All details on the taxation of ETCs

One of the most frequently asked questions by private investors in Germany is the taxation of crypto ETCs/ETPs.

Therefore, in this post we summarize the most important points on the topic Taxes and ETCs take a look at the ETC Group – Europe’s leading provider of innovative cryptocurrency-based securities.

Crypto ETPs Taxes: Income Tax treatment of Virtual Currencies

When the ETC Group listed its first crypto-ETC (WKN A27Z30, stock exchange symbol BTCE) on the Deutsche Börse in June 2020, one of the most frequently asked questions by private investors in Germany had not yet been clarified:

What about the income tax treatment of the ETCs?

Fortunately, this now looks different. Below we explain how the taxation of crypto ETPs is carried out.

Taxation of Crypto ETPs: BMF Letter Provides Clarity

To clarify this question, the Federal Ministry of Finance (BMF) published a letter in May 2022 on individual questions on the income tax treatment of virtual currencies and other tokens, which confirms that crypto ETCs such as the BTCE should be treated in the same way as certain physical gold ETCs. An example of this is Xetra-Gold®, whose sale is tax-free after a minimum holding period of one year.

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The letter also confirms that German private investors will be admitted to the crypto ETCs issued by ETC Group after a minimum holding period of one year no taxes on profits have to pay from such investments – thanks to the full physical deposit of each ETCs and the possibility of physically redeeming them.

An excerpt from the letter of the BMF:

Units of a virtual currency and other tokens are a “different economic good” within the meaning of § 23 paragraph 1 sentence 1 number 2 EStG (see recital 31). Profits from the sale of units of a virtual currency and other tokens held in private assets may therefore represent income from private sale transactions in accordance with § 22 number 2 in conjunction with § 23 paragraph 1 sentence 1 number 2 EStG, if the period between the acquisition and the sale is not more than one year.

Among other things, the letter was particularly important for the taxation of staking rewards.

ETC Group campaigned for tax equality of crypto ETCs with gold ETCs

The ETC Group has also been working towards this type of taxation for a long time. Maximilian Monteleone, Co-founder and Marketing Director of ETC Group said:

“The ETC Group was founded to offer investors in Germany and other European countries robust, highly liquid and innovative cryptocurrency ETCs. As part of the product development, our goal was to apply the best features of established physical gold ETCs to our crypto ETCs. We have been working towards such a clarification for investors for a long time now, and the decision to equate physical crypto ETCs with physical gold ETCs is consistent, as there are long-standing legal guidelines to this effect.“

“Our ETC product structure includes the possibility for end investors to have the underlying cryptocurrency physically delivered to them, as an alternative to selling on the stock exchange. The objective and the natural conclusion of this function was to obtain a positive tax treatment for buying and selling through the stock exchange for BTCE, ZETH and our other ETC products,“ he continued.

Crypto ETPs: Capital Gains Tax or Income Tax?

Also, the tax office takes into account the difference between ETPs and real cryptocurrencies.

In the annual tax return are Crypto ETPs Part of the income tax and are not offset against the capital gains tax as usual.

The differentiation can lead to a tax relief of up to 20 percent.

Trading Crypto ETPs with the ETC Group

At the ETC Group, investors can currently choose from 14 different ETCs with German ISIN and WKN in order to be able to participate in the price development of Bitcoin, Ethereum and other popular cryptocurrencies.

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ETC Group’s institutional-grade products traded on the stock exchange are particularly popular with the large number of investors who want to continue investing via traditional financial markets, while they can use their conventional custody account as well as stock and ETF portfolios.

Many investors are also simply not aware of the technical challenges and security and regulatory standards of alternatives such as online crypto platforms or crypto exchanges.

The ETCs (“Exchange Traded Commodity/Cryptocurrency”) offer a high level of investor protection, and the deposited assets are held in a regulated and specialized depository. Furthermore, thanks to an independent trustee, the crypto assets are fully secured against the default risk of the issuers.