There are mainly two main crypto tax penalties in Germany –
a) Late tax filings incurring a minimum penalty of €25 per month, calculated at 0.25% of tax liability.
b) Late payments attracting a 1% monthly penalty on the unpaid amount.
Are you a crypto investor in Germany facing tax filing or payment delays or simply trying to avoid future tax penalties?
This guide has you covered! We’ll explain common crypto tax penalties, such as late filing and payment penalties, and offer practical tips to help you steer clear of these penalties and keep a positive relationship with tax authorities.
How is Crypto Taxed in Germany?
Germany’s crypto tax laws are designed to be beneficial for long-term investors. The following is a simplified yet comprehensive overview:
Treatment of Cryptocurrencies: The German Federal Central Tax Office considers crypto private money, not legal tender, and treats them as “other assets”.
Short-Term Sales: If you sell your crypto within a year of buying and the profit exceeds €600, you’re subject to ordinary income taxes. The tax rates vary between 14% and 45%, with an additional 5.5% solidarity tax under the German Tax Acts.
Long-Term Sales: Selling your crypto after holding it for over a year? Good news – these gains are tax-free, encouraging long-term investment.
Mining and Staking Income: Money earned from mining or staking crypto is taxed as income. However, staked crypto is also tax-exempt after a year.
Overall, calculating crypto taxes in Germany is pretty straightforward. Just work out the difference between what you paid for your crypto and what you sold it for. If your profit is more than €600 in under a year, it’s taxable.
Read our guide on German crypto tax laws for more detailed and nuanced information.
Common Crypto Tax Penalties in Germany
The following is a quick overview of various crypto tax penalties in Germany that investors might face, how they are calculated, and additional implications.
Late Filing Penalties
In Germany, timely tax filing is essential, especially for crypto investors. If you miss the deadline, you might face a lateness penalty under §152 of the German Fiscal Code.
This penalty is 0.25% of your tax liability per overdue month, with a minimum fee of €25. The tax office typically enforces this if your return is more than 14 months late. However, they might waive this fee if you’ve been consistent with previous filings.
For example, if a crypto investor has a tax liability of €2,000 and misses the filing deadline. The penalty is calculated at 0.25% of the tax liability per month.
For each month the tax return is overdue, the penalty would be:
Penalty = Tax Liability × Penalty Rate = €2,000 × 0.25% = €5
However, since there’s a minimum penalty amount of €25 per month, the investor would be charged €25 each month until the tax return is filed. If the return is two months late, the total penalty would be €50.
Late Payment Penalties
In Germany, you’re liable to pay income taxes if you sell your crypto assets within a year of purchase and the profits exceed €600. If you’re late in paying your taxes, you’ll face a 1% penalty on the unpaid amount every month. This penalty kicks in after a three-day grace period after the due date.
For example, if a crypto investor has a tax liability of €1,000 but misses the payment deadline. After the three-day grace period, a 1% penalty per month will apply. So, for each month the payment is delayed, the investor will incur a penalty of €10 (1% of €1,000). If the payment is delayed by three months, the total penalty would be €30 (3 months x €10 per month).
Tax Evasion Penalties
In Germany, evading taxes can lead to hefty fines and even imprisonment in severe cases. This makes it critical for crypto investors to comply with tax laws. So, reporting and paying your crypto taxes accurately and timely is more than just about avoiding penalties and fines. The last thing you want is trouble with the government.
How to Avoid Crypto Tax Penalties in Germany
The following are some strategies and tips to ensure compliance and avoid crypto tax penalties in Germany.
Tax Deadline Extension
Knowing about tax deadline extensions is crucial for crypto investors looking to stay on top of their taxes in Germany. For the 2023 tax year, the regular deadline is 31 August 2024. However, if a certified tax adviser is handling your returns, you get until 31 May 2025.
There’s also flexibility for voluntary filers, who can submit retroactively for up to four years until 31 December. If you need more time due to illness, missing documents, or other emergencies, a simple email or fax to the German Federal Central Tax Office can get you an extension.
This flexibility can be a lifesaver in managing your crypto tax obligations effectively and help you avoid late filing crypto tax penalties in Germany.
Appeal Against the Penalty
It’s crucial to appeal against a penalty judiciously and only when you have solid grounds for believing there’s been a miscalculation or oversight. The process is pretty straightforward. If your tax assessment seems incorrect, you have a one-month window after receiving it to file an appeal. The appeal doesn’t have to list specific reasons and can be withdrawn anytime without consequences.
Note that the appeal must be in writing, with your name and address clearly mentioned. It can be sent via mail or fax, as emails might not provide proof of the dispatch date. If the appeal is rejected, the next step is to file a lawsuit at the tax court.
Have a Good Track Record
In Germany, crypto investors benefit greatly from having a good track record with tax authorities, as mentioned before in the 14-month rule. Being consistent and accurate in your tax filings can sometimes lead tax authorities to waive any penalties in case of minor oversights.
A trustworthy relationship with the tax office can be useful in these situations. To achieve this, always document and report your crypto transactions transparently and accurately, which brings us to the next point.
Use Crypto Tax Software
In Germany, using a crypto tax software like Bitcoin.Tax can be a game-changer for managing your crypto taxes. It’s user-friendly and automates the heavy lifting by importing your transaction data from exchanges and wallets.
The software calculates your tax due and prepares the necessary forms, ensuring you meet German tax requirements accurately. This way, you reduce the chances of mistakes and penalties, making tax time less stressful and more efficient.
Consult a Tax Professional
We recommend you consult a tax professional if –
a) you have a large crypto portfolio
b) are dealing with hefty crypto tax penalties in Germany.
These experts can offer potential solutions to reduce or eliminate penalties. Not only this, in Germany, they also bring the added advantage of extending your tax filing deadline, as previously mentioned. This proactive approach with professional guidance addresses any current tax issues you might be facing while preparing you for future complications.
Read our guide on choosing the best crypto tax professional for more information.
Is Germany a crypto tax haven?
No, Germany is not considered one of the crypto tax havens. However, it IS considered one of the most crypto-friendly countries due to its progressive tax laws around crypto.
How do I avoid crypto tax in Germany?
You can legally reduce your crypto tax liability to zero by holding assets for over a year. However, you can’t completely avoid crypto tax in Germany, especially taxes on short-term gains, as capital gains from crypto are generally subject to ordinary income taxes in Germany.
Which crypto exchange is allowed in Germany?
Germany allows various crypto exchanges to operate within its jurisdiction. Some popular exchanges allowed in Germany include Coinbase, Binance, Kraken, and Bitstamp, among others.