GERMANY Trends and Developments Contributed by: Christian von Oertzen and Philipp Windeknecht, Flick Gocke Schaumburg
assets. Where the sale of the crypto-assets is subject to German income tax, the gain is calculated either on the basis of the first-in-first-out method or the average method at the taxpayer’s discretion. Special activi - ties, like forging or mining crypto-assets, are always considered commercial activities. Some German political parties, such as “Bündnis 90/Die Grünen” and “Die Linke”, propose to abolish the holding period tax exemption in order to tax any gains derived from the disposal of cryptocurrencies, and they propose the introduction of a crypto-exit tax. Taxation of Foreign Currency Exchange Gains According to a 2022 Federal Ministry of Finance ( Bun- desministerium der Finanzen or BMF) decree, gains from foreign currency transactions are taxed either at the personal income tax rate or at the 25% flat withholding tax rate, and may be tax-exempt after a holding period of more than one year. In practice, tax authorities increasingly treat exchange-rate gains from interest-bearing foreign currency deposits as taxable capital income under Section 20 German Income Tax Act ( Einkommensteuergesetz or EStG), even without an actual conversion into euros. In 2025, the Fiscal Court of Rhineland-Palatinate questioned this approach. The court doubted whether a taxable disposal gain can arise upon repayment of a foreign currency deposit, as this merely reflects the original investment without a realised gain. Taxation before conversion may therefore constitute generally imper - missible “dry income” and could violate the ability- to-pay principle. The court also highlighted systemic inconsistencies and potential double taxation under Sections 20 and 23 EStG, which the subsidiarity approach does not fully resolve. This reasoning may also affect other foreign currency instruments, such as loans, and questions the current administrative practice. Inheritance and Gift Tax German limited inheritance tax liability in case of a real estate legacy In 2022, the BFH ruled that German real estate was not subject to limited inheritance tax liability if the real estate was transferred by bequest. Generally, German real estate is taxable in the case of limited inheritance tax liability, especially if the beneficiary is appointed as
heir. However, if the beneficiary was “only” a legatee (who, according to the applicable law of succession only acquires a claim against the heir to transfer the real estate), this claim was not subject to limited inher - itance tax liability. This principle also applied if the real estate was later transferred to the legatee in order to fulfil the claim. The German legislator then amended the ErbStG to put domestic and foreign legatees on an equal footing. Application of German forced heirship law despite choice of English law of succession The Federal Court of Justice ( Bundesgerichtshof or BGH) ruled in 2022 that German forced heirship law is applicable even if the testator, an English national, has chosen English law to govern their succession. The last habitual residence of the testator was in Germany and hence German law of succession was generally applicable. According to the BGH, the choice of Eng - lish law was (partially) contrary to German ordre public in so far as it excluded forced heirship rights due to the choice of English law. Therefore, the choice of English law was (partially) invalid and consequently, German forced heirship law was applied. Deduction of liabilities in the case of limited inheritance tax liability Generally, estate liabilities are deducted from taxable acquisition. In the case of limited tax liability, debts and encumbrances are not deductible to the extent that they are not economically attributable to assets that are subject to limited tax liability. Hence, the BFH ruled that claims arising from forced heirship law were not deductible in the case of limited inheritance tax liability. In 2021, the CJEU ruled that this provision violates the free movement of capital. In 2024, the German legislator amended the provision and a pro rata deduction is now permitted. Tax relief of 10% for residential properties in non- EU/EEA countries In principle, a 10% tax relief for gifts and inheritances was available for personally held real estate that was let for residential purposes and that was located in Germany or other parts of the EU or EEA. In 2023, the CJEU ruled that this provision violated the free movement of capital because properties in countries other than the EU/EEA were excluded from this relief.
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