Is Germany Really the Most Crypto-Friendly Jurisdiction?
The EU is associated with really high taxes and an extremely fierce bureaucracy. So it may come as quite a surprise to some that the European nation with the lowest taxes on crypto-assets is… Germany.
That’s right, in what is perhaps one of the biggest surprises in the digital asset world this year, data from The Block has revealed that Germany’s government collects a mere 5% tax on crypto profits.
Germany recently took the top spot away from Singapore as the world’s most crypto-friendly jurisdiction, according to the latest ranking by CoinCub.
So, is Germany really the most crypto-friendly jurisdiction? It depends on how you look at it. For short-term traders, Singapore may still be the better option. But for long-term HODLERs, Germany is hard to beat.
To better understand why Germany is at the top spot; there is no taxation on crypto assets that are sold after a year of holding. However, if the crypto-assets for a price (over 600 Euros, or $648) before that one-year holding point, you are taxed under the standard capital gains percentage.
This development will favor long-term HODLERs. If you are long on bitcoin and want to stack sats, this tax regime will treat you very well.
However, this development does not bode well for short-term crypto transactions especially decentralized finance (DeFi). Operations like decentralized exchanges, yield farming, or even liquidity mining all require quick transactions.
The new German tax regimen could make it difficult for some DeFi protocols to function as intended. For example, the popular decentralized exchange Uniswap requires two transactions to perform a swap: one to fill an order and another to execute the trade. Under the new rules, each of these would be taxed as a separate transaction.
DeFi traders in Germany could easily accumulate a high tax bill. There is also a maze to sift through trying to calculate the tax liability as DeFi trades are very complex. The notion that Germany is the most crypto-friendly jurisdiction starts to raise some doubts when all these facts are considered.
Crypto investments have always favored jurisdictions like Singapore because of the lack of capital gains tax. Singapore is an island city with limited natural resources, so to boost economical development, Singapore created a tax-friendly regime to encourage international trade. With no capital gains tax, there’s no need for investors to worry about the length of time when holding crypto assets.
The same can be said for Hong Kong. Up until 2018, crypto trading in Hong Kong was completely tax-free. It’s now subject to a 5% tax on profits, but that’s still very low compared to other jurisdictions. The Isle of Man is another crypto-friendly jurisdiction with no capital gains or value-added taxes (VAT).
There are also many countries in Europe that have favorable tax regimes for crypto investors. For example, there’s no capital gains tax on cryptocurrency profits in Portugal. In Spain, crypto gains are only taxed if they’re considered “professional income.” And in Belgium, long-term crypto gains (held for over a year) are taxed at a preferential rate of 25%.
So, is Germany really the most crypto-friendly jurisdiction? While it does have some attractive features, there are other jurisdictions that offer greater tax advantages to crypto investors.
Do you think Germany is the most crypto-friendly jurisdiction? Let us know