Decentralised Finance (DeFi) has opened up new possibilities for crypto investors in Germany, from staking and yield farming to liquidity mining and play-to-earn models. However, this innovation also brings tax responsibilities. While the Bundeszentralamt für Steuern (BZSt) has not issued detailed guidance for every type of DeFi transaction, most activities are still taxable based on existing crypto tax laws.
In Germany, the taxation of DeFi depends largely on two key factors: how long you’ve held the crypto asset and how much income you’ve earned in a financial year. Whether you are earning new tokens or interacting with liquidity pools, it is essential to understand how general crypto tax rules apply to DeFi. This guide breaks down every major DeFi activity and its tax treatment so you can stay compliant and make better investment decisions.
Are DeFi Transactions Taxable in Germany?
Yes, most DeFi transactions are taxable in Germany, even though the BZSt has not released specific guidance for every DeFi protocol. Instead, DeFi users must apply existing cryptocurrency tax principles to their DeFi activities. Under these rules, whether a transaction is taxable depends on the type of transaction, the amount earned, and how long you have held the asset involved.
Short-term profits, gains from assets held for less than one year, are subject to Income Tax at your rate, which may go up to 45% plus a 5.5% solidarity surcharge. However, if you hold your crypto for more than one year before disposing of it, any gains are tax-free.
Additionally, if your total short-term capital gains in a financial year are under €600, or if your additional income from activities like staking or liquidity mining is under €256, you are not required to file a tax return for that amount. These exemptions make it important to plan and track your crypto activity carefully, especially when dealing with DeFi.
Taxes on DeFi Transactions in Germany
The BZSt hasn’t yet released detailed rules, however, they have shared clear guidelines on how certain crypto activities like staking and trading are taxed. This means crypto investors in Germany (Deutschland Kryptowährung Investoren) need to interpret the current tax rules and apply them to their DeFi activities, or get help from a qualified crypto tax professional.
The BZSt has made one thing clear: crypto is taxed under Income Tax, but only in specific situations. It depends on how long you’ve held your crypto and whether you’re considered a private investor or running a business. Here’s a simple summary:
DeFi Transaction | Is It Taxable? | Type of Tax |
Swapping crypto on DEXS | Yes, if held less than 1 year | Income Tax |
Adding liquidity to a pool | Yes, if held less than 1 year | Income Tax |
Removing liquidity from a pool | Yes, if LP tokens are held for less than 1 year | Income Tax |
Earning tokens from liquidity mining | Yes | Income Tax |
Staking rewards (PoS & DeFi) | Yes, if income is more than €256 | Income Tax |
Selling staked tokens | Yes, if held less than 1 year | Income Tax |
Yield farming profits | Depends on the holding period | Income Tax |
Receiving yield farming rewards | Yes, if income is more than €256 | Income Tax |
Crypto margin trading (cash-settled) | Yes | Withholding Tax (25%) |
Crypto margin trading (crypto-settled) | Yes, if held less than 1 year | Income Tax |
Derivatives (cash-settled) | Yes | Withholding Tax (25%) |
Derivatives (crypto-settled) | Yes, if held less than 1 year | Income Tax |
Play-to-earn rewards | Yes, if income is more than €256 | Income Tax or Withholding Tax |
Spending crypto | Yes, if held less than 1 year | Income Tax |
Read More: Biggest Crypto DeFi Projects For 2025
DeFi Private Income vs. Capital Income
In Germany, the way your DeFi profits are taxed depends not just on the amount earned, but also on how the income is classified, either as private income or capital income. These two categories follow different tax rules, and understanding the distinction can help you make better tax decisions.
What Is Private Income in DeFi?
