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MONEY

What to know about cryptocurrency in Germany

Germany has been dubbed the most crypto-friendly country in the world. We break down why that is, and what you should know about cryptocurrency in Germany.

Bitcoin coins
Two "Bitcoin" coins lie on a table. Photo: picture alliance/dpa/dpa-Zentralbild | Fernando Gutierrez-Juarez

As with all of our financial and tax summaries, this is a guide on regulations only. For financial advice which is personalised to your situation, please contact an accountant or other specialist. Please note also that EU financial regulators have warned that many crypto-assets are highly risky and speculative. Find out more information here.

At first glance, Germany seems an odd place to be a cryptocurrency haven. Only 17 percent of people in Germany invest – way behind the percentages seen in other countries – which may go some way towards justifying the country’s reputation as a land of risk-averse savers.

Cryptocurrency, often called crypto for short, is considered by many investment analysts to be one of the riskiest and most volatile investments a person can own.

Concerns have also been raised over the environmental impact of cryptocurrencies.

There are countless types of crypto on the market these days. What each one has in common is that it is digital and secured using cryptography, meaning they can’t be counterfeited. 

Even the three biggest and most well-known cryptocurrencies – Bitcoin, Ethereum, and Ripple – are prone to huge sudden spikes and falls in value. It’s also a market that has seen some, like the LUNA cryptocurrency last month, crash completely.

Yet, bucking national stereotypes, Germany has some of the most favourable laws in the world for investing in these high-risk assets.

READ ALSO: What you should know about investing in Germany

Germany’s crypto tax advantages

Crypto exchange comparison site Coincub recently named Germany as the world’s most crypto-friendly country, with Singapore and the United States rounding out the top three.

A big reason for this comes down to favourable tax laws. Normally, when someone in Germany sells a regular stock or ETF asset at a higher price than they bought it for, their brokerage will automatically withhold 25 percent of their gain in tax.

Euro notes bitcoin coins

Euro notes and bitcoin coins on a laptop. Photo: picture alliance/dpa/dpa-tmn | Christin Klose

But following tax guidance issued by the Federal Ministry of Finance last month, certain gains in cryptocurrency could face absolutely no taxation at all.

Firstly, the ministry has affirmed that any profit of less than €600 faces no tax. More significantly though, cryptocurrency that someone in Germany has held for at least a year faces no tax at all – no matter how big the gain is when that person sells it.

Why is the law so favourable in Germany?

One variable is political. The liberal Free Democrats tend to attract a sizeable number of votes from the very demographics more likely to hold crypto. While the FDP is in a three-way coalition with the progressive Social Democrats (SPD) and the Greens, FDP leader Christian Lindner currently holds the German Finance Ministry.

During the 2021 election campaign, Lindner made regulating and attracting crypto investment a big part of the FDP platform and coalition negotiations.

“I think the German government understands how to make money better than a lot of other countries,” says the man behind crypto Youtuber The Modern Investor, a channel with over 225,000 subscribers.

“A lot of people in the crypto space are very internationally mobile,” he tells The Local. “If they choose to live in Germany for the favourable investing conditions, they’re going to be spending money in German supermarkets and buying German services. The money the government misses out on in taxes tends to go right back in the system.”

“If cryptocurrencies continue to take off globally, Germany will eventually be seen as a genius for figuring out how to attract this money and keep it within its borders,” he adds.

Germany’s crypto niche to go mainstream?

Cryptocurrency is still a niche investment in Germany. While only 17 percent of Germans own stocks, only about 2.6 percent own cryptocurrency.

German crypto investors typically skew younger, with a third of all German crypto investors being 34-years-old or younger. The more a person makes, the more likely they are to hold crypto as well, with two-thirds of all German crypto investors earning €800,000 a year or more.

