Germany draft law sets 2026 deadline for tax-free Bitcoin gains

A draft law from Germany's finance ministry proposes ending the tax exemption for cryptocurrency gains held longer than 12 months, with the change taking effect for assets acquired after December 31, 2026. The proposal, reviewed by Handelsblatt, has not yet passed into law, but it signals a significant shift in how German investors manage digital assets.

Under the current rules, crypto assets held for more than a year are exempt from capital gains tax. Sales made within 12 months are treated as business income and taxed at rates up to 42%. This framework has contributed to Germany's reputation as a favorable jurisdiction for long-term crypto holders.

The new draft eliminates the time-based exemption entirely. All future sales of crypto assets would be subject to a flat 25% withholding tax, aligning the treatment with shares and dividends. A solidarity surcharge would also apply to these gains. However, the first €1,000 (approximately $1,163) of annual gains would remain tax-free, and losses could be offset against other gains.

The Federal Ministry of Finance justified the change by arguing that the previous exemption rewarded speculation. The ministry argued that it is inequitable that labor income and other capital gains face taxation while speculative profits from crypto assets escape it, according to the report.

The tax burden would vary significantly depending on investor behavior. A high-income trader currently paying 42% on short-term gains would see that rate drop to approximately 26% under the new flat structure. Conversely, a long-term holder currently paying zero tax would face a new liability of roughly 26%.

The German government projects that this regime would generate €160 million (about $186.2 million) in revenue in 2028, rising to €350 million (approximately $407.35 million) by 2031. Exchanges would begin withholding taxes automatically starting in 2028, coinciding with broader crypto tax reporting rules.

The draft faces an uncertain path through the legislative process. It must be approved by the cabinet, the Bundestag, and the Bundesrat. Lawmakers rejected a similar proposal in May of this year. Until a final vote is cast, the existing 12-month holding period rule remains in effect for assets purchased before the proposed deadline.