Germany's proposed crypto taxation framework has put many local stakeholders on edge over its implications for retail investors. According to Patrick Hansen of Circle, the default 50% tax base introduced under the German plan is problematic because it targets people who cannot verify their purchases and will weigh heavily on ordinary investors.

"This will hit normal consumers/investors particularly hard. People who don't even notice this regulatory change, who can't technically provide their acquisition costs in a clean way, and who in recent years have sometimes bought with little profit or even at a loss," Hansen wrote.

Circle is currently the largest issuer of stablecoins licensed under the European Union's Markets in Crypto-Assets Regulation (MiCA), the bloc's framework for regulating crypto-asset issuers and service providers.

Patrick Hansen argues small investors may end up paying much more in tax

In posts on X, Hansen said he hoped the tax draft would not come into force. He emphasized that once the provisions take effect, a failure to provide evidence of payment would lead tax officials to treat assets purchased after 2026 as taxable, taxing half of the income earned. That calculation is based on the state's assumption that the asset's value has doubled.

Hansen argued that the state's assumption that crypto values will double appears excessively high, given Bitcoin's annual decline and the poor performance of altcoins. He added that the rule could even leave people paying taxes on nonexistent gains.

"In my view, the average Joe will end up paying far too much tax if this isn't adjusted, especially if – as I fear for many – he can't provide his acquisition costs in a clean and convincing way," he asserted.

Nonetheless, Dr. David Hötzel, an associate partner at the law firm Poellath, contended that the 50% figure is not yet set in stone. Like Hansen, however, he pointed out that a 50% baseline imposes a substantial upfront tax grab on trades that might have generated only a tiny amount of real profit. "The protection of existing holdings effectively depends on reliable documentation," he said.

Record-keeping could become more important for German crypto users

The documentation requirement could become one of the most significant practical changes for investors. Germany's Finance Ministry has already ruled that taxpayers will have to keep records of acquisition dates, quantities, purchase costs, transaction fees, and the platforms or wallets involved. Such records can be supported by tax returns, exchange transaction records, and structured personal spreadsheets.

Under the reported draft, the new regime would apply to crypto assets acquired after December 31, 2026, but not to those acquired before January 1, 2027, while existing holdings would generally remain subject to the current rules. The withholding mechanism would reportedly begin in 2028.

That distinction means investors may need to separate older holdings from new purchases and keep clearer records of every transaction. For people who have traded assets on multiple exchanges and kept them in self-custody wallets, reconstructing the acquisition history represents a significant tax compliance task.

Germany's government is proposing a flat 25% levy on crypto capital gains

Germany is also proposing a flat 25% levy on crypto capital gains. Under the current legal framework, retail investors in Germany generally do not owe any tax to the state when they cash out Bitcoin or other cryptocurrencies. If the new framework passes, Germany will start taxing crypto returns on all new purchases made after December 31, 2026, regardless of the asset's holding timeline.

Cryptocurrencies such as Bitcoin and Ethereum would be subject to the flat 25% tax, plus a solidarity surcharge of 5.5%, for a total of 26.375%. Some digital currencies, including NFTs, certain stablecoins, security tokens, and RWA tokens, would, however, continue to enjoy exemption from the proposed legislation. Day traders are likely to benefit as well, since they currently pay the maximum personal income tax rate of 45%, which would be replaced by the flat rate.

It should be noted, however, that German taxpayers who hold Bitcoin will face a major shift in taxation, as the current tax exemption on capital gains is eliminated. Long-term capital gains of €100,000, for instance, would cost the taxpayer about €26,375 in flat tax and solidarity surcharges combined.

Government estimates predict that the new tax regime will generate €160 million ($182.2 million) in revenue in 2028, rising to as much as €350 million ($398.7 million) annually by 2031.

Because the framework remains a draft, details such as the default tax base could still be revised as it moves through Germany's legislative process.

The remarks were first reported by Cryptopolitan.