That narrow niche is still big within the crypto community itself though. Around nine percent of the world’s Bitcoin nodes – the computers that run the secure list of transactions using that currency on a digital ledger known as the blockchain – are in Germany, and 14 percent of Ethereum nodes, another major cryptocurrency. That’s second only to the US.

Cryptocurrencies

A tablet screen displays the value of various cryptocurrencies in the Coinbase app. Photo: picture alliance/dpa | Fabian Sommer

Yet, while German ownership is still small, the community is visible enough to make others curious. That goes for even the traditionally risk-averse savings banks, or Sparkassen – where many Germans park their savings. The Savings Bank Association says around 10 percent of its regular customers already hold cryptocurrency, leading them to start offering customers the chance to invest in a crypto wallet directly from their checking accounts.

Many of the online brokerages popular with Germany-based investors, such as Trade Republic, Scalable, and DKB, also offer cryptocurrency wallets alongside their options to buy more traditional products like stocks and ETFs. Using their smartphone apps, crypto can typically be bought and sold with a few short clicks.

READ ALSO: How to protect your savings against inflation in Germany

The Modern Investor says that’s part of a culture that’s increasingly viewing crypto as just another normal part of the investing landscape. While crypto suspicion is still high globally, Germany has simply chosen to accept that crypto is here to stay, and has decided to benefit from it. 

“Germany has been one of the very few countries that have actually put forth cryptocurrency regulations. So a lot of internationally mobile investors have run to Germany as a bit of safe option,” the Youtuber says.

“Many countries don’t have any regulations at all. That makes things even less predictable. What happens to a crypto investor in the US or China if either of those countries simply ban it tomorrow? With Germany, people know that’s simply not going to happen now.”

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For members

TAXES

EXPLAINED: The tax cuts foreign parents in Germany need to know about

From babysitters to moving costs, here are some of the top and often overlooked deductions international families in Germany can make on their taxes.

EXPLAINED: The tax cuts foreign parents in Germany need to know about

Whether higher gas costs or forking out more for fruit at the supermarket, daily life in Germany is becoming increasingly expensive. This can be especially true for those who also need to cover the costs of their children and families. 

But there are a number of tax benefits in the Bundesrepublik that help keep these fees down.

The Local spoke with Munich-based expat tax advisor Thomas Zitzelsberger about the top tax deductions for parents – including some which international residents in particular frequently overlook. 

Kinderfreibetrag vs. Kindergeld

Imagine receiving money every month just for having a child or children. That’s exactly what Kindergeld (child benefits) is: since 2021, parents receive €219 per month for each child up to two kids, €225 for a third child and €250 for the fifth child. 

The payments usually stretch until the child’s 18th birthday, and sometimes even their 25th if there are extra Ausbildungskosten (educational costs) for studying at a university or vocational school.

Parents need to apply for this payment through their nearest Familienkasse, and can only retroactively claim the monthly payments stretching back six months. 

“Expats tend to think for whatever reason that they’re not entitled to these benefits…and then they tend to be livid that you can only go back six months and everything is lost,” said Zitzelsberger. “It’s a shame really.” 

A mother and child

It’s best to apply for Kindergeld as soon as possible after a baby is born. Photo: picture alliance/dpa/dpa-tmn | Christin Klose

If you receive Kindergeld, you also claim a Kinderfreibetrag (child allowance), which guarantees that the parents’ income remains tax free up to a certain amount. 

Unlike with Kindergeld, there’s no application involved – rather the Finanzamt inspects with the so-called Günstigerprüfung (cheaper check) whether an individual or married couple qualifies for a top-off to the Kindergeld they receive.

For 2021 and 2022, the tax deductible amount comes to €5,460, which is either assessed for married couples filing their taxes together or single people. 

Childcare costs

It does not matter to Germany’s tax office (Finanzamt) whether parents use a babysitter or nanny for a date night or because their Kita (day care) is closed, as long as the payment for the Betreuungskosten (childcare costs) is documented. 

