Cryptocurrency market remains very uncertain and unpredictable. Many people are still confused about how to handle the digital currencies for the federal income tax purposes. Countries are coming up with new restrictive measures in an effort to protect its citizens from exploitation, ensure that there is not money laundering and finally ensure that the currencies do not support illegal activities. Germany has however announced that it will not tax Bitcoin users who use the currency as a means of payment.
This announcement took a different twist from the latest announcement by EU of regulating Bitcoin. Other countries like the USA treat Bitcoin as property for tax. This means that by using bitcoin to buy anything, it will be considered similar to the sale of property and therefore you will be required to pay capital gains tax.
For their part, Germany wants to take Bitcoin as similar to legal tender for taxes when used as means of payment. The recent decision is based on a ruling by the EU court in 2015 which created a precedence to tax Bitcoin while at the same time providing exemptions for certain transactions. The country justified its decisions by making Bitcoin a legal method of payment.
The announcement further added that when a person pays for goods using Bitcoin VAT will apply to the price of the Bitcoin at the time the transaction is done by the seller. EU’s ruling stated that the act of converting digital currencies to fiat and vice versa should be taken as a supply of services and therefore the parties acting as intermediaries should not be taxed. However, the payment fees sent to the wallet providers can be taxed according to the announcement.
More to that miners who receive rewards for mining will also not be taxed because their services will be taken as voluntary. The announcement also added that exchanges that buy and sell Bitcoin using their brand name would also be exempted.