Just like volatile stock prices, the falling or rising prices of crypto assets are discussed in the daily news. However, unlike disposals of shares, the income tax treatment of disposals of value-fluctuating crypto assets is not explicitly regulated now.

With a circular dated May 10, 2022, the German Federal Ministry of Finance (Bundesfinanzministerium; BMF) for the first time commented on “Individual questions on the income tax treatment of virtual currencies and other tokens.” This was comprehensively revised by a BMF circular dated March 6, 2025, on “Individual questions on the income tax treatment of certain crypto assets” and thereby closes a number of open questions regarding the tax classification of digital assets.

In the current draft federal budget 2027, the federal government announced a far-reaching reform: from 2027, profits from crypto assets are to be taxed at a flat rate of 25% plus solidarity surcharge regardless of the holding period. Crypto assets acquired by December 31, 2026 are reportedly to enjoy grandfathering protection and to remain subject to the previous one-year holding period. Furthermore, an automatic tax withholding by exchanges and banks is planned from 2028. Numerous questions remain open in this regard; the reform proposal is also not yet coordinated within the CDU/SPD coalition. We will monitor further developments and keep you continuously informed. Our article explains the current legal situation regarding the income tax treatment of crypto assets.


General information

According to the BMF circular dated March 6, 2025, a crypto asset is the digital representation of a value or a right that can be electronically transferred and stored using Distributed Ledger Technology (DLT) or a similar technology.

A distributed ledger is an information store that is shared across a number of DLT nodes and synchronized among the DLT nodes by a consensus mechanism. It is designed so that entries are tamper‑proof and immutable and only allow additions. In a so-called blockchain all confirmed transactions are continuously recorded in numbered order.

The structure and development of crypto assets are diverse. For income tax treatment, the actual economic function and design of the crypto asset are therefore decisive - regardless of the designation under the Markets in Crypto‑Assets Regulation (MiCAR).

Against this background, crypto assets can be distinguished as follows:

  • Currency or Payment Token
    • Crypto assets that, although they do not have the legal status of a currency, are used as a means of exchange or held for speculative purposes. The best known examples are Bitcoin and Ether, also commonly referred to as “cryptocurrency” or “virtual currency”.
  • Utility Token
    • Crypto assets that convey certain usage rights or a claim to exchange them for a specific, possibly yet-to-be-created good or service.
  • Security Token
    • Crypto assets that, by their function, are comparable to conventional securities.

A wallet is generally required to receive, hold and transfer crypto assets. The function of the wallet is similar to a key ring. It stores the private and public keys with which the market participants operate.

Public key

Serves as the receiving address for transactions, comparable to an IBAN or an email address.

Private key

Is known only to the owner and serves as a password or for generating digital signatures for transactions, comparable to the PIN for a bank account or the password for an email account.


Digital acquisition methods

In addition to acquisition against fiat currency (a government‑issued means of payment) or by exchange for other crypto assets, crypto assets can - according to the BMF circular dated March 6, 2025 - also be acquired or generated by the following methods:

The BMF circular dated March 6, 2026 additionally contains explanations on inventory determination and the associated methods (UTXO and accounting).


Income tax classification for business or private activity

The BMF circular dated March 6, 2025 provides, depending on the circumstances of the individual case, for the following types of income in connection with crypto assets:

  1. Income from trade or business, Section 15 of the German Income Tax Act (Einkommensteuergesetz; EStG)
  2. Income from private disposals (speculative transactions), Section 22 no. 2 in conjunction with Section 23 EStG
  3. Other income, Section 22 no. 3 EStG
  4. Income from capital assets, Section 20 EStG

Explanations on income from employment (Section 19 EStG) and on wage tax withholding in connection with the granting of crypto assets in the context of an employment relationship are no longer included in the BMF circular dated March 6, 2025 compared with the circular of May 10, 2022.

Fundamentally, for the taxation of crypto assets it is decisive whether the related activity is either commercial (Section 15 EStG) or constitutes private asset management (Section 22 no. 2 in conjunction with Section 23 EStG). Neither the BMF circular dated March 6, 2025 nor current fiscal-court case law provide a conclusive and clear distinction between the types of income.

Whether and to what extent repeated purchasing and selling of crypto assets is to be classified as private asset management or as a commercial activity is determined according to the criteria for commercial securities and foreign exchange trading. According to these criteria, transactions - even if they attain a substantial volume and extend over a longer period - are initially not to be attributed to commercial activities; however, this applies only as long as the purchase and sale occur in the ordinary form between private persons.

Particularly in critical borderline cases and given the still lacking customary practices in crypto trading, correct classification will remain difficult in many cases. The German tax administration therefore continues to rely on general tax rules, whereas, for example, Austria has had its own statutory provision for taxation of crypto assets since March 1, 2022.


Excursus: assessment as an economic asset

With its judgment of February 14, 2023 (case no. IX R 3/22) the German Federal Fiscal Court (Bundesfinanzhof; BFH) confirmed the BMF’s view that individual crypto assets constitute (other) assets within the meaning of Section 23 (1) sentence 1 no. 2 sentence 1 EStG for the taxation of profits from private disposals. On the basis of their market price - which can regularly be determined via trading platforms and lists - they are also amenable to independent valuation.