Parents can deduct up to two-thirds of their annual childcare expenses per child (up until the age of 14) per year, capped at €6,000. That means the most you can expect to deduct is €4,000 per kid annually. 

Tuition fees

Whether Kitas or high schools, the vast majority of schooling in Germany is free or heavily subsidised. But what about when you do pay private tuition fees out of pocket? In this case, you can claim up to 30 percent of tuition expenses, at a maximum of €5,000 per child per year. 

Yet the Finanzamt strictly sees ‘tuition’ as fees that apply to schooling, not extracurricular activities. “If your child does music classes or football or whatever, that’s your private entertainment and there’s no deduction for that,” said Zitzelsberger. 

READ ALSO: State by state: Why private school enrollment in Germany is growing

Single Parents

Referred to as Alleinerziehende (literally ‘those raising children alone’), there are about two million solo mamas and papas in Germany. 

The government recognises the particularly high financial burden they also bear with a special Entlastungsbetrag (tax credit). As of 2021, single parents can deduct €4,008 from their income plus €280 a month for each additional child.

In some cases, single parents can also deduct Unterhaltszahlungen (maintenance payments) of up to €8,820 per year. This could include, for example, the cost of a room for the child to stay in if they travel between two separate residences. 

But the maximum deduction can only be claimed if the parent is not also receiving Kindergeld or the Kinderfreibetrag. 

Health and medical care

These expenses can be claimed as long as the Finanzamt sees them as “medically required,” said Zitzelsberger.

That does not apply to an over-the-counter tub of aspirin, for example. “However, if you have a doctor’s prescription that says this and this medication is required and your health insurance does not cover it in full, then you can make that claim,” he added.

But there’s a catch. While most other expenses come with the caveat of a maximum deduction, health expenses require a minimum deduction – or two to four percent of your income per year for all medical expenses for both the parent and their children. 

A typical medical deduction Zitzelsberger frequently sees for children is dental work. Parents may opt for a special orthodontic treatment on top of the basic tariff that insurance already covers.

If this costs an extra €1,000, for example, parents can claim the deduction.

spain free dentist public health

Parents can deduct some of the costs of a dental check up from their taxes. Photo by JAY DIRECTO / AFP

Moving costs

If a family receives a dream job or opportunity in Germany, and hops on a plane there before they can get rid of their old rental contract, this rent can count as a tax deduction, said Zitzelsberger. 

Yet sometimes one family member moves to Germany while the rest stay behind – at least temporarily. 

“It is relatively common for the first few months or it is common until the end of the school year and then the rest follows,” said Zittelberger.

To keep costs down, the Finanzamt allows these families to factor in the costs of accommodation for the family member who has moved, plus travel back and forth. 

“One of the questions we get often is: what’s the limit on this?,”said Zittelberger. “There is no limit on travel expenses. But they can only travel back and forth once a week”

“Travel expenses” are then defined as anything involved with door to door travel, including the taxi to the airport.

The cost of accommodation in Germany can also be deducted, but capped at €1,000 per month. 

If the partner staying back with the children is not working or has a low income in another EU country, their setup is treated with Ehegattensplitting – a mechanism for taxing married couples.

“They can claim all tax benefits that all resident German taxpayers would be entitled to even if they’ve never set foot in this country before.”

A good tax investment

In Germany, around the first €10,000 of income is completely tax free. Most parents, however, assume that this can only benefit them directly, and not their offspring. 

Yet starting from birth, parents can actually set up a savings account in their child’s name. Up to €10,000 of interest – for example that a stock portfolio their child is enrolled in generates – is then completely tax free.

“Many parents pay income tax on these investments every year which are really designed to eventually be given to the children when they’re adults,” said Zitzelsberger. “What you could do is give these investments directly to your children.”

READ ALSO: EXPLAINED: What you should know about investing in Germany

In the very best case scenario, said Zitzelsberger, this can add up to €180,000 of tax-free income by the time your child reaches their 18th birthday.

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