Responses by German ministry of finance concerning Bitcoin and VAT (fulltext)

[levino]

Hey everybody, here are the official statements in German. I took the liberty to translate the letter concerning VAT. The other ist about taxation of earnings by speculation. Particularly the question on how one is to proof that one has owned sold coins for at least a year so the tax is waived. Feel free to translate the latter one. Please note that I am neither a native English-speaker nor a lawyer.

Originals: http://db.tt/5wt8h8zc

Translation of letter "... Bitcoins Umsatzsteuer ... " (meaning "Bitcoins VAT"):
Dear Colleague, Regarding your question: “Do you agree with the BaFin (Federal Financial Supervisory Authority) that Bitcoins are “units of account” and as such legally equal to foreign currency implying that trading with bitcoin is excluded from VAT?” I answer the following: “Bitcoins” are neither e-Money nor official legal currency and as such not foreign currency. Anyhow they fall under the term “units of account” by [some paragraph from the law]. Units of account are comparable to foreign currencies but not denominated in foreign currencies. Examples for this are values that fulfill the purpose of private units of account in circles of trade / exchange [not sure about the correct translation here] as well as any other “private money” or complementary money, that can be used as a means of payment in multilateral circles of accounting [again not too sure] on the basis of civil law. Following [yet another paragraph] is revenue from trading with official [legal] currencies excluded from VAT. Legal currencies are bills and coins that are by the laws of any internationally recognized state intended and used in monetary transactions to fulfill money debt. [paragraph that excludes FIAT money from VAT] does not only cover the German currency, but also all foreign currencies that are legal currency in the country of origin; this is the case even if this currency is not usable (without exchanging) as a means of payment in Germany. The above implies that the exclusion from VAT by [paragraph] for revenue of “bitcoins”, that merely come to existence as an act of private money creation is not applicable. Yours sincerely Hartmut Koschyk
Long story short: When selling bitcoins as a business model you have to pay VAT for any transaction. The other letter is not as important but I will translate it later.

Cheers

Levino

[1713482954]

1713482954

[1713482954]

1713482954

[1713482954]

1713482954

[prophetx]

if i am not mistaken this means that they are saying that the miner who sells a mined bitcoin is responsible for collecting vat, similar to how an airline would include vat when selling airline miles points, but it is hard to tell with the translation

[dudeofthestick]

It looks very much like this document from @liberto : you have to pay VAT when you exchange your fiat for bitcoins (and the other way around), but never when you acquire goods or services because you have already paid it.

In Spanish:
https://bitcointalk.org/index.php?topic=242761.5

[bernard75]

It looks very much like this document from @liberto : you have to pay VAT when you exchange your fiat for bitcoins (and the other way around), but never when you acquire goods or services because you have already paid it.

In Spanish:
https://bitcointalk.org/index.php?topic=242761.5

not at all, in germany you dont pay vat for acquiring btc and additionally after holding them for 1year+ you can cash out tax free too.

[prophetx]

It looks very much like this document from @liberto : you have to pay VAT when you exchange your fiat for bitcoins (and the other way around), but never when you acquire goods or services because you have already paid it.

In Spanish:
https://bitcointalk.org/index.php?topic=242761.5

not at all, in germany you dont pay vat for acquiring btc and additionally after holding them for 1year+ you can cash out tax free too.

that would make more sense, the translation is really confusing

[ArticMine]

Hey everybody, here are the official statements in German. I took the liberty to translate the letter concerning VAT. The other ist about taxation of earnings by speculation. Particularly the question on how one is to proof that one has owned sold coins for at least a year so the tax is waived. Feel free to translate the latter one. Please note that I am neither a native English-speaker nor a lawyer.

