Cryptocurrency trading is on a all-time high. As more investors enter the crypto world, full of uncertainties, many are still confused about how to treat it for the federal income tax purposes. With restrictions getting tighter on the cryptocurrencies, Germany, in a recent announcement stated that it won’t tax bitcoin users for using the coin as a mode of payment.
The report, published on Tuesday, sets the country apart from other European and American nations. In many countries, such as the US, the internal revenue service treats bitcoin as a property for tax. Which means if someone uses bitcoin to purchase something it’ll be considered a sale of property and will be subject to capital gains tax.
Rather, Germany will take Bitcoin as an equivalent to legal tender for taxes when used as a means of payment. The ruling was based on a 2015 European Union Court of Justice ruling on Value Added Taxes (VAT). The court ruling created a precedent for EU countries to tax bitcoin while providing exemptions on certain transactions.
Germany justified its tax decisions by taking cryptocurrencies a legal method of payment. It stated that virtual currencies, like the Bitcoin, have become “the equivalent to legal means payment”. The announcement further added that when a buyer of goods pays with bitcoin, an article of the European Union’s VAT directive will be applicable to the price of the Bitcoin at the time of the transaction, as stated by the seller.
As per the EU ruling, the act of converting cryptocurrencies to fiat and vice versa is taken as supply of services and therefore a party acting as an intermediary for the exchange will not be taxed. Payment fees sent to the wallet providers can likewise be taxed, as per the announcement.
Miners who receive block rewards will not be taxed as their services will be taken as voluntary. Similarly exchange platforms that buy and sell Bitcoin by their brand name will receive tax exemption.