Rare joy: Good news from the Ministry of Finance

The Federal Ministry of Finance has caused storms of enthusiasm in the crypto industry in Germany when it overturned the ten-year holding period for staking and lending. It explained this in an instruction to the tax offices on how cryptocurrencies are to be recorded for tax purposes. The focus is on the abolition of the ten-year holding period: “In the case of virtual currencies, the extension of the disposal period under section 23(1) sentence 1 number 2 sentence 4 EStG does not apply.”

Instead of the previous period of 10 years, a holding period of only one year now applies to cryptocurrencies generated from staking and lending. It goes without saying that this step leads to a sigh of relief in the recently hard-hit crypto scene. Politicians have also commented positively on this measure: Frank Sch√§ffler of the FDP, for example, speaks of a “milestone” for the German crypto industry and “more clarity under tax law.”

Tax classification possible

Until now, both authorities and investors had a hard time when it came to the taxation of digital assets. Now, however, crypto-assets are clearly defined as economic assets. This is the first time that there is a clear classification in German income tax law. In addition, the ministry has tightened up several terms and taken a step towards practicality in determining the value of cryptos: an old draft still provided for an “average value of three exchanges”, but now the price of a single trading platform or a “value-based list” such as CoinMarketCap is sufficient.

Attention with Staking

In the case of staking, the BMF will in future distinguish between active and passive staking – passive staking is considered “private asset management”, but active staking is classified as commercial. The essential distinguishing feature here is the block creation. The wording of the BMF letter: “Block creation does not constitute private asset management. In both mining and forging*, the block creators receive the block reward and the transaction fees in exchange for the creation of new blocks. The activity thus corresponds to the image of a service provider.”

Tax traps lurk here for people who operate a staking node, for example: for the Federal Ministry of Finance, they are considered service providers and would have to pay commercial tax on their income, which poses dangers especially with regard to the tax regulations in the commercial sector. For example, there is no tax-free period; if someone ends their staking activity, all capital must be taxed!

All in all, this is a step in the right direction, which can be seen as a prelude to a uniform and modern solution. Of course, the legislator is lagging behind the fast-moving crypto industry, but a legislative solution for the sometimes rampant grievances finally gives market participants tools to achieve more justice and social acceptance.

* BMF-wording for staging

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