Federal authorities in Berlin take aim at tax-free crypto profits

The federal government of Germany is preparing to tap into profits from long-term crypto investments which are currently exempt from taxation in the country.

According to a bill drafted by the Bundesfinanzministerium, 25% capital gains tax will soon apply even if the digital assets have been held for more than a year before sale.

Merz cabinet wants to tax all crypto gains from 2027

The executive authority in Berlin intends to start taxing profits resulting from cryptocurrency investments made from January 1, 2027 onwards, the German press has found out.

So far, these have been tax-free after a holding period of one year, although anyone who sells within 12 months after purchase owes personal income tax on the money they have made.

The coalition government of Chancellor Friedrich Merz now wants to scrap the exemption and impose the 25% rate that applies to traditional capital gains such as from dividends, stocks and interest.

Thus, holders of Bitcoin, Ethereum or any other crypto, around 7 million people in Germany, will have to pay the state what’s due from their profits, regardless of how long they kept the coins.

That’s according to a draft law put forward by Finance Minister Lars Klingbeil from the center-left Social Democratic Party (SPD).

The latter is the main partner in the cabinet of Merz’s center-right and conservative Christian democratic CDU/CSU alliance.

The Die Welt daily first broke the news about the upcoming legislation, which is yet to be adopted by the ruling majority in the German parliament.

If lawmakers pass the law, it will come into effect on the first day of next year and be in force for all crypto purchased after that, while existing rules will apply to previously acquired assets.

Berlin aims to collect €160 million in crypto tax

Starting from 2028, the tax will be withheld automatically by banks and financial institutions, as is already the case with other capital income, Handelsblatt noted in an article, also quoting the document.

This will give services providers enough time to prepare in terms of systems and technical procedures to collect and transfer the deductions to the state, pointed out the business newspaper.

The Bundesministerium für Finanzen (BMF) hopes to receive €160 million (over $186 million) in 2028. The revenue is expected to grow in the following years and eventually reach €350 million in 2030.

While the progressive income tax that currently applies to profits from short-term crypto investments may can reach 42%, the capital gains levy is fixed at a flat rate of 25%.

However, the latter will be slapped on all coin-related profits. And what’s more, in certain cases, an additional “solidarity surcharge” and even church tax will be due as well.

The new bill is still being coordinated within the federal government and some of its provisions may be amended in the coming weeks, the publication remarked.

It has been prepared after the parties in the coalition reached an agreement to change the taxation of crypto transactions during budget negotiations in the summer.

According to an estimate relayed by German media in July, officials in Berlin plan to secure an additional €1 billion next year by “combating financial and tax crime and introducing crypto taxation.”

Those reports were referring to the draft federal budget for 2027, the financial plan through 2030, as well as the legislative proposal, excerpts of which were published by the finance ministry.

Citing knowledgeable sources, the German Bitcoin news outlet BTC Echo highlighted at the time that the BMF expects crypto-linked budget receipts to approach €1 billion by the end of the decade.

Crypto tax reform becomes major political issue in Germany

The fate of the holding period exemption for cryptocurrency investments has turned into a political hotpoint in the Federal Republic.

An earlier attempt to abolish it, initiated by the by the “Greens” party, was halted at the Bundestag in May, as previously reported by Cryptopolitan.

Among the main opponents of the government-suggested tax hike is the Alternative for Germany (AfD) party, which recently won elections in the state of Saxony-Anhalt.

Labeled as a far-right political force by its more established rivals, the opposition AfD now aims to win more than 40% in the next national vote, scheduled to be take place in 2029.

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