One of the global topics of discussion these days across international governments and economic institutions is about taxing cryptocurrencies. Owing to their anonymous nature, cryptocurrencies are being rampantly used in money laundering. While governments across the world are working towards stricter laws, Germany has headed in a different direction. The country’s latest legislation is quite lenient when it comes to taxing cryptocurrencies.

Cryptocurrencies have now become a mainstream global phenomenon. Pretty much every government in the world is now taking cryptocurrencies seriously. In some countries such as Venezuela, cryptocurrencies have emerged as a means of getting money into their cash-stripped economy. In some African nations with no proper banking infrastructure, cryptocurrency investments have caught the attention of many citizens. In countries like Russia, it has become an election campaign promise. 

Germany’s latest tax laws will not tax cryptocurrency payments, the Ministry of Finance has stated. This is in clear contrast to the American laws. Basically, purchasing something with Bitcoins in Germany will not incur any taxes on the transaction as Germany is basically treating cryptocurrencies the same way it treats fiat payments. However, in the US, cryptocurrencies are taxed as ‘property’ and any cryptocurrency transaction will be treated in the eyes of the law the same way as the sale of a property, upon which there would be capital gains tax to be paid. 

When it comes to taxation, Germany regards cryptocurrencies as equivalent to legal tender when used as a means of payment. The German tax statement reads: "Virtual currencies (cryptocurrencies, e.g., Bitcoin) become the equivalent to legal means of payment, insofar as these so-called virtual currencies of those involved in the transaction as an alternative contractual and immediate means of payment have been accepted."

VAT is still applicable. When a buyer pays for a product using Bitcoins, the price of the Bitcoin at the time of the transaction would be considered and has to be documented by the seller.

However, when cryptocurrencies will be converted to fiat currencies, or when fiat currencies would be converted to cryptocurrencies, the German laws would see it as a ‘taxable miscellaneous benefit’. When this sort of an exchange between cryptocurrency to fiat or fiat to cryptocurrency takes place, it is classified as ‘supply of services’ under the German laws, and the party acting as the intermediary for the exchange will not be taxed. Interestingly, as per these German tax laws, miners who get cryptocurrencies as block rewards will not be taxed - as their services are classified as ‘voluntary’ under these tax laws. 

Germany’s tax laws are perhaps first of their kind in the planet. So far, no country has taken such an open and ambitious step towards accepting cryptocurrencies in their tax laws as Germany. This could perhaps set an example for other countries which are still figuring out how to tax cryptocurrencies into their economic systems. This is indeed a bold move from Germany.