How is staking income taxed?

Anyone who trades in cryptocurrencies will inevitably have to deal with the subject of taxes. In Germany, Bitcoin and Co. are considered “other economic goods” and are therefore subject to tax law. The rule of thumb for crypto trading in Germany is: In principle, profits are tax-free after a holding period of one year. Even profits during the year do not have to be taxed up to an exemption limit of 600 euros. However, if investors exceed the threshold, the personal income tax rate (14 to 42 percent) applies.

These rules are already known to most crypto investors. However, trading is not the only way to generate profits from Bitcoin and Co. – another popular method is staking. By “locking up” cryptocurrencies, investors can generate passive income in the form of new coins and tokens. The hype about it came up mainly in the course of Ethereum’s switch to Proof of Stake, which was boosted again by the “Shapella” update, because users can now access their staked ether. A total of over 1.5 million ETH have flowed out since the changeover. But how should profits from staking be taxed? BTC-ECHO worked with lawyer and tax consultant Dr. Hendrik Arendt from the commercial law firm CMS Germany.

Crypto taxes: Fiskus distinguishes between two staking categories

In general, the authorities distinguish between two categories: Validated staking and Delegated staking. Validated staking describes an active staking process, for example via a dedicated node. Delegated staking includes classic platform staking via providers such as Binance, Kraken and Coinbase, but also participation in staking pools such as Lido or Stakewise.

Validated staking

“Validated Staking In the opinion of the tax authorities, it is basically a commercial enterprise,” says Arendt. The block rewards and the sale each fall personal income tax (14 to 42 percent, possibly plus solidarity surcharge and church tax) and one trade tax (depending on the municipality: 7 to 17 percent). In the case of the latter, the legislator grants income taxpayers and partnerships one Allowance of 24,500 euros a. In addition, the trade tax (in individual cases only partially) can be offset against the income tax.

Important: Unlike trading, “the one-year deadline occurs when selling no use. sales are always taxable‘ Arendt notes. However, expenses (such as electricity costs, technology, etc.) and losses from sales can be offset against the income. The attorney advises that income from validated staking be included in a Income Excess Account to be stated in “Appendix G” of the income tax return. Among other things, accounting obligations can also be added here.

Delegated staking

The Delegated staking probably affects most crypto investors. Only the personal income tax rate (possibly also the solidarity surcharge and church tax) applies here. An exception is income that is generated as part of a commercial operation.

In general, one applies to delegated staking Exemption limit of 256 euros per year. Rewards are tax-free up to the threshold. However, if this is exceeded, the entire block reward must be taxed. This applies from the very first euro. The exemption limit also applies to other current income such as airdrops or lending.

When the rewards are sold, the annual holding period to wear, which also applies to trading. This means: If an investor sells his received (and already taxed) ETH after one year, they are Profits tax-free. Profits during the year are from the exemption limit of 600 euros taxable. In any case, investors should report their taxable income in the “Annex SO” (at Rewards under “Achievements”at Disposals under “Private Disposal Transactions”) specify, advises Arendt.

Important: The annual holding period is still not finally resolved, says the tax expert. In May of last year, the Federal Ministry of Finance instructed the tax authorities in a letter to refrain from extending the holding period to ten years. However, the step still has to be reviewed by a judge, says Arendt. Until then, however, the holding period of one year applies.

What else is important

If a GmbH or a UG operates staking, all income is subject to corporate and trade tax. There is no exemption. The tax rate is around 30 percent, says the tax attorney.

The financial administration also does not differentiate between subtypes of staking, such as liquid staking. For Arendt, the applicable principles can also be applied to the special shape.

For the investor, the challenge usually lies in the documentation of the transactions. The tax expert recommends regularly backing up CSV files and ideally transferring them to tax software. BTC-ECHO tested twelve providers for you. In addition, the form of staking should be described as precisely as possible in the tax return. A tax consultant can help here, says Arendt.

If you follow the steps, you shouldn’t experience any nasty surprises at the end. However, it is important to deal with the issue proactively. As Benjamin Franklin once said, “Nothing is certain in this world save death and taxes.”