BMF: Draft Bill Would Tax Exchange Crypto-assets As Investment Income

On September 30, 2026, the Federal Ministry of Finance (Bundesministerium der Finanzen, BMF) published a draft bill (Referentenentwurf) on the reform of the taxation of certain crypto-assets held as private assets (the Draft Bill). Income from the use and disposal of so-called exchange crypto-assets (Tauschkryptowerte, e.g. Bitcoin and Ether) is in future no longer to be taxed as other income under Section 22 of the German Income Tax Act (Einkommensteuergesetz, ITA) but is instead to qualify as investment income under Section 20 ITA.

Three points are decisive in practice:

• the one-year holding period is to be abolished; capital gains (Veräußerungsgewinne) are to become taxable irrespective of any holding period
• the special flat tax rate of 25 % (plus solidarity surcharge) is to replace the personal tax rate of up to 45 % (where applicable, plus solidarity surcharge)
• domestic crypto-asset service providers and operators are to be obliged to apply withholding tax on investment income (Kapitalertragsteuer).

These changes are, however, only to cover exchange crypto-assets acquired or received after December 31, 2026 (New Holdings). For exchange crypto-assets acquired before that date (Legacy Holdings), the existing rules are to remain unaffected. Withholding tax on investment income is only to be applied from January 1, 2028.

Overview of the Draft Bill

Definition of exchange crypto-assets

Under Section 20 para. 1 no. 12 sentence 2 of the draft ITA (ITA-Draft), exchange crypto-assets are to be crypto-assets within the meaning of Art. 3 para. 1 no. 5 of Regulation (EU) 2023/1114 (also referred to as the Markets in Crypto-Assets Regulation, MiCAR) which are accepted as a means of exchange without being issued or guaranteed by a central bank or another public authority—that is, for example, Bitcoin and Ether. E-money tokens issued under Title IV MiCAR are to be excluded. For non-fungible tokens, security tokens and other crypto-assets that represent a real-world value, the rules governing the represented value are to continue to apply.

Substantive classification as investment income within the meaning of Section 20 ITA

To date, in the absence of specific statutory rules, exchange crypto-assets have been treated as other income under Section 22 ITA: current income was taxed as recurring payments (wiederkehrende Bezüge) under Section 22 no. 1 ITA or as income from services (Einkünfte aus Leistungen) under Section 22 no. 3 ITA, and disposals were taxed as private disposal transactions (private Veräußerungsgeschäfte) under Sections 22 no. 2, 23 para. 1 sentence 1 no. 2 ITA.

In future, Section 20 para. 1 no. 12 ITA-Draft is to cover rcurrent income from making exchange crypto-assets available (Überlassung von Tauschkryptowerten) and from participating in transaction processing (Teilnahme an Vorgängen zur Transaktionsverarbeitung). According to the explanatory memorandum, the latter is intended to cover in particular lending and passive staking, but also decentralised business models.

Under the Draft Bill, gains from the disposal of exchange crypto-assets are to be taxed under the new Section 20 para. 2 sentence 1 no. 9 ITA-Draft irrespective of any holding period, i.e. without the previous one-year holding period. Claims for the transfer of exchange crypto-assets that have been made available are themselves to be treated as exchange crypto-assets. The subsidiarity of investment income vis-à-vis income from a trade or business is to remain unaffected.

Collection by way of withholding tax on investment income under Sections 43 et seq. ITA

From a procedural perspective, the Draft Bill subjects this income to withholding tax on investment income at a rate of 25 % (Sections 43 para. 1 sentence 1 nos. 8b and 13, 43a para. 1 sentence 1 no. 1 ITA-Draft). Pursuant to Section 44 para. 1 sentence 4 no. 1a ITA-Draft, the parties obliged to withhold are to be domestic crypto-asset service providers and operators within the meaning of the German Crypto-Asset Tax Transparency Act (Kryptowerte-Steuertransparenz-Gesetz), as well as domestic branches of foreign providers.

Implications of the Draft Bill

Implications for taxpayers

With the Draft Bill, the BMF proposes, for the first time, a specific statutory basis for the taxation of exchange crypto-assets. It thereby replaces their classification as other income under Section 22 ITA. This concerns, in particular, the taxation of disposals as private disposal transactions under Section 23 ITA. The previous classification as “other assets” (andere Wirttschaftsgüter) had been confirmed by the German Federal Tax Court (Bundesfinanzhof, BFH), after initial uncertainties, in its judgment of February 14, 2023 (IX R 3/22, BStBl II 2023, 571).

