In this article, we will fill you in on how the tax office assesses individual investments and assets (Wertanlagen) for tax purposes. In the times of low interest rates, many Germans rely on value investments such as gold. Nowadays, cryptocurrencies such as bitcoin are also popular investments – but what happens when the investment value turns into a real value and you suddenly have to worry about paying taxes on it?
Bank accounts with high interest rates used to be the first choice for investors seeking to increase their income, but the global economic crisis and associated low-interest policies has made such methods almost completely obsolete. Gold continues to be the leading investment with a stable value and only minor fluctuations – in addition, building and real estate purchases are expected to provide a high net yield in large cities. Cryptocurrencies are still new to the market but often promise high profits in a short amount of time, while cars or other valuable assets vary in profit and are highly market-dependent. All of these investments share one common factor: tax is due on the paid out value. We will fill you in on how individual investments or assets are taxed.
Gold: A favored assessment with clear tax rules
The price of gold as quadrupled in the past 20 years meaning those who made recent purchases are going to benefit from hefty profits. The value doubled just between 2007 and 2011 alone! Keep in mind – not all types of gold are the same. Gold bars and gold coins are typically more valuable than gold watches or other pieces of jewelry from which gold must be extracted. Taxation on these assets is determined from factors such as your sales profit and how long they have been in your possession.
If gold units are in your possession for less than a year they are considered a “object of speculation” and are subject to tax on the sales profit unless the profits are below the exemption limit of 600 euros. This means profits from gold sales up to 599 euros are completely tax-free. As soon as the exemption limit is exceeded, tax is due not only on the difference, but on the gold sale’s complete amount; therefore, it is recommended to keep your gold bars, coins, or jewelry in your possession for more than one year. After the full year, all profits from sales are completely tax-free and don’t even have to be mentioned in your tax return.
By the way: The aforementioned rules concerning tax-free sales only apply to physical pieces of gold. If the investor relies on gold certificates that are traded on the stock exchange, this is a considered “securities trading” (Wertpapierhandel) and no tax-free protection applies. Securities trading are first added to your tax-free allowance which amounts to 801 euros for individuals and 1,602 euros for married couples – all profits exceeding these amounts are subject to a final withholding tax of 25% plus an additional solidarity surcharge and church tax if applicable.
Cryptocurrencies: How Bitcoin, Ethereum and other currencies are taxed
The latest price explosion of cryptocurrencies such as Bitcoin and Ethereum have lead to them becoming one of the most popular investments based on supply and demand. Buying the digital currency, which is rarely actually used for payments, is easy via exchanges. Investors don’t have to worry about arranging physical storage as setting up a crypto wallet suffices. Despite the price fluctuations, cryptocurrencies are a popular target for value investors who have seen the value rise in recent times – even causing commercial media to jump on the bandwagon of enthusiasm. But what happens when investors wish to trade these cryptocurrencies into a “hard” currency? What are the costs apart from exchange fees?
Cryptocurrencies are not considered a “real” currency in Germany and are classified as intangible economic goods, for this reason, no capital gains tax is levied on them like it is on securities trading. The “FiFo” or “First In, First Out” method applies to cryptocurrencies in Germany, this assumes that cryptocurrencies bought first are the first to be sold again. The price changes between the first purchase and sales date are relevant for taxation.
Like gold, the profits for cryptocurrencies possessed for under a year are fully taxed if they exceed 599 euros, while the profit for those that have been in your possession longer can be collected in full and go unmentioned in your tax return.
By the way: Crypto trading carried out by commercial enterprises is taxed differently than cryptocurrencies possessed by individual private persons. In this case, profits are declared as “income from business” (Einkünfte aus Gewerbebetrieb).
Comics: From a nerdy possession to a high-yield investment
Some less common or more curious investments include comics. Buying historical, rare, or simply misprinted comics are less speculative than cryptocurrencies as prices can be accurately viewed based on a defined scale and enough books and guides help properly classify each issue. Older comics in “mint” condition, i.e. still packaged, can often be sold for several hundred to thousands of euros. The scale is further defined by “very fine,” “fine,” “very good,” “good,” “fair,” and “poor,” damaged comics are typically classified as poor. Comics are typically in one’s possession for more than a year, meaning sales profits are non-taxable and are subject to the same regulations that apply to other economic goods for private individuals.
Investors in Germany have it relatively easy when it comes to taxation of valuable assets. The idea is simple: if the asset is tangible, your profits must only be entered on your tax return if it has been in your possession for less than a year and exceed 599 euros. In all other cases, income from assets are tax-exempt and must not be mentioned in your tax return.