Germany Proposes Ending Tax-Free Status for Long-Term Crypto Holders

The German Federal Ministry of Finance has issued a draft proposal to eliminate the tax-free status of cryptocurrency gains for long-term holders. This move signals a major shift in how the European powerhouse treats digital assets, moving away from a regime that has long incentivized long-term holding.

Under the proposed changes, cryptocurrency would be treated similarly to stocks, falling under the flat-rate withholding tax known as Abgeltungsteuer. The proposed tax rate consists of a 25% flat tax plus a 5.5% solidarity surcharge, creating an effective tax rate of 26.375%. Reports indicate the transition to this standard flat-rate tax is expected to begin in 2028.

The End of the Holding Perk

Germany has historically been regarded as one of Europe's most crypto-friendly jurisdictions due to Section 23 of the Income Tax Act. This current law allows private individuals to sell their cryptocurrency entirely tax-free, provided the assets have been held for at least one year. For those selling in under 12 months, gains are taxed at the individual's progressive income tax rate, though a small exemption limit of €600 currently applies.

To mitigate the impact on current investors, the new regime is proposed to apply only to crypto assets acquired after December 31, 2026. Existing holdings acquired before this cutoff date are expected to retain their current tax treatment, meaning the 12-month tax-free rule would still apply to those specific assets.

A Shift to Capital Investment

This policy shift represents a fundamental change in Germany's regulatory philosophy. By moving crypto from a "private asset" classification to a "capital investment" classification, the government is aligning digital assets with traditional equities. This removes the primary fiscal incentive for "HODLing"—the practice of holding assets long-term regardless of volatility—and treats crypto as a standard financial instrument.

For the industry, this means the loss of a competitive advantage that previously attracted long-term investors to the German market. For the state, the move is designed to standardize the tax code and increase revenue by capturing gains that were previously exempt.

What to Watch

As the proposal is currently in the draft stage, the final legislation may still be subject to debate and amendment. Market participants will be watching for the official adoption of the December 31, 2026, cutoff date and the confirmed start of the 2028 transition. It remains to be seen how the German crypto community and industry lobbyists will respond to the removal of one of the most significant tax advantages in the region.