The Freewallet Family is happy to share another deep dive into Crypto Geography via CryptoGlobe. As you probably know, CryptoGlobe is our trustworthy partner, delivering blockchain news and crypto-related articles. The new Crypto Geography series covers cryptocurrency regulations and mining in Germany, how German banks trade crypto, and how German businesses use blockchain technology and crypto. Below you can find an extract from the article written by our head of PR and crypto expert Solomon Brown. If you want to find out more about the current state of crypto in Germany click here for the full article.
Cryptocurrency Regulations in Germany
In 2019, the German government adopted a comprehensive blockchain strategy. The plan calls for the development of blockchain applications in business and public administration. Concurrently, the strategy will secure state sovereignty and consumer rights. As Finance Minister Olaf Scholz stated to Financial Markets, the Federal Ministry of Finance news outlet, “As part of the internet of the future, blockchain technology can play a key role in our efforts… One of the core activities of a sovereign state is to issue a currency. We will not cede this task to private companies.” We’ll get back to this point but first, let’s take it slow to see how the German crypto story began.
Looking deeper into the country’s legislation, we found out that Germany legalized Bitcoin back in 2013, denoting it as “private money”, as Die Welt reports. For the first time the status of crypto in Germany was discussed by the Member of Parliament Frank Schäffler, but the German Ministry of Finance did not acknowledge Bitcoin as electronic money. Everything changed in 2017 when Germany called BTC a financial instrument. It is worth noting that the new amendments to the Banking Code indicate that Bitcoins are “units of value”.
So why is Germany called a “Bitcoin tax haven”? In 2018, the country exempted Bitcoin transactions from VAT. From now on, buyers and sellers of Bitcoin have to pay a tax if the sale happens sooner than 12 months after purchase. In this case, a progressive income tax of up to 45% applies for all gains. The good news is the income of individuals received from the sale of crypto coins is not subject to income tax if the period between purchase and sale transactions is 1 year or more. In other words, if you hold your (fraction of) Bitcoin for a year, it comes out tax-free. The taxation set the stage for crypto startups, but not for long.
In 2019, Germany passed a bill that had a significant impact on cryptocurrency services and local crypto enthusiasts including the vast German Freewallet community. The 5th EU Anti-Money Laundering Directive (AMLD 5) drastically changed licensing requirements, as well as anti-money laundering obligations for crypto service providers. This legislation made amendments to the Anti-Money Laundering Act and the Banking Act, as well as it set new terms for providers of foreign exchange services and cryptocurrency exchange platforms. The bill went into effect on January 1, 2020, expanding the scope of responsibility for money laundering and terrorist financing (AML / CFT).
Crypto assets fall under the definition of financial instruments under the German Banking Act. Any person wishing to provide financial services related to crypto assets in Germany on a commercial and/or other scale will have to obtain permission from BaFin. The new rules also affect service providers located outside Germany but working with German customers. During the year, a lot of European crypto companies shut down over impending EU money-laundering rules, for instance, the crypto mining pool Simplecoin. At times legislation gets tough for miners too. But luckily, the capital gains tax isn’t applied to mining cryptocurrencies in Germany.