Germany drafts bill to tax long-term crypto

TLDR

Germany is preparing a draft tax reform that would end its one-year tax-free rule for crypto and tax long-term gains at a flat capital income rate from 2027.

1. The draft would tax all crypto gains at about 26.38% as capital income, removing the current one-year exemption for long-term holders.
2. Short-term high-income traders would pay less tax, while long-term buy-and-hold investors would lose Germanys uniquely favorable treatment.
3. Key open issues include final approval, grandfathering of pre?2027 holdings, documentation rules, and how staking and complex products are treated.

Deep Dive

1. What The Draft Bill Actually Does

Germanys Federal Ministry of Finance has circulated a draft bill that would end the tax-free status of crypto held for more than one year and move all crypto gains into the Abgeltungsteuer, the flat capital income tax regime at 25% plus a 5.5% solidarity surcharge, for an effective rate of about 26.375% before any church tax. This would apply regardless of holding period starting 1 January 2027, replacing todays system where gains after one year are tax free and shorter-term gains are taxed at personal income rates, with a small exemption.

The draft also reclassifies income from crypto lending and staking as capital income, aligning crypto with other investment products, though details for more complex arrangements such as liquid staking are still not fully clarified in the text that has circulated. The proposal is embedded in the federal budget bill, which makes passage more likely, but it is still at an early coordination stage and not yet law, so the current one-year exemption remains in force for now. Draft details and additional coverage support this outline.

2. Winners, Losers, And Mechanics

Under current rules, German residents who trade frequently can pay up to 45% income tax on crypto gains realized within a year, while long-term holders pay no tax after that one-year mark. The draft flips this balance: everyone would pay roughly 26.38%, meaning high-income short-term traders benefit from a lower rate, and long-term investors face a new recurring tax cost.

The ministry estimates extra revenue of about 160 million euros in 2028, rising to 350 million euros annually by 2031, signaling an intent to equalize treatment rather than raise large sums. The bill introduces two important mechanics: crypto losses could be offset against securities gains, and automatic tax withholding by crypto service providers would begin in 2028, giving platforms a year to implement systems. A possible grandfathering of assets acquired before 31 December 2026 is mentioned, but not fully locked in, and strict documentation rules mean that without proof of cost basis, tax could apply to full sale proceeds.

3. Timeline, Uncertainties, And What To Watch

This is the fourth serious attempt in about 18 months to end Germanys one-year exemption, but the first time the change is embedded in the budget bill, which materially raises the odds of passage. Even so, the text can still change as it moves through ministerial coordination, cabinet approval, and the Bundestag.

Unresolved points that matter for crypto users include: how firmly grandfathering will protect pre?2027 holdings, the eventual guidance on staking, liquid staking, and other yield products, and how self-custody wallets will handle documentation compared with platform-based accounts. The expected cut?off date could drive behavioral shifts, such as accelerated buying or selling before 2027 and a cohort of locked?in positions acquired before the deadline.

Conclusion

Germany is moving toward treating crypto like other investment income, replacing a generous long-term exemption with a uniform capital tax that reshapes who benefits from holding versus trading. For crypto users, especially in Germany, the key is to monitor how the draft bill evolves, understand when the new regime will take effect, and ensure robust documentation and planning as the tax status of long-term crypto changes.