Most DeFi transactions fall under private income. This applies when you sell, swap, or spend crypto assets that you have held for less than one year. Profits in such cases are taxed at your Income Tax rate. This rate depends on your total annual income and can go as high as 45%, plus a 5.5% solidarity surcharge. The following are examples of DeFi activities often taxed as private income:
- Selling or swapping tokens on decentralised exchanges
- Removing liquidity from pools when LP tokens were held for less than a year
- Spending crypto assets that gained value in under a year
- Trading staked tokens held for less than a year
What Is Capital Income in DeFi?
Capital income may apply to DeFi activities where profits are realised without taking possession of the crypto asset, such as in some margin trades or derivatives settled in cash. This type of income is taxed at a flat rate of 25%. However, there are limits.
You can deduct only up to €801 in related expenses, and you cannot offset losses freely as you can with private income. These features make capital income potentially less flexible for tax planning, even though the rate is lower.
When the tax treatment is unclear, especially in complex activities like yield farming or advanced financial products, it is important to assess whether the profit results from asset delivery or just a price difference. If you are unsure, consulting a tax advisor can help determine the correct classification for your specific case.
Taxation on DeFi Trades on Decentralised Exchanges
Decentralised exchanges allow users to trade directly from their wallets without using centralised platforms. The BZSt treats many DEX interactions as taxable events, especially when tokens are swapped or sold. Below is a detailed look at how each type of DeFi swap or trade on a DEX is taxed.
Buying Tokens Using Fiat Currency
Purchasing tokens using euros or any other fiat currency is not considered a taxable event in Germany. Whether you use a centralised exchange or a decentralised one, the initial acquisition of crypto is exempt from taxation. There is no Income Tax or capital gains obligation when you first enter the market.
That said, accurate records of the purchase price and date are essential. This information will be required later to calculate gains or losses when you eventually dispose of the token. While the purchase itself is tax-free, its implications arise when you sell, swap, or spend the token.
Selling or Swapping Tokens Held for Less Than One Year
If you sell or swap a token you have held for under one year, any profit earned is subject to Income Tax. This applies to all forms of DeFi exchanges where your token is exchanged for another crypto asset. The profit is calculated based on the difference between the acquisition cost of the original token and its value at the time of disposal.
The tax rate you pay depends on your individual Income Tax bracket. This can go up to 45%, plus the solidarity surcharge of 5.5%. Even if you are simply swapping one token for another, the BZSt treats it as a disposal, and your new holding period for the received token starts on the date of the swap.
Selling or Swapping Tokens Held for More Than One Year
If you sell or swap tokens that you have held for more than one year, the transaction is completely tax-free in Germany. This applies even if you are exchanging your crypto for another token rather than cashing out to euros. Long-term holders benefit from this exemption, as profits are not taxed if the minimum holding period is met.
However, it is important to remember that after the swap, the new asset starts a fresh holding period. You must hold the newly acquired token for another full year before it can be sold tax free. Timing and tracking of each token’s acquisition date are essential to maintaining compliance and reducing your tax burden.
Taxation on Adding and Removing Liquidity
Liquidity pools allow you to deposit tokens into smart contracts and facilitate decentralised trading. In return, users receive liquidity pool (LP) tokens that represent their share in the pool. While these activities may seem passive, they often trigger tax obligations based on the type of transaction and how long the assets have been held.
Adding Liquidity with Tokens Held for Less Than One Year
If you contribute crypto assets to a liquidity pool using tokens you have held for less than one year, the transaction is viewed as a taxable swap. The BZSt considers the act of exchanging your original tokens for LP tokens a disposal, which becomes taxable under Income Tax rules.
Any profit you make at this stage, based on the token’s acquisition cost and its fair market value on the day of deposit, is subject to your Income Tax rate. This is the case whether you’re adding liquidity to a decentralised exchange pool or a lending protocol. Always record the exact date and value of the asset to ensure accurate reporting.
Adding Liquidity with Tokens Held for More Than One Year
If the crypto you use to provide liquidity has been held for more than one year, the transaction is exempt from tax. Even though you receive LP tokens in return, the BZSt does not impose Income Tax on this swap as long as the one-year holding rule is satisfied.
