Digital Assets | Digital Assets | Returns Crypto Trading
What does the NFT and crypto world understand by Web3?
What taxes apply in Web3?
Web3 as a “commitment” to develop a collaborative internet
Web3 is a decentralised technology platform to create a more open, secure and transparent internet based on blockchain and other distributed ledger technologies. In doing so, Web3 is based on a decentralised, community-centric foundation that is radically different from the one-way nature of our current internet (Web2).
Web3 communities are made up of individuals, developers and organisations working together to build the decentralised web. These communities are responsible for developing tools, protocols and applications that allow users to access, store and interact with data without relying on third-party providers. Web3 communities are also responsible for providing support, governance and education around the technology, encouraging collaboration between members and ensuring that the technology is accessible and secure.
When you read this, as an outsider you understand quite little at first. The complexity in connection with Web3 is mainly due to the comprehensive technology, the resulting versatile application possibilities and the community idea. The latter is mainly lived through the Discord communication platform.
What is the vision of Web3?
The future vision of Web3 is to build a decentralised world that is not only built by technology but also by people. It is a world where every participant is their own steward and creator, where data and content remain secure and private, and where true interaction and collaboration can take place. On the Web3, people are harnessing the potential of blockchain and decentralisation technologies to find new ways to create, share and manage value. It is a world where people interact with others, share their ideas, creativity and innovations, contributing to a better, safer and transparent world.
NFTs (Non-Fungible Tokens) play an important role in this vision and are our “hobbyhorse” in ACCONSIS.
What forms of NFTs are there?
There are different types of non-fungible tokens. Some of the most common types are:
- Crypto Collectibles
These tokens are usually used as digital trading cards or other digital content. - Decentralised Finance (DeFi)
These tokens are used to enable investment and financing products. - Decentralised Applications (DApps)
These tokens are used to build on decentralised applications and gain access to services and features. - Digital artwork
These tokens are used to tag and protect digital artworks. - Land
These tokens are used to mark and protect real property. - Securities
These tokens are used to enable trading in securities.
Utility, currency or token – everything is currently on the market and no one knows exactly what will remain.
In a nutshell:
Web3 is about creating a decentralised digital economy that gives users more control and ownership over their digital assets.
Many see Web3 as the future of the internet and the next step in the evolution of the digital world.
What do LAX3.0 and TAX3.0 stand for?
Taxes (Tax) on the Web3 are a very complex issue. As the technology is new, there are no clear and uniform rules yet. The existing tax rules have to be transferred to the Web3 world as they should be applied. It is up to the respective countries to enact their own tax laws and guidelines to ensure that all transactions are properly taxed. Some countries have already started to enact such tax guidelines. However, there is still much to be done to ensure that all transactions carried out with Web3 technology are properly taxed.
Legal adjustments do not yet exist in Germany. Tax guidelines issued by the Ministry of Finance, however, do. However, these are still very rudimentary.
Thus, German tax law from the time before Web3 is currently applicable. This opens up possibilities for interpretation – but at the same time it also means remaining tax uncertainty.
For providers and users of Web3 alike, this means that legal and tax rules already in force today must be observed.
Most frequent questions from private traders
- Do I have to pay tax on my profits from crypto trades?
- What is the tax burden if I make a taxable profit on a crypto trade (25%, 35% or 50%?)?
- What are the tax consequences if I buy Ethereum via fiat and then use it to acquire an NFT?
- Are there any tax holding periods that I need to observe in order to realise gains tax-free?
- Are airdrops tax-free?
- What happens for tax purposes with ApeCoin-Staking?
- If I execute a lot of trades, will I become a trader?
- In what form can I use my NFT?
- As a wallpaper on WhatsApp, LinkedIn or as a company logo?
- Can an NFT be claimed as property in court?
- Do properties in the metaverse have to be registered in the land register?
- What about data protection and data security with Decentralised Finance?
Most frequent questions from companies that we accompany during their market entry into the Web3
- What does financial accounting look like with cryptocurrencies and how do I, as a company, account for bitcoins or NFTs?
- Is there a sales tax on the Web3?
- What does it mean legally and fiscally if I as a company launch an NFT project as part of an ICO?
- What does a KYC process mean in this case, both in the ICO and in terms of royalties?
- How are cryptocurrencies treated for tax purposes in other countries?
- How are smart contracts legally classified?
What distinguishes the ACCONSIS WEB3 experts?
We are happy to support you with these and your other questions – regardless of whether you act as a private individual or we advise you as a company.
We are a team of experts and combine our joint expertise from legal advice, tax advice and auditing. All our Web3 experts have one thing in common: they have been actively involved in the topic of Web3 for years, are actively represented in the relevant forums and communities and regularly give presentations there (HI.WEB3 Conference etc.) and have up-to-date and specific expert knowledge.
We have a legal and fiscal view of your activities in Web3.
Ask us.
Summary:
Taxes on crypto trading (Web3): What you need to consider
- Trading with cryptocurrencies and NFT is regularly treated as a private sale transaction for tax purposes
- As a rule, speculative gains only have to be taxed within one year.
