Germany has declared Bitcoin as a ‘unit of account’, which makes the virtual currency a kind of ‘private money’ and the process of Bitcoin mining has been deemed ‘private money creation.’
The recognition as ‘unit of account’ makes Bitcoin eligible for use in “multilateral clearing circles” and because of this citizens are liable to pay capital gains tax, if they profit from the crypto-currency by sale or purchase within a period of one year – the same as they would have to in case they profit by selling stock, bonds or other form of security. If they do keep the Bitcoin for more than a year, they are exempt from paying the tax.
The question here is how the finance ministry would come to know of a person’s Bitcoin holding as it is a decentralized currency with no governing body to keep count on the number of Bitcoins a person has. The German government expects that citizens declare their Bitcoin while filing their annual tax return.