This makes it beneficial to use long-held assets when participating in liquidity pools. However, once you receive the LP tokens, a new holding period begins for these tokens. You must track the date of issuance carefully, as disposing of them within one year may still create a taxable event later on.
Removing Liquidity with LP Tokens Held for Less Than One Year
When you withdraw your crypto from a liquidity pool using LP tokens held for under one year, the action is treated as a disposal. Any gains made during this period are subject to Income Tax. This includes both the return of your original capital and any increase in the LP token’s value.
The LP token itself is considered a new asset acquired when you first added liquidity. So, the tax is based on the difference between its acquisition value and the amount you receive when exiting the pool. Careful tracking of both LP issuance and removal dates is crucial.
Removing Liquidity with LP Tokens Held for More Than One Year
If your LP tokens have been held for more than one year before withdrawing funds, the removal of liquidity is not subject to tax. This tax-free status applies to the entire withdrawal, including your original investment and any earned gains. It is treated as a long-term holding under German tax law.
However, the crypto you receive upon exiting the pool is now a new acquisition. The date you remove your liquidity becomes the starting point for a new one-year holding period. Future disposals of these newly received assets will only be tax-free if held for a further year.
Taxation on Earning Rewards Through Liquidity Mining
Although liquidity mining may seem passive, the tax treatment in Germany is very clear when it comes to earning new crypto assets as income.
Receiving New Tokens Through Liquidity Mining
In Germany, any new tokens earned through liquidity mining are treated as additional income. This means the fair market value of the tokens on the day you receive them must be calculated in euros and added to your total income for the year. If your total additional income from crypto and other sources exceeds €256, the full amount becomes taxable and must be reported in your tax return.
If your income remains below the €256 threshold for the entire financial year, then you are not required to pay tax or file a return for this income. However, as soon as your total additional income crosses the limit, the entire amount is subject to tax. Maintaining detailed records of reward distribution dates and values is essential to calculate accurate totals.
Taxation on Crypto Staking in DeFi
In Germany, both the rewards received and the movement of assets during staking may create tax obligations.
Earning Staking Rewards from PoS Networks or DeFi Protocols
If you earn tokens through staking, either directly on a PoS blockchain or via DeFi platforms, the value of those tokens is taxed as income. You must calculate the fair market value of each reward on the day you receive it, in euros. If your total additional income from crypto and other sources exceeds €256 in the financial year, all your staking rewards become taxable.
If your earnings from staking remain under €256, you are not required to report or pay tax on them. It’s important to track each reward transaction to stay below the exemption threshold or prepare for tax filing if the limit is crossed.
Staking Assets and Receiving Derivative Tokens
When staking crypto through a protocol that issues derivative tokens, such as receiving stETH for staking ETH, the BZSt may treat this as a swap. If the original asset was held for less than one year, exchanging it for the staking token can trigger Income Tax. Similarly, when you later redeem the staking token, that action may also be taxable if you’ve held it for less than one year.
Once you receive staking tokens, they start a new holding period. To enjoy tax-free status on future disposals, you must hold these tokens for at least one year. Strategic planning around staking and unstaking dates is essential to avoid unnecessary tax.
Taxation on Yield Farming
While the mechanics of each protocol may vary, the German tax treatment depends mainly on how long you hold the tokens and the type of benefit you receive. Each action, entering, exiting, or earning from a yield farm, can be taxed differently.
Adding Liquidity to a Yield Farming Protocol
If you contribute tokens to a yield farming pool and receive reward-bearing tokens in return, the transaction may be seen as a taxable swap. When the original tokens have been held for less than one year, any gain realised from the exchange will be taxed under Income Tax rules.
You need to calculate the profit by subtracting the purchase cost of the tokens from their fair market value on the day they were added to the protocol. To avoid tax on this action, it is advisable to use assets you have held for more than a year.
