German Federal Ministry of Finance Posts Letter Regarding Taxation of Bitcoin, Virtual Currencies in General

The Bundesminiserium der Finanzen in Germany (Federal Ministry of Finance) posted a notice yesterday regarding VAT tax treatment of Bitcoin and other virtual currencies. The document, in German, is embedded below.  In brief, the German government will not tax

In brief, using Bitcoin as a method of payment is not taxable similar to using any other currency.

Regarding Bitcoin miners, this service is a non-taxable transactions. The Ministry says the transaction fee, which miners can receive from other users of the system, is paid on a voluntary basis and is not directly related to the miners’ services.

Digital wallets that incorporate a fee does incur a taxable event.

Regarding other virtual currencies, as long as they are used as method of payment they are treated as legal tender as well.

The question regarding exchanges mentions two different tax exemptions and it is not clear (yet) as to whether a taxable event may occur.

The approach by the German Ministry is in contrast to the US that has deemed Bitcoin as property and thus incurs a capital gains/ loss tax if a transaction is made using digital currency. – thus creating a complex and unrealistic approach.

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