Germany has become to an important decision regarding Bitcoin. In a statement released on 27th February 2018, its Ministry of Finance said that people paying for goods with Bitcoin will not be taxed on its usage.
This is in strong contrast to the United States, where the IRS has decided that cryptocurrency is a ‘property’ for tax purposes. In effect this means that if you buy something with crypto in America, technically you have made a sale that could be subject to capital gains tax.
The Germans have looked at the situation and chosen to consider Bitcoin, and presumably any other cryptocoin that is accepted as a method of payment for consumer goods, as legal tender. This ruling only applies to crypto used for payment.
The Ministry of Finance arrived at its decision by following a 2015 European Union Court of Justice ruling on VAT. This document creates a precedent for European Union nations to tax Bitcoin while providing exemptions for certain types of transactions.
However, what is most significant is that the German government has decided to acknowledge cryptocurrency as legal tender. In its statement it said:
“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.”
On the other hand, if you convert Bitcoin into fiat currency this is taxable within the EU VAT Directive. But other aspects of the cryptocurrency ecosystem will not be taxed. For example, miners who receive crypto rewards will not be taxed, because their services are considered to be voluntary, according to the document. This is good news for the miners and mining operations in Germany.
Similarly, exchanges that buy or sell Bitcoin in their own name as an intermediary will receive a tax exemption, although an exchange that can be categorised as a technical marketplace will not be tax exempt.