Removing Liquidity and Trading Yield Farm Tokens
When exiting a yield farming protocol by trading back your farming tokens for your original capital or rewards, the same rule applies. If your farming tokens were held for less than one year, any gains will be taxed at your personal Income Tax rate.
To make this event tax-free, you must ensure that your yield farming tokens have been held for more than a year. Planning your entry and exit dates carefully is crucial to optimising your tax treatment under German law.
Earning New Tokens Through Yield Farming
If a protocol rewards you with new tokens during yield farming, the value of these tokens is considered additional income. This applies even if the tokens are not immediately sold or used. You must record the euro value of the tokens on the day you receive them.
As with staking and liquidity mining, the €256 exemption applies. If your total additional income stays below this amount in a financial year, you are not required to file a return or pay tax. If your rewards exceed the threshold, the entire amount becomes taxable.
Taxation on Margin Trading and Derivatives
While the BZSt has not issued crypto-specific rules for these transactions, the existing guidelines from traditional financial products are applied. The tax outcome depends on whether your trade is settled in cash or crypto, and how long you held the asset before closing your position.
Margin Trading Settled in Cash
If your margin trade is settled in cash and you do not receive any crypto upon closing the position, your profits are taxed as capital income. This income is subject to a flat 25% withholding tax. You may deduct up to €801 per year in expenses related to capital income, such as trading fees.
There is no one-year holding rule for capital income. Regardless of how long you held the position, the flat tax rate applies. Keep in mind that capital income cannot be offset freely against other types of income or losses.
Margin Trading Settled in Crypto
When you close a margin trade and receive cryptocurrency in return, the transaction is treated as a private sale. If the asset was held for less than one year, any profits from the trade are taxed under your personal Income Tax rate.
This treatment follows the general rules for short-term crypto disposals in Germany. If you hold the crypto asset for more than one year before closing your position, your profit will be tax-free.
Derivatives Settled in Cash
If a derivative product does not result in you acquiring the underlying crypto asset and instead settles in cash, the profit is taxed as capital income. Like cash-settled margin trades, this is subject to a 25% withholding tax. The €801 expense deduction also applies in this case.
Even though the flat tax rate is lower than most Income Tax brackets, limitations on loss offsets and deductions may impact the overall tax efficiency of this option.
Derivatives Settled in Crypto
When you end up acquiring crypto through a derivative trade, the transaction is treated like a private sale. If the crypto was held for under a year, the gain is subject to Income Tax. If held for over a year, the gain is tax free.
The same rule applies to futures or options where the underlying asset is delivered instead of being settled in cash. The key factor here is asset delivery, if you receive crypto, standard holding rules apply.
Play-to-Earn Income from DeFi Games
Play-to-earn (P2E) games allow you to earn crypto rewards by engaging in blockchain-based games. These tokens are often distributed as incentives for participation, completing tasks, or achieving milestones within the game. Although these earnings are gamified, they are treated as real income under German tax law, and the same reporting obligations apply.
Earning Tokens Through DeFi Games
If you earn tokens while playing DeFi games, such as receiving SLP tokens from Axie Infinity, their value must be reported as income. The fair market value of the tokens, in euros, is calculated on the day they are received. These earnings fall under the “other income” category for tax purposes.
If your total additional income from P2E games and other sources remains under €256 during the financial year, you are not required to pay tax or submit a return. However, if the total exceeds €256, the full amount becomes taxable. It is important to track your in-game earnings and the dates on which tokens are credited to stay compliant with tax rules.
Read More: Best Play-to-Earn Games in 2025
Spending Crypto via DeFi
Spending crypto within the DeFi ecosystem is common, whether or not you incur tax depends entirely on how long you have held the crypto you spend.
Spending Crypto Held for Less Than One Year
If you use crypto that you have held for less than a year to pay for goods, services, or fees, any increase in the asset’s value from the time of purchase is taxed as income. The gain is calculated by subtracting the purchase cost of the crypto from its fair market value on the day it was spent.
