Buying and selling Cryptos
The German regulator, Bafin, did define Bitcoin and similarly structured digital currencies as financial instruments in the form of units of account (§ 1 (11) sentence 1 of the German Banking Act (KWG)) in 2013. Bitcoin was explicitly not defined as e-money as it is not issued by a central issuer.
Bitcoin may be used in the market by market participants without any permission. Also exchange transactions as well as mining are not subject to authorization.
An authorization is only required if a "special contribution is paid to create or preserve such market". If you promote an exchange or a mining pool, it has to be authorized. The required authorization is the same as for other assets, hence already exiting brokers could offer these services easily as soon as the technical infrastructure is implemented.
Iinitial Coin Offerings
The Bafin also states in 2017 that stock corporation law does not apply to ICOs. "Tokens are not required to carry any memberships rights, information rights, control rights or voting rights." No legally regulated or checked documentation is required. The Bafin decides on a case-by-case basis whether the any kind of authorization is required pursuant to the German Banking Act (KWG), Investment Code (KAGB), Payment Services Supervision Act (ZAG) or Insurance Supervision Act (VAG).
Tax on Cryptos
The European Court of Justice exempted Bitcoin from Value-Added-Tax (VAT) in 2015. An application of this rule on cryptocurrencies would be logically, however tokens could be handled differently. Germany does not differentiate between cryptocurrencies and tokens whereas Switzerland is exempting cryptocurrencies but applying VAT on tokens depending on their functionality.
Even more interesting is the tax on profits from trading and holding cryptocurrencies. As cryptocurrencies are defined as units of account, they are taxed after § 23 of the German Income Tax Act (EStG). This opens the door to paradise. If you hold the cryptos for more than a year, all profits are tax-free. If you trade in shorter intervals, the personal income tax rate will be applied.
Structured Products/Options on Cryptos
Options and options strategies may be used to secure the profits even if not a full year has passed. The German market for structured products is one of the biggest globally and may even expand by expanding its knowledge to cryptocurrencies.
The regulation of cryptos and ICOs is very sensible and open in Germany, the possibility of tax-free profits is fantastic and the combination with the structured products market opens the door to paradise!
