Germany is open to cryptocurrencies, providing friendly tax policies and regulatory frameworks to promote the healthy development of the cryptocurrency market. This article is derived from an article written by TaxDAO. (Preliminary summary: European Web3 field observation: Germany is a technology-controlled country, a British financial gentleman, and Eastern Europe is growing wildly) (Background supplement: Does the German government that "caused Bitcoin to plummet" regret it? Samson Mow revealed: They are considering buying back BTC! ) Germany is the first country in the world to officially recognize the legality of cryptocurrency transactions such as Bitcoin (Note: In August 2013, the German government recognized the legal and tax status of Bitcoin and regarded it as a legal accounting unit), Bitcoin and the number of Ethereum nodes is second only to the United States. 1. Introduction Germany’s attitude towards cryptocurrency is relatively open and friendly. As early as 2013, the German Ministry of Finance had begun to pay attention to the development of cryptocurrency and released relevant policy documents. Germany is the first country in the world to officially recognize the legality of cryptocurrency transactions such as Bitcoin. The number of Bitcoin and Ethereum nodes is second only to the United States. In addition, the German government also encourages banks and financial institutions to actively participate in the development of cryptocurrency, formulates a more friendly tax system, and provides corresponding supervision and guidance. 2. Overview of Germany’s basic tax system 2.1 German tax system Federal Germany’s fiscal revenue mainly comes from tax revenue, other recurring revenue and capital project revenue. Taxation has always been the main source of fiscal revenue, accounting for about 50%. After the tax reform, Germany's tax revenue has been growing slowly, and its proportion of fiscal revenue has steadily increased. Germany's tax system is known for its complexity, multi-layered structure and high efficiency. Germany is a federal country. Its administrative system is divided into three levels: federal, state and local. Each administrative level has its own functions and division of labor, and the expenses incurred in performing these functions are also borne by it. Therefore, Germany implements a three-level taxation system of federal, state and local governments, which divides all taxes into two categories: shared tax and exclusive tax. The shared tax is shared by the federal, state, and local governments, or two of them, and is divided among all levels of government according to certain rules and proportions;Exclusive taxes are allocated to federal, state or local governments as their exclusive revenue. Typical representatives of shared taxes include value-added tax (Umsatzsteuer) and income tax (Einkommensteuer). The revenue from these taxes is jointly levied by the federal government and state governments and shared between them. Revenue from VAT is distributed to states in proportion, while revenue from income tax is distributed based on population and economic status. Exclusive tax is the exclusive revenue of a certain level of government, which is collected and managed only by that level of government and is not shared with other governments. Exclusive taxes include but are not limited to local government real estate taxes, state government land transaction taxes, etc. For example, land tax is a tax levied by local governments on existing land and buildings on the ground. The tax rate is determined by local governments themselves, which reflects the characteristics of city-specific policies. 2.2 Main tax categories 2.2.1 Corporate income tax Corporate income tax taxpayers are divided into unlimited obligation taxpayers and limited obligation taxpayers. Unlimited liability taxpayers, that is, companies located in Germany are liable for tax on their income from sources around the world; limited liability taxpayers, that is, companies located outside Germany are only liable for tax on their income sourced within Germany. If a double taxation agreement is signed between the two countries, foreign companies can usually enjoy tax relief. The German corporate income tax rate is 15%. 2.2.2 Personal income tax: German permanent residents bear unlimited tax obligations, that is, they are taxed on all their domestic and foreign income; non-German permanent residents bear limited tax obligations, usually only paying tax on their income in Germany. The scope of personal income tax includes: income from agriculture and forestry, income from industry and commerce, income from freelance work, income from employment, investment income, rental income and other income. The income tax rate is progressive, ranging from 14% to 45%, with basic exemptions and exemptions. 2.2.3 Value-added tax Germany’s value-added tax is a turnover tax, and consumers bear the final tax burden. The current value-added tax rate is 19%, which is uniform across the country, and a preferential tax rate of 7% applies to food, books and other commodities. The value-added tax invoices obtained by the enterprise in the course of business operations can be deducted as input tax when reporting value-added tax. VAT declarations are divided into monthly declarations and quarterly declarations. If a newly established enterprise or the monthly VAT payment amount in the previous year is less than 7,500 euros, you can choose to declare quarterly. The declaration deadline is the 10th of the month following the end of the quarter; if the VAT in the previous year is If the monthly payment exceeds 7,500 euros, monthly declarations are still required, and the declaration deadline is the 10th of the following month. In addition, enterprises also need to make a final settlement of the annual value-added tax at the end of the year. 3. German Cryptocurrency Tax Policy 3.1 Characterization of Cryptocurrency Since the birth of Bitcoin in 2009, the scale of transactions involving cryptocurrency has expanded dramatically. Against this background, on February 27, 2018, the German Federal Ministry of Finance issued an official letter based on the judgment of the European Court of Justice in the "Hedqvist case". The German Federal Ministry of Finance used the concept of "virtual currency" (Virtuelle Währungen), that is, Germany The Federal Ministry of Finance considers that the rules applicable to the exchange between Bitcoin and traditional currencies can also be applied to the exchange between other virtual currencies and traditional currencies. The German government’s definition of crypto-assets is broad. According to a document released by the German Federal Financial Supervisory Authority (BaFin) in 2020, it established a broader definition of cryptocurrency assets. As a financial instrument, cryptocurrencies do not meet the definition of traditional financial instruments, but they have the characteristics of currency. or the legal status of money that serves as a medium of exchange and can be transmitted, stored, and traded electronically. The German Federal Ministry of Finance (BMF) stated in 2022 that individual units of cryptocurrencies are assets. They embody the ability to assign the economic benefits of a public key assigned to the owner to another public key. They can be valued based on market prices, which can often be determined through exchanges, trading platforms or listed companies. A beneficial owner is a person who can initiate transactions and thereby "control" which public key a virtual currency or other token token is assigned to. Typically, this is the owner of the private key. However, vesting is not affected if the transaction is initiated through the platform where the private keys are stored or allocated on the instructions of the beneficial owner. In terms of tax policy, Germany defines cryptocurrencies as special products with dual attributes of currency and property. Major cryptocurrencies (such as Bitcoin) are regarded as legal private currencies rather than legal tender. Holding, buying, selling, and using cryptocurrencies Currency is a legal act.At the same time, because cryptocurrencies are assets in nature, their sales and profits are generally taxed according to personal income tax and capital gains tax regulations, and are exempt from value-added tax. 3.2 Cryptocurrency tax regime In Germany, profits from the purchase, sale and trading of cryptocurrencies are considered capital gains. According to German income tax law, capital gains on the sale of cryptocurrencies held by individuals for more than one year are tax-free. If held for less than a year, the gain on sale is subject to capital gains tax. If an individual’s profit from cryptocurrency trading does not exceed €600 in a financial year, this portion of the gain is tax-free under German tax law, which provides certain tax benefits for small personal transactions and investments. When it comes to mining and staking, cryptocurrency income earned through mining is...