This rule applies whether you are covering gas fees, minting NFTs, or paying interest through a DeFi platform. If the gain from the disposal pushes your total short-term capital gains above €600 in a year, you must declare it and pay tax at your personal Income Tax rate.
Spending Crypto Held for More Than One Year
If the crypto asset used for spending was held for more than one year, the disposal is completely tax free. This rule applies regardless of whether you spend the crypto on DeFi transactions or off-chain purchases. Germany’s long-term holding incentive ensures that the value increase is not taxed, provided the minimum holding period is met.
While the transaction itself may be tax-free, it resets the holding period for any new tokens you receive in return. In cases where no new token is involved, such as gas or service fees, you only need to ensure accurate records are maintained for compliance and auditing purposes.
How KoinX Helps You Track and File DeFi Taxes in Germany?
DeFi taxes can be difficult to manage. With dozens of protocols, complex smart contracts, and unclear classifications between income and capital gains, tracking every transaction manually can quickly become overwhelming. KoinX simplifies this entire process by helping German investors report their DeFi activity accurately, in full compliance with BZSt guidelines.
Here’s how KoinX makes DeFi tax reporting easy:
Seamless DeFi Integration
The software connects directly with your DeFi wallets and protocols, including MetaMask, Trust Wallet, and leading blockchain networks. It automatically fetches transaction data across lending, staking, and yield farming platforms, reducing the risk of manual errors.
Auto-Calculated Holding Periods
The platform monitors the acquisition and disposal dates of each token, helping you determine if a transaction qualifies for tax-free treatment under the one-year rule. This is especially useful when dealing with LP tokens, staking derivatives, or frequent token swaps.
Accurate FMV Tracking
Each time you earn or receive new tokens, it identifies the fair market value in euros on the date of receipt. This feature is essential for calculating income from liquidity mining, play-to-earn games, and staking rewards.
BZSt-Compliant Tax Reports
KoinX generates detailed tax reports aligned with German tax rules. From short-term Income Tax to capital income and the €256 additional income threshold, everything is categorised clearly to fit into forms like Anlage SO and Hauptvordruck ESt 1 A.
Sign up for KoinX today and get a head start on managing your DeFi taxes with precision and peace of mind.
Conclusion
We understand that DeFi taxes in Germany can be challenging, especially with evolving protocols and limited regulatory guidance. However, the existing tax rules offer enough clarity for investors to make informed decisions. Whether you’re staking, yield farming, or trading on a DEX, understanding how each action is taxed can help you reduce your liability and stay compliant.
With the right tools, managing DeFi taxes doesn’t have to be complex. KoinX offers a reliable way to track transactions, apply German tax laws accurately, and generate reports that meet BZSt requirements. Start using KoinX today and take control of your DeFi tax obligations with confidence.
Frequently Asked Questions
Can I Deduct Gas Fees Paid During DeFi Transactions?
In some cases, yes. Transaction-related fees like gas used for trading or swapping may be added to your cost basis. However, fees paid during transfers between wallets typically are not deductible. It’s important to track and categorise each fee type accurately.
What Happens If I Exceed the €600 Gain Limit with DeFi Trading?
If your total gains from DeFi trades and swaps on tokens held for less than one year exceed €600, the entire amount becomes taxable. You must file a tax return and pay Income Tax at your applicable rate. Gains under €600 remain tax free and do not require reporting.
Are Play-to-Earn Game Tokens Taxed If I Haven’t Sold Them?
Yes, taxation is based on the value at the time the tokens are earned, not sold. If the fair market value of your total P2E rewards exceeds €256 in a year, you will need to declare them as additional income and pay Income Tax accordingly.
Is Liquidity Mining Considered Business Income in Germany?
Liquidity mining is usually taxed as private income unless conducted at a scale that suggests commercial activity. For regular investors, it is taxed based on the value of tokens received. If you operate as a business, additional tax obligations like Trade Tax may apply.
