As cryptocurrencies become more mainstream, many freelancers and self-employed professionals in Germany are exploring the option of accepting payments in Bitcoin or other cryptocurrencies. While this provides exciting opportunities to modernize payment methods and attract tech-savvy clients, it also comes with specific legal and tax requirements.
In this guide, we’ll break down the steps to accept cryptocurrency payments in compliance with German regulations, manage invoicing and taxes, and avoid potential pitfalls.
Understanding cryptocurrency payments in Germany
In Germany, cryptocurrencies like Bitcoin are classified as “private money” or “other assets” (andere Wirtschaftsgüter) rather than legal tender. This means they can be used for payments, but certain conditions must be met for proper accounting and taxation.
Invoicing requirements for cryptocurrency payments
When accepting payment in cryptocurrency, German law requires invoices to clearly state the amount in euros to ensure transparency and compliance with tax regulations.
Key invoicing elements:
Invoice amount in euros: Specify the amount due in euros, even if the client pays in cryptocurrency.
Cryptocurrency payment details: Indicate the type of cryptocurrency accepted (e.g., Bitcoin) and its euro equivalent at the time of invoicing.
Exchange rate documentation: Record the exchange rate used for conversion on the date of payment.
✍️ Example note on invoice: “Payment accepted in Bitcoin. Amount due: €1,000. Equivalent in Bitcoin (BTC) based on exchange rate of [Date]: 0.025 BTC.”
🙄 Example: Henry, the developer, accepts Bitcoin payments
Henry, a self-employed developer, collaborates with a crypto project and has arranged with his German client to receive a monthly payment of €5,000 plus 19% VAT. The payment is made in Bitcoin, transferred directly to Henry’s wallet at the current exchange rate on the day of payment.
What does this mean for Henry?
Income recording: Henry must account for the euro value of the Bitcoins he receives as taxable income in his financial records.
Tax obligations: This income is subject to both VAT, EÜR, income tax, which he must calculate and pay accordingly.
Tax planning: To cover his tax liabilities, Henry should promptly convert a portion of the received Bitcoins into euros. This ensures he has sufficient funds to meet his tax obligations without being affected by potential cryptocurrency price fluctuations.
Simplify receiving money with Norman free e-invoicing: accept crypto payments from your clients while staying fully compliant with German laws.
Accounting and record-keeping
Accurate documentation is crucial when accepting cryptocurrency payments. Here’s what to track:
Transaction records: Include the date, amount in euros, cryptocurrency type, and exchange rate for every transaction.
Exchange rate evidence: Keep records of the exchange rate used to determine the euro value.
Periodic valuations: Assess the value of cryptocurrency holdings regularly to track potential capital gains or losses.
🙄 Example: Lisa’s freelance design work paid in Ethereum
Lisa, a freelance graphic designer in Germany, completes a project for a client who pays her €5,000 in Ethereum (ETH). On the day of payment, 1 ETH equals €2,000, so Lisa receives 2.5 ETH.
What does Lisa need to do?
Record the euro value (€5,000) as income in her accounting records.
Include VAT (19%) of €950 in her invoice.
Monitor the exchange rate for ETH regularly to track potential capital gains or losses if she holds the cryptocurrency instead of converting it to euros immediately.
Practical considerations when accepting cryptocurrency
Mitigate exchange rate volatility
Cryptocurrencies are known for their price volatility. To minimize risks:
Convert cryptocurrency to euros promptly upon receipt to lock in its value.
Use cryptocurrency payment processors to automate conversions.
Maintain euro liquidity
Taxes in Germany must be paid in euros, even if income was received in cryptocurrency. Ensure that you retain enough euros to meet your tax obligations.
Frequently Asked Questions (FAQ)
Can I accept cryptocurrency payments legally in Germany?
Yes, but you must issue invoices in euros and comply with tax regulations, including VAT and income tax requirements.
Do I need to pay VAT on cryptocurrency payments?
Yes, VAT must be calculated based on the euro value of the services provided, regardless of the payment method.
Are cryptocurrency gains always taxable?
No, private sales profits below €600 (2023) or €1,000 (2024) per year are tax-free. However, exceeding these limits makes the entire gain taxable.
Should I hold or convert cryptocurrency payments immediately?
This depends on your risk tolerance. Converting immediately mitigates exchange rate risks, while holding might expose you to capital gains or losses.
What happens if I don’t report cryptocurrency income?
Failing to report cryptocurrency income can lead to penalties, fines, and audits. Accurate record-keeping is essential for compliance.
Conclusion
Accepting cryptocurrency payments is a modern and practical option for freelancers and self-employed professionals in Germany. However, it requires careful attention to tax laws, invoicing standards, and accounting practices. By maintaining accurate records, understanding the tax implications, and using tools to track transactions, you can seamlessly integrate cryptocurrency payments into your business while staying compliant with German regulations.