Cryptocurrency Regulations in Germany

The German government’s view on digital currencies is twofold. On the one hand, there is the principle that the generation of digital currencies is evolving with increasing dynamism, and the German government has presented a gradual program to reflect these developments. On the other hand, there are fundamental concerns about micro-investors regarding capital protection considerations, especially about cryptocurrencies. The German government has issued a warning regarding the illegal digital currency market. In this publicly issued warning, the government explicitly emphasizes that digital currencies are not legal tender but can only be used as alternative currencies. The notice also states that digital currencies are not problematic in all cases. The German government also notes that the use of digital currencies, in some business practices, could increase customer security concerns or even be used in areas of a fraudulent nature, such as Panzi schemes. This notice can be divided into several sections:

  1. Risk of total capital loss due to the lack of a safeguard mechanism in digital currency exchanges.
  2. Lack of considerations regarding the protection of capital or digital deposits.
  3. Lack of customer protection standards under EU law.
  4. High fluctuations and consequently the risk of losing a large part of capital due to these fluctuations.
  5. The anonymity of the parties to the transaction

Cryptocurrency Rules

So far, the German government has not imposed a total ban on the creation, extraction, ownership and sale of digital currencies. The same is true for security assets and tokens, and there is no prohibition. In 2013, digital currencies were legally classified as financial instruments by the BaFin (Federal Financial Supervisory Authority). This classification includes security tokens, application tokens, and digital assets at a glance. The use of digital currencies to be used entirely as a substitute for cash in the business cycle is not currently agreed upon in Germany’s regulatory laws. This means that digital currencies as a means of payment are not now legal in Germany. In other words, using digital currencies as a payment method to buy a product from the store is considered an illegal activity for buyers.

cryptocurrency and bitcoin trading rules in germany

Sales regulations

Concerning the rules for the sale of digital currencies, there is the fact that the distribution of these currencies may lead to the imposition of regulations for distributors under German financial supervision law. Because by government definition, digital currencies are financial instruments that must be fully managed under German banking law. The legal status of these currencies becomes very complicated after the necessary licenses are created under German financial supervision law. The following are points that should be carefully considered in any evaluation:

  1. Because digital currencies are financial instruments governed by German banking law, the German securities regulator does not have the authority to monitor and comment on these currencies. However, suppose the use of these currencies goes beyond mere substitution as a common currency. In that case, the German Securities and Exchange Commission has the authority to intervene, control and monitor these currencies. With the intervention of this organization, the situation of these digital currencies is small. It gets more complicated.
  2. Classifying some digital currencies as a security asset and holding a public offering (ICO) to raise capital can create several legal requirements. For example, when an initial public offering project is set up, and an investment fund is set up for it, this activity will be prohibited without obtaining a license under the supervision of the German Investment Law and, given its details, could have far-reaching criminal consequences and civil liability.

Taxation

The use of digital currencies under German financial law can lead to complex tax consequences. On February 27, 2018, the German Ministry of Finance issued its directive on VAT on digital currencies. The main statements of this instruction are as follows:

  1. Exchanging digital currencies to fiat and vice versa is tax-free.
  2. Using digital currencies as a means of payment is tax-free.
  3. The extraction of digital currencies is tax-free.
  4. The provision of services related to digital wallets is subject to taxation under German tax law, provided that these services are provided in Germany.
  5. The provision of digital currency exchange platforms may be taxed depending on the circumstances.

Money transfer laws and anti-money laundering requirements

Because digital currencies are not common currencies and are not stored in bank accounts but hot or cold wallets, they are not governed by the Payment Services Supervision Act. For example, if a person wants to convert their Fiat currency into Cryptocurrency and then send that Crypto to someone, they convert it back into fiat. Following the Payment Service Supervision Rules, There are compelling arguments about why such activities are not eligible for a money transfer license, even if they are used in a business as a payment method. The mere use of digital currencies as a means of paying for goods and services is in no way subject to German anti-money laundering laws. At the level of European legal legislation, the European Parliament and its Council, in December 2017, reached an agreement under which digital currency exchanges would be centralized, and wallet providers would be required to comply with the law. This means that, unlike Germany, digital currencies are not financial instruments for other European countries. Therefore, in short, commercial transactions using digital currencies in these European countries do not require legal authorization from competent authorities.

Improve and test

In Germany, there are no clear rules for the use of digital currencies in commercial transactions. Under German law, advertising activities in specific economic sectors are not covered by banking law statements. Instead, banking regulators are required by law to deal with adverse developments in lending and financial services that may jeopardize the security of assets transferred to institutions or have general disadvantages for the country’s economy. In addition to all of the above, there is a public perception that German regulators are more flexible in discussing the issuance of specific licenses and legal requirements related to the financial sector, given the many technological developments that have taken place in the country.

Terms of ownership and licenses

In situations where digital currencies are held in the form of a business model, this business model should be evaluated on a case-by-case basis. Such activities, in particular, may involve the actions of other sectors, including; Portfolio management, brokerage services, brokerage contracts, or investments can be generalized under German banking law or even include the direction of an investment fund that is a legal activity licensed by Towards the German Investment Fund.

Mining

In 2013, the Federal Financial Supervisory Authority (BaFin) provided a general guide to mining laws in Germany. According to this regulatory guideline, creating a digital currency using a series of complex computational problems is not a legal activity under German banking law.

mining and crypto extraction laws in germany

Restrictions and declarations

There are no restrictions on digital currencies entering or leaving Germany. According to the German Customs Union laws, in cases where goods are imported into Germany from other countries, the legal conditions are as follows: The value of the goods is set to apply standard and non-common customs tariffs by the regulations on trade in goods. The primary basis for determining the customs value of an interest is its transaction value. That is, the price paid for it. Given that digital currencies are not legal tender and that their prices usually fluctuate sharply, their conversion into currency at a given point in time cannot be determined precisely enough. Based on this, alternative valuation methods are created and applied to them.

Reporting requirements

Overseas transactions using digital currencies in Germany must be carefully and case-by-case evaluated. According to the instructions on payments and transactions abroad, German residents are obliged to pay the amount paid to the German Bundesbank before the maturity date of their overseas transaction or to a person in another country. , Send to announce. According to the International Trade and Transaction Guidelines, notification of transactions to the German Bundesbank is not required in the following cases: Payments of less than € 12,500, payments made for trade purposes, i.e. import, export or transfer of goods. Loans for granting, receiving or repaying loans with a repayment period of fewer than 12 months.

Inheritance laws

The question of what the rules for inheriting digital currencies are is decided by German civil law. German civil law states that the property (inheritance) is transferred to one or more other persons as soon as a person dies. This means that the heirs of the deceased generally assume the legal positions of the dead. This principle of property transfer states a universal law according to which property ownership is transferred to the heir after death. Digital currencies can replace cash or legal tender. As a result, if part of the assets of a dead person is in the Cryptocurrency form, according to German civil law, after death, these Cryptocurrencies will be given to the heir. Therefore, the wallet and the private key must be recorded in the will with other documents.

if you want to develop your crypto exchange platform and get some helpful information, check the article: cryptocurrency exchange website development in Germany
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