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By Anka Hakert, Esq.
WINHELLER Attorneys at Law & Tax Advisors
Frankfurt, Germany

Cryptocurrencies are not only attractive for investors and speculators. Apart from the purchase and sale of Bitcoin, creating their own cryptocurrency through mining is profitable for many entrepreneurs. In this context, numerous tax and accounting questions occur.

Basically, mining cryptocurrencies at enterprise level leads to taxable income from business operations. In this context, it should be noted that the asset inflow already starts with the creation of a new currency. At the moment when a new block is found, for example, the newly generated cryptocurrency accrues to the entrepreneur’s operating capital as an asset. The asset has to be reported in the balance-sheet at manufacturing costs. These include, in particular, the electricity consumed and a share in the costs of the required hardware.

No Capitalization Prohibition Against Self-Made Cryptocurrencies

Contrary to a widespread assumption, there is no general capitalization prohibition against self-made cryptocurrencies. Capitalization is prohibited only if the cryptocurrency serves as an asset investment and, as such, has to be classified as a fixed asset. Entrepreneurs that are active in mining, however, generally wish to sell their self-made cryptocurrency. Therefore, cryptocurrencies are intangible assets of the current assets. These have to be capitalized on the balance-sheet pursuant the requirement of completeness set forth in applicable accounting rules.

VAT-Exempt Sales Exclude Input Tax Deduction

According to a landmark ruling of the Court of Justice of the European Union, the sale of bitcoins is exempt from VAT. The ruling is also applicable to various other cryptocurrencies having a payment function. The provision of VAT legislation applies at EU level, hence, including Germany.

When selling a newly created cryptocurrency, entrepreneurs should take care not to show VAT on their invoices. At the same time, the exemption from VAT also means that entrepreneurs may claim a refund from the tax office for the input tax paid when purchasing the operating hardware.

Our experts for digital currencies will be pleased to advise you on any matters relating to taxation and regulation. Please do not hesitate to approach us with any questions.