No extra tax for crypto: Germany treats digital coins as legal tender

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Unlike the US, Germany will treat cryptocurrencies as legal tender, much like Japan does.

The German Finance Ministry has stated that cryptocurrencies will be treated like legal tender when used as a payment method, and will follow the standard VAT rules like usual purchases, rather than capital gains tax.

“Virtual currencies (cryptocurrencies, e.g., Bitcoin) become the equivalent to legal means of payment, insofar as these so-called virtual currencies of those involved in the transaction as an alternative contractual and immediate means of payment have been accepted,” according to the court ruling.

Although transaction fees imposed by wallet providers and exchanges may be subjected to tax since these are service charges, miner rewards, private investors, and individual traders are free from tax burdens.

Germany has been trying to ease up on taxation headaches for cryptocurrency holders. If you hold cryptocurrencies for more than a year, it doesn’t matter how much profit you’ve made from it—you get to keep your full stash as they will not ask for a cut.

The same cannot be said of the US, unfortunately.

At the moment, the US Internal Revenue Service (IRS)—as well as Australia—treats cryptocurrencies not as currencies but as capital property, assets subject to capital gains tax. It is treated much like a stock rather than fiat. This means every time someone uses them to pay for a purchase, the transaction is treated as if the buyer sold a property (cryptocurrency) in exchange for dollars, and is therefore already considered a taxable transaction before the dollar equivalent is used to buy an item—which incurs another sales tax. Some argue that this is double taxation, while some say it’s not—but that it is a very convoluted, complicated, and utterly confusing way of going about taxation.

Under this rule, every time a user trades one cryptocurrency with another, it is considered a reportable capital transaction. At some point, it would become impossible to track how many reportable transactions each user has, even if they wanted to. This means countries like the US and Australia would have to keep up with the times lest they end up drowning in piles of paperwork that they can’t even accurately verify down the road.