Which change has the greatest impact in practice?

Of particular practical significance is the abolition of the one-year holding period: under the Draft Bill, gains from New Holdings would always be taxable irrespective of the holding period (Section 20 para. 2 sentence 1 no. 9 ITA-Draft).

Does the tax rate for exchange crypto-assets change?

For New Holdings, the special flat tax rate of 25% (plus solidarity surcharge) replaces the inpidual tax rate of up to 45% (where applicable, plus solidarity surcharge). For taxpayers with high incomes, the new rules would therefore have a relieving effect in respect of New Holdings. Long-term investors, by contrast, would lose the ability to realise gains on New Holdings tax-free after expiry of the holding period.

What happens to losses?

For New Holdings, the scope for offsetting losses would also change. Losses from New Holdings would, in principle, only be capable of being offset against investment income. In addition, the loss carry-back previously available would cease to apply for New Holdings. For Legacy Holdings, however, the old regime is to continue to apply unchanged under the Draft Bill.

Can income-related expenses still be claimed as before?

As a result of the allocation to Section 20 ITA, the prohibition on deducting income-related expenses under Section 20 para. 9 ITA is also to apply to New Holdings: only the saver’s lump-sum allowance (Sparer-Pauschbetrag) of EUR1,000, or EUR2,000 for spouses filing jointly, would then be deductible. The deduction of actual income-related expenses would be excluded. The favourable-treatment test (Günstigerprüfung) under Section 32d para. 6 ITA is not affected by the Draft Bill; according to the case law of the BFH, however, the deduction prohibition applies within its scope as well. 

The prohibition on deducting income-related expenses could become particularly problematic for taxpayers who wish to claim especially high energy costs for tax purposes in connection with their participation in blockchain-based consensus mechanisms (e.g. mining), to the extent that such activity does not already qualify as a trade or business.

How are gratuitous acquisitions to be treated in future?

In the case of gratuitous acquisitions (unentgeltiche Zugänge), the acquisition costs are to be set at EUR0 (Section 20 para. 4b ITA-Draft). The explanatory memorandum refers in this context, in particular, to airdrops and bounties, where exchange crypto-assets are transferred without any action on the part of the taxpayer or merely in return for minor activities. The taxation of the benefit obtained would thus be deferred to the subsequent disposal, the gain from which is captured in full. It appears problematic that, under the Draft Bill, inheritances and gifts are also to fall within the scope of this rule as “gratuitous acquisitions”. This would prevent the carry-over of acquisition costs (the so-called Fußstapfentheorie) and would therefore lead to excessive taxation.

Implications for the parties obliged to withhold

What has the greatest impact in practice?

The greatest practical challenge for withholding is likely to lie in the underlying data. For exchange crypto-assets, Section 43a para. 2 sentences 16 et seq. ITA-Draft is, in principle, to refer to the "market price" (Marktpreis), without defining that term in more detail. Under the Draft Bill, the detailed requirements are left to a statutory ordinance (Rechtsverordnung) subject to the consent of the Bundesrat. Where the acquisition costs and the acquisition date are not known to the paying agent, it is to be permitted to rely on the taxpayer’s information as long as it has no data to the contrary. If the party obliged to withhold cannot rely on the taxpayer’s information, the Draft Bill deems the holding to be a New Holding and assesses the withholding tax on the basis of 50% of the disposal proceeds. Investors therefore effectively bear the documentation burden.

What else changes?

For domestic crypto-asset service providers and operators, the Draft Bill shifts tax collection into an operational mass-processing procedure. They are to become parties obliged to withhold and must not only process price and acquisition data, but also “generate” liquidity for the withholding where the investment income is not received in cash. In order to cover the withholding tax, they are therefore to be permitted, pursuant to Section 44 para. 1 sentence 8 ITA-Draft, to collect and liquidate corresponding crypto-assets. In addition, Section 45a para. 2 sentence 1 no. 2 ITA-Draft is to extend the obligation to issue tax certificates.

Application rules

The substantive new rules are to apply to all exchange crypto-assets acquired or received after December 31, 2026. This is also to apply to inflows from lending or staking activities after that cut-off date, even where the underlying crypto-assets continue to be subject to the previous legal position as Legacy Holdings. For such Legacy Holdings, Sections 22 and 23 ITA are otherwise to continue to apply. The provisions on withholding tax on investment income are to apply for the first time from January 1, 2028. According to the explanatory memorandum, this later application takes account of the fact that the parties obliged to withhold need time to implement the procedures required for the withholding.