Does the crypto tax threaten Germany’s status as a business location?

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Germany could lose its competitive advantage

Germany is currently emerging as a European hub for cryptocurrency—and now, of all times, a crypto tax could jeopardize this lead.

Key Points at a Glance

  • Germany is one of Europe’s leading MiCAR hubs and has attracted numerous crypto service providers.
  • A national crypto tax with automatic withholding would place an additional burden on these companies in particular.
  • International providers and decentralized platforms could, to some extent, circumvent Germany’s special regulations.
  • For private investors, the elimination of the holding period would mean the loss of one of Germany’s most important competitive advantages.
  • The real damage would be sending a contradictory signal: Germany is courting the crypto industry—while at the same time making it harder for the industry to do business.

Germany has established itself as a major European hub for cryptocurrency

Just a few years ago, Germany was generally considered to be rather cautious in the international crypto industry. Today, that picture has changed significantly.

With MiCAR, Europe now has its first uniform legal framework for crypto service providers. Germany embraced this development early on and, together with other European countries, has emerged as a major hub for regulated crypto providers.

Many of the best-known providers in German-speaking countries now serve the German market. These include, among others, BISON (operated by the Stuttgart Stock Exchange), 21bitcoin, Bitpanda, Coinfinity, Relai, and other regulated crypto service providers such as Coinbase Germany. Some hold a German license, while others use their European MiCAR license and offer their services in Germany as well through a process known as “passporting.”

For years, these companies have been investing in regulatory requirements, compliance, anti-money laundering, and consumer protection. They create jobs, develop innovative financial services, and help ensure that Europe does not fall behind in the global competition for digital assets.

This is precisely where a political contradiction arises: If Germany were to additionally introduce a national crypto tax with automatic tax withholding, the resulting technical and bureaucratic burden would fall on precisely those regulated providers who have deliberately chosen to operate within the European legal framework. They would have to develop complex systems to track acquisition costs, holding periods, wallet transfers, tax calculations, and tax remittances to the German tax authorities.

Meanwhile, international platforms that are not subject to such obligations or decentralized trading venues could avoid some of these costs. This would mean that Germany would not be placing a burden on unregulated providers, but rather on precisely those companies that are currently building the regulated European crypto market and investing in Germany.

A current locational advantage could quickly turn into a real competitive disadvantage.

These companies, of all others, would be the ones to collect taxes for the government in the future

However, this is precisely where a contradiction arises.

If Germany were to abolish the holding period and, at the same time, introduce an automatic tax withholding system modeled after the Austrian system, regulated crypto service providers, of all entities, would have to take on extensive new responsibilities.

In the future, they would have to

  • manage all of their customers’ acquisition costs,
  • Calculate profits and losses,
  • document tax-related inventory valuation (FIFO),
  • Automatically withhold taxes,
  • pay to the tax office
  • and keep extensive supporting documentation on hand for tax audits.

A financial services provider would thus simultaneously become a tax services provider for the German tax authorities.

The necessary investments in software, compliance, tax experts, and internal processes would cost millions—costs that would ultimately be passed on to customers in the form of higher fees.

A competitive disadvantage for Germany as a business location

A German “special path” would be particularly problematic.

MiCAR creates a European single market. Crypto service providers can, in principle, offer their services throughout the EU. If Germany were to introduce additional national tax collection requirements on top of that, it would create a competitive disadvantage for those companies that have deliberately chosen to locate in Germany.

While German providers would have to make significant investments in tax software and compliance, other international platforms—depending on how the regulation is structured—could face significantly lower burdens or fall outside German jurisdiction.

The effect would be paradoxical:

Germany would be placing an additional burden on precisely those companies that are already regulated and have deliberately chosen to enter the German market.

Individual investors are losing one of their biggest competitive advantages

For individual investors, too, the elimination of the holding period would be a major change.

Today, Germany is one of the most attractive locations in Europe for long-term Bitcoin and crypto investors.

After one year, profits can be realized tax-free. It is precisely this advantage that has repeatedly been cited in international rankings as one of the most important reasons why Germany is perceived as a particularly crypto-friendly location.

A look abroad reveals the difference:

Country Taxation of Personal Crypto Gains
🇩🇪 Germany tax-free after 1 year
🇵🇹 Portugal tax-free after 365 days
🇨🇿 Czech Republic Tax-free after 3 years (starting in 2025)
🇫🇷 France 30% flat tax
🇮🇹 Italy 26% (increase approved)
🇦🇹 Austria 27.5% with no holding period
🇨🇭 Switzerland Generally tax-free for individual investors (wealth tax may apply)
🇸🇬 Singapore tax-free
🇦🇪 Dubai (UAE) tax-free

 

The trend within Europe is noteworthy. While Germany is debating the abolition of the holding period, the Czech Republic has taken the exact opposite approach and introduced a three-year holding period for private crypto investors. Portugal, too, is sticking to its model of tax exemption after a minimum holding period. The international trend is therefore by no means clear-cut. Rather, European jurisdictions are increasingly competing to attract long-term investors and innovative companies.

If Germany were to abolish the holding period, it would lose its most important tax competitive advantage within Europe.

Not everyone will leave Germany—but some will

It is often claimed that all crypto companies are leaving Germany. There is no scientific evidence to support this.

For companies, many factors come into play:

  • regulatory certainty,
  • qualified employees,
  • Access to banks,
  • Investors,
  • Legal certainty.

The holding period alone does not determine a company’s location.

The situation is different, however, for mobile investors and high-net-worth individuals.

Bitcoin can be transferred worldwide in just a few minutes. Anyone who is already active internationally or planning to move to a new country will, of course, take tax differences into account.

Research has shown for years that liquid assets, in particular, are sensitive to changes in tax policy. This liquidity is even greater for cryptocurrencies than for nearly any other asset class.

There is no evidence of a mass exodus—but a selective loss of capital, expertise, and investors is certainly plausible.

The real problem is the political message

Perhaps even more important than the actual tax impact is the message it sends.

Germany has been investing in the development of a digital financial center for years.

  • The Federal Government’s Blockchain Strategy
  • electronic securities
  • Crypto Custody Business
  • MiCAR
  • European Single Market for Crypto Service Providers

All of these measures are aimed at strengthening Germany as a hub for innovation.

Abolishing the holding period would signal exactly the opposite:

On the one hand, the government is courting companies in the digital finance sector.

On the other hand, it simultaneously worsens the tax environment for precisely those people who are investing in this technology for the long term.

This signal is likely to have an impact far beyond the actual tax effect.

Conclusion

Germany is now one of the most attractive locations for cryptocurrency in Europe. The holding period is not a special privilege, but rather part of a tax system that has been in place for decades for assets held over the long term.

Abolishing it would have several consequences:

  • Private investors would lose an important competitive advantage,
  • Regulated crypto service providers would have to deal with a significant amount of additional red tape,
  • Germany would be placing a burden on the very companies that have deliberately chosen to locate in Germany,
  • and the political message sent to investors and entrepreneurs would be contradictory.

Anyone who wants to strengthen Germany’s position as a hub for digital finance and innovation should not recklessly give up existing competitive advantages.

Sources and References