Originals: http://db.tt/5wt8h8zc

Translation of letter "... Bitcoins Umsatzsteuer ... " (meaning "Bitcoins VAT"):
Dear Colleague, Regarding your question: “Do you agree with the BaFin (Federal Financial Supervisory Authority) that Bitcoins are “units of account” and as such legally equal to foreign currency implying that trading with bitcoin is excluded from VAT?” I answer the following: “Bitcoins” are neither e-Money nor official legal currency and as such not foreign currency. Anyhow they fall under the term “units of account” by [some paragraph from the law]. Units of account are comparable to foreign currencies but not denominated in foreign currencies. Examples for this are values that fulfill the purpose of private units of account in circles of trade / exchange [not sure about the correct translation here] as well as any other “private money” or complementary money, that can be used as a means of payment in multilateral circles of accounting [again not too sure] on the basis of civil law. Following [yet another paragraph] is revenue from trading with official [legal] currencies excluded from VAT. Legal currencies are bills and coins that are by the laws of any internationally recognized state intended and used in monetary transactions to fulfill money debt. [paragraph that excludes FIAT money from VAT] does not only cover the German currency, but also all foreign currencies that are legal currency in the country of origin; this is the case even if this currency is not usable (without exchanging) as a means of payment in Germany. The above implies that the exclusion from VAT by [paragraph] for revenue of “bitcoins”, that merely come to existence as an act of private money creation is not applicable. Yours sincerely Hartmut Koschyk
Long story short: When selling bitcoins as a business model you have to pay VAT for any transaction. The other letter is not as important but I will translate it later.

Cheers

Levino

If this is correct they have created one huge loophole for avoiding VAT. Basically all a consumer has to do to avoid VAT is:
1) Register for VAT as a business
2) Deal only in Bitcoin. Namely get paid in Bitcoin and pay for all expenses in Bitcoin. Avoid trading Bitcoin for Euros or other VAT exempt money.
3) File all the paperwork as per the letter of the law.
The key here is that every transaction is VAT neutral. Let say you buy a TV. You have to pay VAT on the TV, but you also get an equivalent credit for the VAT on the Bitcoins.

[levino]

It looks very much like this document from @liberto : you have to pay VAT when you exchange your fiat for bitcoins (and the other way around), but never when you acquire goods or services because you have already paid it.

In Spanish:
https://bitcointalk.org/index.php?topic=242761.5

not at all, in germany you dont pay vat for acquiring btc and additionally after holding them for 1year+ you can cash out tax free too.

that would make more sense, the translation is really confusing

Why is the translation confusing? Bitcoins are treated like candy: When you sell them, you have to pay 19% VAT on your income from the trade. Easy as that.

[bernard75]

Bitcoins are treated like candy: When you sell them, you have to pay 19% VAT on your income from the trade. Easy as that.

Not so easy, after holding them for a year the profit is tax free and i bet thats not the final word in that matter.

[levino]

Bitcoins are treated like candy: When you sell them, you have to pay 19% VAT on your income from the trade. Easy as that.

Not so easy, after holding them for a year the profit is tax free and i bet thats not the final word in that matter.

You are messing things up.

Say you buy Bitcoins for 10 Euros in December 2013 and sell them for 20 Euros in August 2013.

Then you pay 25% tax on your 10 Euros win (Abgeltungssteuer). If you are a professional, you pay an additionally 19% on the 20 Euros revenue from the selling. If you are a private trader, you pay just the 2.5€. This is comparable to you selling your old stereo on ebay for private reasons. You are excluded from VAT there as well. If you do this 100 times a year (the threshold is actually lower), you are considered doing this professionally and your sells are subject to VAT.

If you buy Bitcoins for 10 Euros in December 2013 and sell them for 20 Euros in January 2015 you pay no tax on your 10 Euros win (held for 12 months+). If you are a professional Bitcoin vendor, you still pay 19% on the 20 Euro revenue from the sell.

We are talking about two independent taxes! Dont confuse others by mixing them up.

[bernard75]

Its you who is confusing people. Only exchanges and businesses can be regarded as profit generating enterprises.
The average joe doesnt pay a dime as long as he holds them for a year.

