundation’s activities are exceptionally classified as commercial, the income generated is business income. The tax burden would then be a total of 30 percent (corporation tax, solidarity surcharge, trade tax) - just as high as for a GmbH.
Can “regular” staking also be commercial?
Classic staking will only be commercial in exceptional cases. We believe it’s advisable to scrutinize these cases:
- a very large volume of coins to be restacked,
- frequent restacking processes,
- special administrative expenses, e.g. due to office space and employees,
- special arrangements other than classic staking.
In these cases, the foundation may behave more like a commercial trader than a traditional private investor. Above all, it may already bear its own entrepreneurial risk in these cases.
However, if the foundation simply acts as a passive investor, releasing its coins for staking once and then gathering the rewards over a specific time frame, we do not categorize this as a business activity. Such an investor does not exhibit a remarkable degree of entrepreneurial initiative, nor are they exposed to a unique entrepreneurial risk - beyond the standard price risk, which is nonetheless inherent in any private asset management.
Your advisors for staking with a foundation in Germany
Seeking advice on staking in a foundation or family foundation? Want to ensure that your profits aren’t excessively taxed? Don’t hesitate to reach out to us with your inquiries. We’ll assist you with all questions related to staking and the taxation of crypto assets. The most convenient way to get in touch with us is through e-mail (info@winheller.com) or by phone (+49 69 76 75 77 85 28).
