Germany Decides Not to Tax Digital Currency, When Used as Means of Payment

Given the increasing popularity of digital currencies, governments throughout the world are not only looking for ways to effectively regulate the crypto revolution. Rather, they are also looking for ways to tax digital currency use.

Germany is one of the latest countries to debate whether digital currency use should be taxed or not. Recent reports indicate that the Ministry of Finance has decided to NOT tax bitcoin users who use the currency as a means of payment.

The guidance is different when compared to the one available in the United States. There, the Internal Revenue Service, commonly known as the IRS, has decided to treat bitcoin as property. This means that US residents who purchase a product via the digital currency, are basically conducting sale of property, which can be subject to the capital gains tax.

Germany, on the other hand, will regard bitcoin as the equivalent of fiat when used as means of payment. This means that people will only have to pay the VAT tax, common throughout the world. In other words, no special taxes will be imposed on those who only wish to use digital currencies as a means of payment.

The decision, which was applauded by the German bitcoin community, may create precedent for other EU member states. Those who wish to tax digital currencies will be able to do so, yet chances are that they won’t effectively tax it when used as such.

The document outlining the decision also mentions that: "Virtual currencies (cryptocurrencies, e.g., Bitcoin) become the equivalent to legal means of payment, insofar as these so-called virtual currencies of those involved in the transaction as an alternative contractual and immediate means of payment have been accepted."

Not only this, as there has also been an EU ruling, mentioning that the act of converting fiat to digital currency and vice-versa, can be legally characterized as a supply of service. With this in mind, the exchange, which in this case, is acting as an intermediary for the transaction, may also be able to avoid additional taxes.

Based on everything that has been outlined so far, it is expected that the EU will have a generally-lenient policy when it comes down to taxing digital currency affairs, given the fact that tax exemptions are being put into place.