Crypto Taxation When Moving Away From Germany

This implies that income earned in Germany will continue to be subject to German (limited) tax liability for up to 11 years. This includes all income as per Section 2 EStG, including other income as per Section 22 in conjunction with Section 23 EStG, i.e. private sales transactions. § Section 23 EStG, i.e. private sales transactions. For instance, gains from the sale of cryptocurrencies are impacted. The same applies to income from staking and lending in accordance with Section 22 no. 3 EStG.

A country is considered to have low taxation if the income tax burden for an unmarried individual with an income of EUR 77,000 per year is more than a third lower than in Germany under the same circumstances, considering allowances.

Regardless of this, a country is also deemed a low-tax country if the taxpayer is granted so-called preferential taxation there. This could be the case, for instance, if the country offers particularly favorable taxation of crypto profits.
 

The good news is that foreign income is not subject to extended limited tax liability. However, it remains unclear when foreign income is to be assumed in the case of crypto investments and is extremely difficult to determine.

§ Section 34d EStG lists various types of income, including income from private sales transactions (Section 34d no. 8 letter b EStG). According to this, foreign income exists if the assets sold are “located in a foreign country”. What this means in detail with regard to cryptocurrencies is questionable.

This is because crypto assets are stored on the blockchain, i.e. “everywhere and nowhere”, so to speak. If one were to assume this, they would probably also be located in Germany, but of course also “in a foreign country”, i.e. in all other countries.

This result is evidently unsatisfactory. The connection to factors such as the node’s location, the issuer, the wallet provider, or the location of the taxpayer’s private keys or wallets is, for various reasons, equally unsatisfactory and arbitrary.
 

The uncertainties of the aforementioned connecting factors can be circumvented if the question of the crypto assets’ location is based on the domicile or habitual residence of the taxpayer himself, who possesses the private key or the so-called “seed phrase” and is therefore considered the owner of the crypto assets, as he is the only person who has disposal power over the crypto assets.

The same would apply to the custody of cryptocurrencies on the wallets of a trading platform. Under civil law, the trading platform owns the wallets in these cases. However, it holds the crypto assets in trust for its customer, the taxpayer. Economically, the crypto assets are therefore attributable to the taxpayer (Section 39 para. 2 no. 1 AO). In this regard, there would also be a synchronization in terms of the location of the crypto assets: the taxpayer’s place of residence or habitual abode would always be decisive. His cryptocurrencies, which he can access from anywhere, are also located where he is.

If the taxpayer’s domicile or habitual residence is abroad after moving away from Germany, the taxpayer’s crypto assets would therefore be located abroad. In our view, profits from trading in cryptocurrencies would then not be subject to the extended limited German tax liability.
 

Staking and lending are subject to § 34d no. 8 lit. c EStG.

Accordingly, foreign income is deemed to exist if the party obliged to pay remuneration

• resides,
• manages, or
• is based

in a foreign country. With regard to staking and lending, the question of whether there is foreign income ultimately depends on where the “registered office” of the respective protocol (the decentralized app or even decentralized exchange) or the (centralized) trading platforms is located.
If the taxpayer therefore engages in lending and staking using providers/protocols with a “registered office” abroad, he receives foreign income to which the extended limited German tax liability does not apply in our view.
 

The extended limited tax liability can also be excluded or modified by a double taxation agreement (DTA). The extended limited tax liability can therefore primarily have an effect when moving to a country with which Germany has not concluded a DTA, for example,

• Brazil,
• Chile,
• El Salvador,
• Haiti,
• Hong Kong,
• Monaco,
• Panama,
• Puerto Rico, and
• Seychelles.