Germany’s proposed crypto taxation framework has sparked significant concern among local investors and industry experts, primarily due to the implications for ordinary retail participants. The draft regulations introduce a new default tax base, which many fear will heavily impact those unable to accurately verify their past crypto purchases.
Circle and legal experts voice concerns over the new rules
Patrick Hansen, Director at Circle, has warned that the default 50% tax base outlined in the draft reform could disproportionately affect everyday investors. Hansen stated that individuals who are unaware of the regulatory shift or unable to provide precise documentation of their acquisition costs may face steep tax burdens, especially those who either made small profits or even suffered losses in recent years.
Circle currently stands as the leading issuer of stablecoins under the EU’s MiCA licensing regime. Hansen emphasized the disproportionate effect of the proposed rules, highlighting that tax authorities could treat assets acquired after 2026 as if their value had doubled, resulting in a tax on half of any gains.
The reforms could make people liable for taxes on gains they never actually realized, with average investors paying much more than they should if documentation requirements remain unchanged.
Hansen also questioned the underlying assumption in the draft that the value of digital assets will automatically double. He noted that this seems unrealistic, especially considering Bitcoin’s year-over-year declines and the underperformance of many altcoins.
Dr. David Hötzel, associate partner at law firm Poellath, echoed concerns about the 50% baseline rule, although he emphasized that it has not yet been finalized. He suggested that such high initial tax levels could disproportionately affect trades with modest gains, depending heavily on an investor’s ability to provide reliable records.
Focus shifts to documentation and compliance
Under the new proposal, documentation requirements will intensify. Germany’s Finance Ministry has mandated that taxpayers maintain detailed records of acquisition dates, purchase volumes, costs, transaction fees, and the platforms or wallets involved.
Supporting documents such as tax returns, exchange transaction histories, and structured spreadsheets will be needed to prove acquisition costs. These requirements are set to apply to all crypto assets acquired after December 31, 2026, while holdings purchased before January 1, 2027 would remain governed by existing tax regulations. The withholding mechanism is expected to be implemented in 2028.
Because of these changes, investors will likely need to track their older holdings separately from new acquisitions. For those who have traded across multiple exchanges and self-custody wallets, reconstructing transaction histories could become a major compliance challenge.
The protection of existing holdings effectively depends on reliable documentation, making accurate record-keeping a central requirement for all investors.
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Proposed tax regime and financial impact
Germany’s proposed legislation sets a flat 25% levy on crypto capital gains, supplemented by a 5.5% solidarity surcharge for a combined effective tax rate of 26.375%. Until now, retail investors in Germany have generally been exempt from taxes on capital gains realized from selling cryptocurrencies such as Bitcoin or Ethereum. The new regime, however, would tax the returns of all assets acquired after December 31, 2026, regardless of the duration for which they are held.
Some categories of digital assets, including certain stablecoins, NFTs, security tokens, and RWA tokens, are expected to remain exempt from the new rules. Meanwhile, day traders may see some relief, moving from the maximum personal income tax rate of 45% to the proposed flat tax.
The removal of the existing tax exemption for long-term holdings signifies a substantial change for German crypto investors. For example, capital gains of €100,000 accrued under the new rules would result in a combined tax bill of around €26,375.
Government projections indicate that the tax reforms could generate revenue of €160 million ($182.2 million) in 2028, with estimates rising to €350 million ($398.7 million) annually by 2031.