[levino]

http://www.handelsblatt.com/finanzen/recht-steuern/anleger-und-verbraucherrecht/nach-bfh-urteil-ebay-verkaeufern-droht-umsatzsteuerzahlung/6644098.html
http://www.it-recht-kanzlei.de/Urteil/5279/Finanzgericht_Baden-Wuerttemberg/1_K_301608/Privatverkauf-Ebay-Veraeuerungen_die_Umsatzsteuer.html
http://www.pinkernell.de/Pinkernell_Ebay_Urteil.html

You are not the one who decides whether you are a business or not. It is the amount you sell that counts.

[bernard75]

And again thats wrong, it depends on how often you sell something if you are a private person.

[Schrankwand]

Bitcoins are treated like candy: When you sell them, you have to pay 19% VAT on your income from the trade. Easy as that.

Not so easy, after holding them for a year the profit is tax free and i bet thats not the final word in that matter.

FOr a private person, yes. However, that means you BOUGHT them and did not CREATE them. As someone who has "mined" them, you are theoretically responsible for collecting VAT.

However, I suggest instead simply selling everything on Mt. Goxor another platform OUTSIDE THE EU, since considering that Mt. Gox is an intermediary in Japan and you are selling on and for Mt Gox, the whole VAT law is not applicable and you can then remark on its applicability when being asked.

Sell in Germany --> get fucked.

And again thats wrong, it depends on how often you sell something if you are a private person.

And whether or not you mined it. The act of mining is an act that will be translated as the miner having a "production facility" and therefore you will be paying.

THe only way to get around this would be marking with the "Small business regulation" or "Kleinunternehmerregelung" which allows small entrepreneurs to become completely VAT exempt to profits of maximum of 17.500€ a year. At the same time, you can NOT choose this route if you are already a registered entrepreneur or have a company registered that is not a small entrepreneur.


If you BOUGHT bitcoins and then sold them, you are doing speculation as a private person and can claim full tax exemption on income tax.

[prophetx]

Bitcoins are treated like candy: When you sell them, you have to pay 19% VAT on your income from the trade. Easy as that.

Not so easy, after holding them for a year the profit is tax free and i bet thats not the final word in that matter.

FOr a private person, yes. However, that means you BOUGHT them and did not CREATE them. As someone who has "mined" them, you are theoretically responsible for collecting VAT.

However, I suggest instead simply selling everything on Mt. Goxor another platform OUTSIDE THE EU, since considering that Mt. Gox is an intermediary in Japan and you are selling on and for Mt Gox, the whole VAT law is not applicable and you can then remark on its applicability when being asked.

Sell in Germany --> get fucked.

And again thats wrong, it depends on how often you sell something if you are a private person.

And whether or not you mined it. The act of mining is an act that will be translated as the miner having a "production facility" and therefore you will be paying.

THe only way to get around this would be marking with the "Small business regulation" or "Kleinunternehmerregelung" which allows small entrepreneurs to become completely VAT exempt to profits of maximum of 17.500€ a year. At the same time, you can NOT choose this route if you are already a registered entrepreneur or have a company registered that is not a small entrepreneur.


If you BOUGHT bitcoins and then sold them, you are doing speculation as a private person and can claim full tax exemption on income tax.

this is the clearest explanation and analysis i have seen thus far, thanks for posting

[RationalSpeculator]

This is very bad news though that VAT is applied by Germany to bitcoin, right?

I mean it didn't kill Silver that VAT was applied, many ways around that VAT still exist.

But it definitely did not help Silver either. And silver is just an investment, not money.

Imagine VAT on bitcoin is being taken serious. If you buy something in other country without VAT and you import it into your country you do need to declare it and pay VAT. So basically they can screw everyone over by simply getting a list form gox which german residents bought bitcoins. Since none declared it and payed VAT all can be sanctioned, correct?

[levino]

This is very bad news though that VAT is applied by Germany to bitcoin, right?

I mean it didn't kill Silver that VAT was applied, many ways around that VAT still exist.

