Country-specific updates: Germany

The Federal Ministry of Finance extended in its notice dated 3 May 2021, the applicability of the VAT exemption for turnover generated by trading with cryptocurrencies. In addition to the so-called centralised exchange platforms (CEX platforms), from now on, also decentralised exchange platforms (DEX platforms) can also claim the VAT exemption under Section 4 No. 8 lit. e) of the German VAT Act. Further, a clarification has been provided in this regard that IT services related to exempt supplies are also exempt from VAT. Persons affected by this new ruling will have to adjust their accounting as soon as possible.

The Federal Ministry of Finance has argued so far that the VAT exemption of sec. 4 No. 8 of the German VAT Act is only applicable if the platform operator trades in its own name, e.g., CEX platform. If, on the other hand, the platform acts only as a technical marketplace, such VAT exemption could not be granted. Consequently, the no VAT exemption has been applicable for platforms not acting in their own name (e.g., DEX platform). Further, questions raised in practice regarding e.g., IT services as an ancillary service to the crypto trading activity remained unresolved.

The new notice from the Federal Ministry of Finance revokes and replaces the statements on crypto marketplaces from the previously valid notice. This means that DEX platforms are now also eligible for VAT exemptions on their transactions.

The application of the VAT exemption is analysed in two steps:

1. Examination whether there is a single service or whether there are several individual services which have been separately assessed.
   
   
2. Application of the conditions of the VAT exemption (Sec. 4 No. 8 lit. e German VAT Act)

In addition, it has been clarified that ancillary IT services, related to the exempt transactions, can also be VAT-exempt. However, purely material or technical services are still not exempt from VAT. Further, IT services can continue to be treated as an independent taxable service until 30 June 2021. Likewise, the right to deduct input VAT remains. By 1 July 2021 at the latest exchange platforms will have to adjust their invoicing.

CEX platforms provide a single service which consists of the classic trading business, the provision of the platform and the associated IT services. The IT services are ancillary services to the main service, so the VAT-exemption should also apply to the IT services.

DEX platforms that carry out matching, clearing and settlement together are also regarded as providing a single service. Clearing and settlement are ancillary services to the main service of matching.

Under certain conditions, CEX and DEX platforms can opt for VAT liability and claim input VAT deduction from the input services.