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Germany outlines favorable tax guidelines, profits from BTC and ETH will be sold tax-free after one year

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The Federal Ministry of Finance (BaFin) published a 24-page document on Tuesday outlining clear income tax rules for cryptocurrencies and virtual assets. Tax practitioners, corporations, and individual taxpayers now have clear direction on the tax requirements for acquiring, trading, and selling cryptocurrencies.

The key takeaway is that people who sell BTC or ETH more than 12 months after acquiring it don’t have to pay taxes on the sale if they make a profit. Parliamentary State Secretary Katja Hessel also addressed questions about the long-term staking of cryptocurrencies:

“For private individuals, the sale of purchased bitcoin and ether is tax-free after one year. The deadline will not be extended to 10 years if, for example, bitcoin was previously used for lending or the taxpayer provided the ETH as a stake for someone else to create their block.”

In mid-2021, Germany asked companies, institutions and individuals to contribute to tax considerations surrounding the use of cryptocurrencies, as well as staking and lending protocols. A key focus was a special clause in the German Income Tax Act. Section 23 states that the windfall of an asset that is sold after one year from its acquisition is tax free.

Related: Germany’s Blockchain Initiative: How Adoption 2020 Became A Reality

Many questioned whether lending or staking virtual assets would result in an increase in the period during which a private sale of the virtual currency used for it is taxable. The Federal Ministry of Finance explained that the 10-year period does not apply to cryptocurrencies.

Additionally, Bitcoin miners who acquire newly minted BTC will also waive tax payments after one year of ownership. Hessel also hinted that the Federal Ministry of Finance will continue to issue further guidance on the use and trading of cryptocurrencies.

Germany has taken a proactive approach to cryptocurrency regulation and oversight, adopting a national blockchain strategy in 2019. As of January 2020, cryptocurrency service providers, including exchanges and custody platforms, were required to obtain licenses from BaFin to ensure the sector operated to the same standards as traditional financial service providers.

Germany has released favorable tax policies for cryptocurrency holders in the country, with long-term holders of bitcoin and ether tax-free on gains.