But it definitely did not help Silver either. And silver is just an investment, not money.

Imagine VAT on bitcoin is being taken serious. If you buy something in other country without VAT and you import it into your country you do need to declare it and pay VAT. So basically they can screw everyone over by simply getting a list form gox which german residents bought bitcoins. Since none declared it and payed VAT all can be sanctioned, correct?

Yes. That is why we need and will do lobbyism in Germany to have the laws changed or an exception for Bitcoin (as for gold) imposed.

[prophetx]

i could be wrong but this statement is specific only to the sale of mined coins, in that case one needs to sell the coins outside of the EU to be excluded from collecting VAT.

the statement says nothing about any other scenario, such as the exchange of fiat for virtual currency between 2 non-miners

[prophetx]

actually there might already be examples of this

i don\t play 2nd life, but it seems that VAT is only applied to service fees and not for purchases&exchange of linden dollars.

[edmundedgar]

actually there might already be examples of this

i don\t play 2nd life, but it seems that VAT is only applied to service fees and not for purchases&exchange of linden dollars.

Right, IIUC the logic there is that two individuals, who presumably aren't registered for VAT, are trading with each other, so as far as Linden Lab can tell VAT is only payable on the trading fee that the parties pay to them, not what the buyer buys from the (presumably non-VAT-registered) seller.

Somebody can correct me if I'm misunderstanding this, but technically I think VAT would be due if:
1) You're a VAT-registered business buying L$ or BTC from someone outside the EU, because you'd be "importing" the L$ or BTC.
2) You're a VAT-registered business selling L$ or BTC to someone inside the EU. However, if that EU buyer is also a VAT-registered business, they'd be able to claim back the VAT you collected from them.

Overall it seems like it can be worked around with appropriate planning, ie VAT-registered businesses need to:

1) Get bitcoins by:
 a) Buying them from a non-VAT-registered seller inside the EU, and nobody pays VAT.
 b) Buying them from a VAT-registered seller, who charges you VAT, which you then reclaim.

2) Get rid of bitcoins by:
 a) Selling them to someone outside the EU, and nobody pays VAT.
 b) Selling them to a VAT-registered buyer, charging them VAT, which they then reclaim.

Some traps for the unwary there, and maybe some interesting arbitrage opportunities for somebody...

[prophetx]

actually there might already be examples of this

i don\t play 2nd life, but it seems that VAT is only applied to service fees and not for purchases&exchange of linden dollars.

Right, IIUC the logic there is that two individuals, who presumably aren't registered for VAT, are trading with each other, so as far as Linden Lab can tell VAT is only payable on the trading fee that the parties pay to them, not what the buyer buys from the (presumably non-VAT-registered) seller.

Somebody can correct me if I'm misunderstanding this, but technically I think VAT would be due if:
1) You're a VAT-registered business buying L$ or BTC from someone outside the EU, because you'd be "importing" the L$ or BTC.
2) You're a VAT-registered business selling L$ or BTC to someone inside the EU. However, if that EU buyer is also a VAT-registered business, they'd be able to claim back the VAT you collected from them.

Overall it seems like it can be worked around with appropriate planning, ie VAT-registered businesses need to:

1) Get bitcoins by:
 a) Buying them from a non-VAT-registered seller inside the EU, and nobody pays VAT.
 b) Buying them from a VAT-registered seller, who charges you VAT, which you then reclaim.

2) Get rid of bitcoins by:
 a) Selling them to someone outside the EU, and nobody pays VAT.
 b) Selling them to a VAT-registered buyer, charging them VAT, which they then reclaim.

Some traps for the unwary there, and maybe some interesting arbitrage opportunities for somebody...

perhaps i was not clear...

according to the linden labs website they only charge vat on the trading fee, buying services such as game service fee and virtual land, etc there is no vat collected on purchase of in game currency except for the vat on the trading service fee...

no offense to your logic but they are based in SF and can afford the best lawyers in the world...