Germany proposes 25% flat tax on crypto gains from 2027

The German Federal Ministry of Finance, led by Lars Klingbeil, has drafted a bill proposing a flat 25% capital gains tax on cryptocurrency profits starting January 1, 2027. The reform eliminates the popular one-year holding exemption for assets bought after 2026, though existing holdings remain grandfathered. The government expects the policy to generate €160 million in 2028, rising to €350 million by 2031, with automatic bank withholding beginning in 2028.

German crypto tax reform proposal

• ▪A draft bill from the German Federal Ministry of Finance proposes to eliminate the tax exemption for cryptocurrency assets held for over one year, replacing it with a flat 25% capital gains tax
• ▪The proposed tax regime would exclude NFTs, security tokens, certain stablecoins, and certain real-world-asset tokens, keeping them outside the 25% flat tax framework
• ▪The proposed tax reform would treat cryptocurrency gains similarly to traditional capital income, adding a 5.5% solidarity surcharge to bring the effective tax rate to 26.375% before church tax
• ▪Under the draft bill, German cryptocurrency investors would receive a €1,000 savings allowance, and losses from cryptocurrency could be offset against gains from other securities
• ▪The proposed 25% flat tax on cryptocurrency gains would apply to digital assets purchased on or after January 1, 2027

Tax treatment of existing holdings

• ▪Under current German tax law, cryptocurrency gains sold within 12 months of purchase are taxed as ordinary personal income at rates reaching up to 42% or 45% for high earners
• ▪Cryptocurrency assets purchased on or before December 31, 2026, would be grandfathered under existing rules, allowing them to remain tax-free if held for more than 12 months

Government revenue projections

• ▪The German Federal Ministry of Finance projects the new cryptocurrency tax rules will generate approximately €160 million in additional revenue in 2028
• ▪The German Federal Ministry of Finance expects annual tax revenue from the cryptocurrency tax reform to increase to approximately €350 million by 2031

Automatic withholding implementation timeline

• ▪If cryptocurrency investors cannot provide purchase prices and acquisition dates when moving assets between platforms, the flat 25% tax rate would be applied automatically
• ▪German banks and financial institutions would begin automatically withholding the 25% cryptocurrency tax starting in 2028, giving platforms a one-year transition period to update their systems

Policy rationale for tax change

• ▪The German Federal Ministry of Finance justified the tax reform by stating that it is unfair for hard-earned income and capital gains to be taxed while profits from cryptocurrency speculation remain largely tax-free
• ▪The draft bill argues that cryptocurrency has outgrown its previous tax treatment and increasingly represents a form of private capital investment rather than an economic good like classic cars or artworks

Debatable claims

• ▪Cryptocurrency exchanges should be required to automatically withhold capital gains taxes
• ▪Germany should eliminate the tax exemption for long-term cryptocurrency holdings