Accounting of Cryptocurrencies in Germany

The four biggest challenges in the accounting for virtual currency are the following:

1. Accounting "crypto to crypto" is not as easy as it seems.
2. Thousands of transactions must be recorded and backed up with supporting documents.
3. Fees must be recorded and assessed for each transaction.
4. ICOs, masternodes, staking and other specificities are to be recorded according to their tax classification.

A commercial enterprise must always record all business transactions in its accounts. This also includes trading in cryptocurrencies or issuing its own tokens for raising capital. However, these processes are often not carried out using state currency (Fiat), but "crypto-crypto", i.e. one cryptocurrency is exchanged for another. A Fiat currency is not used here.

However, standard accounting programs require Fiat currency in order to be able to create a posting record. Thus, the accounting procedure works "Bitcoin EUR 10,000 to bank EUR 10,000". However, a booking process such as "Bitcoin 1 to Ethereum 20" cannot be displayed in ordinary accounting software if a Bitcoin has been exchanged for 20 ethers.

In order for an exchange of crypto assets to be properly recorded in the accounting, the exchanged tokens must always be converted into their Euro value. Simultaneously, the number of cryptocurrencies held by the company must be updated. This also applies if cryptocurrencies are only transferred from one company wallet to another company wallet or from/to a crypto currency exchange.

In order to correctly determine the capital gain, it is necessary to precisely track such internal movements. Since in arbitrage trading, in particular, thousands or even tens or hundreds of thousands of transactions can occur each month, the accounting software must also be able to process such a large number of transactions as automatically as possible.

Another problem with the conversion of cryptocurrencies into euros is that the smallest unit that can be represented in accounting is EUR 0.01. However, cryptocurrencies can be traded in much smaller units. This concerns particularly the stock exchange and network fees, which result from almost every transaction. These must also be documented in the accounting records.

All this becomes even more complicated by the fact that many stock exchanges and especially the internal transfer of cryptocurrencies do not issue a receipt for the transaction. However, for tax purposes, the principle "no posting without receipt" applies, which means that companies have to create their own receipts.

Companies that wish to use the blockchain to raise capital through an ICO must also think about correct accounting from the outset. In addition, not only the self-created cryptocurrency has to be displayed. Depending on the ICO's structure, the money or cryptocurrencies received for this purpose must also be recorded correctly as revenue or as equity or debt capital.

Special rules must also be observed when balancing cryptocurrencies generated in the context of mining, staking or the operation of masternodes.

The balancing of cryptocurrencies with the on-board resources of standardized accounting software is not feasible. It requires the right expertise of a crypto accountant in order to carry out accounting in accordance with the law and to avoid problems with the tax office later. Our crypto accounting team at WINHELLER will be happy to assist you.