Circle exec warns Germany’s 50% crypto tax rule could hit retail investors

Germany’s proposed crypto taxation framework has put many local industry stakeholders on edge due to its implications for retail investors. According to Patrick Hansen of Circle, the default 50% tax base introduced by Germany is problematic because it targets those who cannot verify their purchases and will weigh heavily on ordinary investors.

“This will hit normal consumers/investors particularly hard. People who don’t even notice this regulatory change, who can’t technically provide their acquisition costs in a clean way, and who in recent years have sometimes bought with little profit or even at a loss,” Hansen wrote.

At the moment, Circle leads the pack as the largest issuer of stablecoins licensed under the EU’s MiCA framework.

Patrick Hansen argues that small investors may end up paying much more in taxes

Hansen mentioned on X that he wished that the tax draft would not come into action. He emphasized that once these provisions take effect, failure to provide evidence of payment will result in tax officials treating assets purchased after 2026 as taxable, thereby taxing half of the income earned. It is based on the state’s assumption that the asset’s value has doubled.

He argued that the state’s assumption that crypto values will double appears overly high, given Bitcoin’s annual decline and the poor performance of altcoins. He further added that it can even make people pay taxes on nonexistent gains.

“In my view, the average Joe will end up paying far too much tax if this isn’t adjusted, especially if – as I fear for many – he can’t provide his acquisition costs in a clean and convincing way,” he further asserted.

Nonetheless, the associate partner of the Poellath law firm, Dr. David Hötzel, contended that the 50% figure is not yet set in stone. Though similar to Hansen, he pointed out that a 50% baseline imposes a huge upfront tax grab on trades that might have made only a tiny bit of real money. “The protection of existing holdings effectively depends on reliable documentation,” he said.

Record-keeping could become more important for German crypto users

The documentation requirement could become one of the most significant practical changes for investors. Germany’s Finance Ministry has already ruled that taxpayers will have to keep records of acquisition dates, quantities, purchase costs, transaction fees, and the platforms or wallets involved. Such records can be supported by tax returns, exchange transaction records, and structured personal spreadsheets.

Under the reported draft, the new regime would apply to crypto assets acquired after December 31, 2026, but not to those acquired before January 1, 2027, while existing holdings would generally remain subject to the current rules. The withholding mechanism would reportedly begin in 2028.

That distinction means investors may need to separate older holdings from new purchases and keep clearer records of every transaction. Reconstructing the acquisition history for people who have traded assets on multiple exchanges and kept them in self-custody wallets is a significant tax compliance task.

Germany’s government is proposing a flat 25% levy on crypto capital gains.

Germany is also proposing a flat 25% levy on crypto capital gains. Under the current legal framework, retail investors in Germany generally don’t owe any tax to the state when they cash out Bitcoin or other cryptocurrencies. Now, if the new framework passes, Germany will start taxing crypto returns on all new purchases made after December 31, 2026, regardless of the asset’s holding timeline.

Cryptocurrencies such as Bitcoin and Ethereum would be subject to a flat 25% tax, plus a solidarity surcharge of 5.5%, for a total of 26.375%. Some digital currencies, including NFTs, certain stablecoins, security tokens, and RWA tokens, would, however, continue to enjoy exemption from the proposed legislation. Day traders are likely to benefit as well, since they currently pay the maximum personal income tax rate of 45%, which would be replaced by the flat rate.

It should be noted, however, that German taxpayers who hold Bitcoin will face a huge shift in taxation as the current tax exemption on capital gains is eliminated. Long-term capital gains of €100,000, for instance, will cost the taxpayer about €26,375, both in flat tax and solidarity surcharges.

Government estimates predict that the new tax regime will generate €160 million ($182.2 million) in revenue in 2028, rising to as much as €350 million ($398.7 million) annually by 2031.  

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