The BFH’s principles on classifying crypto assets as assets are significant across income types and are therefore also relevant for the commercial sphere; they can be allocated either to fixed financial assets under financial investments or to current assets under other inventory items. For a cash-basis profit and loss statement, the assets are to be included in the ongoing registers to be kept under Section 4 (3) sentence 5 EStG.


We describe the income tax specifics in more detail below:

The tax administration classifies activity as income from trade or business based on the scope of activity, the technology used and the presence of an intention to generate profits. If crypto assets are repeatedly bought and sold, such trading can constitute a commercial activity. Likewise, permanent, systematic mining or forging/staking with large investments will regularly indicate commercial activity. Under the usual requirements of a trade or business, this is also likely the case for forms such as lending, hard forks or airdrops.

Operating income from commercial activities related to crypto assets includes in particular:

  • units received from block creation (= block reward),
  • transaction fees that the taxpayer receives from network participants for verifying transaction data, and
  • fees received by an operator of a mining pool for providing computing power.

Depending on contractual design, block creation with mining pools may constitute a partnership. By contrast, the BMF clarified in its circular dated March 6, 2025 that a staking pool regularly does not constitute a co-entrepreneurship (Mitunternehmerschaft).

Furthermore, crypto assets - due to their asset assessment - may be allocated to a company’s business assets. In this case, proceeds from the disposal of crypto assets are operating receipts. When determining the disposal gain, the individual - possibly carried forward - acquisition costs of the disposed crypto assets must be deducted. A deviation from this is possible if the individual acquisition costs cannot be determined and allocated in the individual case. In that case, they may be valued at average acquisition costs.

According to the BFH judgment of February 14, 2023 (case no. IX R 3/22), profits from the disposal of crypto assets held in private assets - for example from mining, forging/staking, lending, hard forks or airdrops - are taxable income from private disposals within the meaning of Section 22 no. 2 in conjunction with Section 23 (1) sentence 1 no. 2 sentence 1 EStG, provided the holding period of one year is not exceeded. Profits remain tax-exempt, however, if the sum of profits from all private disposals in the calendar year is less than EUR 1,000 (Section 23 (3) sentence 5 EStG). With a holding period of more than one year, profits or losses from buying and selling crypto assets are not taxable.

The gain or loss from the disposal of crypto assets is determined by the disposal proceeds less acquisition and transaction costs. Generally, the decisive acquisition or disposal time is the trading time on the platform or the time of exchange.

Income tax specifics arise with utility and security tokens. According to the BMF circular dated March 6, 2025, redeeming a utility token is irrelevant for income tax purposes. If such tokens are sold or used as means of payment, a private disposal may arise. If a security token is not a security but rather a debt instrument with a claim to in-kind performance, disposals may give rise to income from private disposals.

Ongoing receipts from crypto assets held privately - for example from block creation through mining or forging/staking - are taxable as other performance income within the meaning of Section 22 no. 3 EStG, provided they do not fall under another category of income. Income from lending or airdrops may likewise be subsumed under this income category. Income from hard forks is explicitly excluded from this allocation.

A “performance” means any act, toleration or omission. The consideration for the performance can - differently from the returns on security tokens (Section 20 (1) no. 7 EStG) - be provided either in cash or in kind, so that payment in crypto assets can also be subsumed under this category. As advertising expenses in this context, expenses for acquiring the necessary hardware and software (depreciation) and for electricity consumption can be taken into account. The income is disregarded if it does not exceed the exemption threshold of EUR 256 per calendar year (Section 22 no. 3 sentence 2 EStG).

The peculiarities of airdrops are not yet fully addressed in the BMF circular dated March 6, 2025. Allocation of new units of a crypto asset often depends on the taxpayer agreeing to disclose personal data or to undertake marketing activities. The taxpayer thus performs a service by providing personal data or by active conduct and receives as consideration the new crypto units. If crypto assets are acquired without any action - similar to a game of chance - no other income within the meaning of Section 22 no. 3 EStG can arise due to lack of performance.

Allocation of possible returns related to crypto assets to income from capital assets (Section 20 EStG) must be considered in a differentiated manner and was further specified by the BMF circular dated March 6, 2025 and by the Fiscal Court of Cologne judgment of September 10, 2025 (case no. 3 K 194/23, appeal to the BFH, case no. VIII R 22/25).

Returns from security tokens can - depending on their design - constitute income from capital assets under Section 20 (1) sentence 1 no. 1 or no. 7 EStG (recurring income) or Section 20 (2) sentence 1 no. 1 or no. 7 EStG (disposal gains), if they meet the characteristics of a security or another financial instrument. It is decisive whether the token conveys to the holder a capital claim or a contractual participation.

To date, the legislator has not included a specific legal element for crypto assets in the catalogue of Section 20 EStG regarding income from capital assets. The classification as a security continues to depend on the prerequisites stated in the BaFin guidance letter of August 16, 2019.

