Germany Recognizes Bitcoin As “Private Money”, Sales Tax Coming Soon

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After a parliamentary inquiry, Germany has clarified its position on Bitcoin. The federal ministry of finance recognized Bitcoins as “units of account” — the cryptocurrency is therefore be considered as “private money”. That’s why, according to Die Welt, the government stated that there wouldn’t be a tax exemption on commercial activities that use Bitcoins. In addition to paying capital gains tax, Bitcoin users should now pay sales tax (VAT) as well.

Member of Parliament Frank Schaeffler considers Bitcoin mining as private money creation, and says that the same fiscal and legal rules should apply to Euros and Bitcoins. Yet, it is still unclear how the sales tax will be implemented. For example, an individual who sells something on eBay every now and then doesn’t have to bother with sales tax. It should be the same with Bitcoin transactions.

Similarly, payment processors should be exempted from paying sales tax when dealing with German customers. They only act as intermediaries between a customer and a merchant. It remains to be confirmed whether commercial entities could avoid paying tax by opening a company abroad to bill its customers.

In other words, the federal ministry of finance is encouraging the same tax-optimization strategies used by Google, Apple, Amazon or Facebook in the European Union. As long as it remains an isolated initiative, Bitcoin companies will always find a way to avoid reporting its sales to German authorities.

Back in June, the German government stated that Bitcoin trading would be subject to capital gains tax, just like any other trading activity (25 percent plus solidarity surcharge and church tax). At the same time, Bitcoin users shouldn’t be taxed if they hold Bitcoins not to trade but to buy stuff. That’s why tax gains won’t be taxed if you hold your Bitcoins for more than a year.

As a reminder, last week, New York’s top banking regulator subpoenaed 22 Bitcoin firms to know whether they respect the current financial regulatory guidelines and to “root out illegal activity.”

When it comes to Bitcoin news, the German government’s decision is part of a bigger trend. Transactions and institutions will soon be regulated just like other financial institutions that deal with euros or dollars. While it legitimizes Bitcoin, it also confirms that the original purpose of Bitcoin could be lost along the way. Bitcoin is no longer an unregulated currency that works similarly in every country of the world. You now have to find a way to avoid tax, and authorities now have a say in what you are doing with your Bitcoins.

(Image credit: Zach Copley)