- Exchange transactions (fiat for crypto, crypto for NFT, NFT for NFT) are treated as a sale or acquisition and are taxable if the one-year period since acquisition has not elapsed.
- Acquisition and sale transactions must be documented in detail
- Obligations for traders: choice between FIFO and average methods for tax calculation
How are profits from crypto art or crypto currency taxed?
In the case of familiar capital investments, such as shares, fund units, etc., the investor does not have to worry about tax matters, as the banks independently transfer the final withholding tax to the tax office, offsetting gains and losses (provided it is a domestic transaction).
The situation is completely different with cryptocurrencies (Bitcoin, Ether, Ripple and Co), especially since they are traded decentrally on the web3. Although they are only treated as foreign currency or as a capital investment in a few cases, the transactions in connection with cryptocurrencies can nevertheless become relevant for tax purposes.
Crypto trading is treated as a disposal transaction as with other private assets. This means that only a speculative profit generated within one year since the acquisition must be taxed. This is not subject to the final withholding tax, but to the personal income tax rate.
This means: If I hold my coin or NFT for more than a year, no income tax is regularly due on the profit! Of course, this makes this new investment very attractive.
Tax-relevant transaction when paying with cryptocurrencies on the web3
More and more people are offering to pay for goods with cryptocurrency. However, this involves many tax pitfalls. Since payment on the web3 with cryptocurrency is treated as a sale, the capital gain from the exchange must be taxed at the regular income tax rate if the one-year period since the acquisition of the cryptocurrency has not yet elapsed. The price of the purchased goods or paid services determines the value of the sale.
Tax calculation
This leads to some (costly) obligations for the acquirers of digital assets: Every acquisition and sale transaction must be documented in detail, especially the exact time, the price as well as the costs of the transaction. This is essential for the late determination of the capital gain or loss.
Traders with digital assets can either use the first-in-first-out method (Fifo) or an average valuation of the profits within one year. Fifo assumes that investors will dump the digital coins they bought first.
Offset against speculative losses
If several transactions are made in one year that were both profit-making and loss-making, they may be offset against each other (but also exclusively against each other). The costs associated with the purchase or sale may also be deducted from the profit.
Exemption limit in the amount of EUR 600
Profits from the sale of other assets, which also include cryptocurrency and/or crypto artworks, only have to be taxed if they exceed the exemption limit of EUR 600. However, if the profit is higher, even if it is only one cent, the entire profit must be taxed.
Attention: A commercial trade always leads to taxation!
For trading in cryptocurrency or crypto-art on the web3 , there is currently no fixed limit at which a commercial activity is assumed. In principle, the “normal trader” will probably not have to worry about this. The threshold for commercial trading is also high in the view of the tax authorities. This means that the questions of commercial trading only arise when special hardware and software are used, a large amount of time is invested and a business operation is set up.
The professional appearance, the market knowledge and the sustainable profits can further solidify the assumption of commercial activity. This then led to the profits always being subject to taxation at the personal tax rate, regardless of the one-year time limit.
The development in the digital world is advancing rapidly. If one wants to ride this wave and possibly even profit generously from it, one must not disregard the tax pitfalls!
Our ACCONSIS experts follow all the latest developments on this topic. That is why you should get in touch with us even before Web3.
ACCONSIS in the media:
Börse-Online, Schmelzender Gewinn – Kryptoanlagen, Ausgabe 31/2023, Aug. 23 (€)
Börse-Online, Kryptogewinne: Fiskus macht Jagd auf Steuerhinterzieher, 02.06.2023
Börse-Online, Kryptogewinne immer steuerfrei? So hat der Bundesfinanzhof entschieden, 28.02.2023
€uro/ Börse-Online, Kryptische Steuerregeln, Ausgabe 07/2022
Börse-Online, Krypto-Investments bei Teenagern: “Gefahr von Steuerstraftaten”, 17.02.2022
BR24, Krypto-Investoren im Steuerdschungel, 04.02.2022
Your ACCONSIS contact
Lawyer
Specialist lawyer for tax law
Dr. Christopher Arendt
Managing Director of ACCONSIS
Service telephone
+49 89 547143
or by e-mail
c.arendt@acconsis.de
My recommendation
The tax aspect behind crypto trading with cryptocurrencies or crypto art also holds many dangers and challenges. I would be happy to advise you individually on this and look for solutions with you to secure your digital earnings.
Do you need support?
I can help you with all questions relating to the tax treatment of cryptocurrencies in private and business assets.
I have prepared a summary with the most important questions:
- What are cryptocurrencies?
- What are the most common forms of investment?
- What are cryptocurrencies considered to be for tax purposes?
- How are cryptocurrencies in private assets taxable?
- How do I document crypto transactions in private assets?
- How are cryptocurrencies in business assets to be taxed?
- What should I bear in mind with regard to inheritance and gift tax on crypto assets?
We would be happy to send you the documents with my summary directly by e-mail:
Request client information on the tax treatment of cryptocurrencies
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