The direct acquisition of crypto assets themselves must be distinguished from financial products whose value development is linked to that of crypto assets. Returns from such products can, where applicable, constitute income from capital assets.

Granting crypto assets in the context of an employment relationship

As already stated above, unlike the BMF circular of May 10, 2022, the BMF circular dated March 6, 2025 no longer contains explanations on income from employment (Section 19 EStG) and on wage tax withholding. Therefore, for the income tax assessment in connection with the granting of crypto assets in an employment relationship, the general rules must be applied: corresponding receipts generally constitute employment income and are therefore subject to income tax pursuant to Section 19 (1) sentence 1 no. 1 EStG as well as to wage tax withholding under Section 38 (1) EStG.

A subsidized or free transfer of crypto assets by the employer to the employee can constitute either a cash benefit (Section 8 (1) EStG) or a non-cash benefit (Section 8 (2) EStG). Cash benefits include, among others, legal tender valid in the country or payments in a commonly used, freely convertible and domestically tradable foreign currency. Non-cash benefits are all receipts not in cash. While currency or payment tokens such as Bitcoin and Ether can, for example via appropriately issued vouchers, constitute a cash benefit, utility or security tokens can only constitute a non-cash benefit.

A non-cash benefit is generally to be valued at the usual final prices at the place of supply reduced by customary discounts (Section 8 (2) sentence 1 EStG). For simplification, it may also be set at 96% of the supply value. As the usual final price at the place of supply, the market price of a trading platform or a web-based list may be used for crypto assets. A non-cash benefit is disregarded if it does not exceed EUR 50 in total in the calendar month (Section 8 (2) sentence 11 EStG).


Notice

It remains to be seen whether the BMF will comment again on granting crypto assets within the framework of an employment relationship. This would be welcome to create legal certainty for employers in the wage tax withholding procedure. In the meantime, obtaining a wage tax ruling (Lohnsteueranrufungsauskunft) under Section 42e EStG is recommended.


Tax return, cooperation and record-keeping obligations

Taxpayers must prepare their tax return to the best of their knowledge and belief pursuant to Section 150 (2) of the Fiscal Code of Germany (Abgabenordnung; AO) and cooperate in fact-finding under the general rules in Sections 90 et seq. AO; tax-relevant facts must be disclosed fully and truthfully and known pieces of evidence must be indicated.

For crypto asset transactions, public on-chain data alone are not sufficient, since direct conclusions about the identity of individual taxpayers are not possible due to pseudonymization. Therefore, additional documents and information from the taxpayer are required for income tax substantiation; plausible and internally consistent tax reports can be used for this purpose. If the tax bases cannot be determined or calculated due to lack of comprehensible documents and information, the tax authority will estimate them pursuant to Section 162 (2) AO.

The general tax bookkeeping and record-keeping obligations and the commercial law principles of proper accounting (Grundsätze ordnungsmäßiger Buchführung; GoB) apply. In addition, all relevant documents - both electronic and paper‑based - must be retained. The software used must comply with the principles for proper management and retention of books, records and documents in electronic form and for data access (GoBD), provide a procedural documentation and ensure immutability and completeness. In external audits the tax administration may, under Section 147 (6) AO, demand comprehensive machine data access or the transmission of data in a machine-readable format.

In addition to the general cooperation obligations pursuant to Sections 90 et seq. AO, the taxpayer holding crypto assets in private assets may be requested to provide substantiation, for example by completing questionnaires or submitting plausible and internally consistent tax reports. Structured listings by both the taxpayer and central trading platforms and wallet providers with minimum information on purchases and sales including respective prices, holding periods, number and names of crypto assets as well as the profit with indication of acquisition costs and disposal proceeds for each individual transaction can also be suitable as evidence.

Furthermore, for excess income of more than EUR 500,000 (from January 1, 2027: EUR 750,000) there is a six-year retention obligation for records and documents on the income and advertising costs underlying the income pursuant to Section 147a AO.

Notice

Taxpayers often transact via more than one wallet or portal, so the documents and information to be presented to the tax authority must be compiled from a number of sources. The quality of information provided by trading platforms varies widely, especially because providers operate globally and so far few to no regulatory reporting requirements have applied. If the substantiation maintained by the taxpayer is comprehensible and plausible, it will generally be accepted as a basis for tax assessment.

To avoid disputes with the tax authority, it is therefore advisable to provide all evidence from the various platforms with the tax returns and to document the determined tax bases. Unfortunately, the BMF circular dated March 6, 2025 does not specify the exact requirements. These will likely include minimum information on purchases and sales including respective prices, holding periods, number and names of crypto assets as well as the profit with indication of acquisition costs and disposal proceeds. The Fiscal Court of Nuremberg judgment of January 22, 2025 (case no. 3 K 760/22) shows very illustratively what possibilities and sources of error already exist in compiling these tax bases and how - with effort - a meaningful and, in principle, acceptable determination of income for the tax authority can be achieved.

This article was written by

Roland Speidel
Roland Speidel
Certified Tax Advisor, Lawyer, Director, National Office Tax & Legal