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There is currently no definitive ruling from the highest courts on the question of which type of income earnings from crypto lending should be classified as.

Lending

In crypto lending, crypto assets are deposited into a platform's wallet, where they are then made available for use by other platform users. As soon as a borrower uses the deposited crypto assets, the agreed-upon fees are paid. The crypto lending platforms act as intermediaries between the lender and the borrower.

Judgment of the Cologne Tax Court

The Cologne Tax Court ruled on September 10, 2025 (Case No. 3 K 194/23) that payments from crypto lending qualify as other income under Section 22 No. 3 of the German Income Tax Act (EStG).

In the case underlying the decision, which dates back to 2020, the plaintiff received Bitcoins from the paid licensing of crypto assets via the platforms crypto.com, Hodlnaut, and LEDN. The plaintiff argued that cryptocurrencies like Bitcoin should be treated like foreign currencies, meaning that income from crypto lending should be classified as income from capital assets and subject to withholding tax. In support of his claim, the plaintiff referred to the ECJ's decision in the Hedqvist case (C-264/14), according to which cryptocurrencies constitute a contractual means of payment, to the introduction of Bitcoin as legal tender in El Salvador in 2021 and the Central African Republic in 2022, and to the possibility of paying taxes in Bitcoin and Ethereum in the Swiss canton of Zug since 2021.

The Cologne Tax Court dismissed the action as unfounded. According to the court, currency tokens such as Bitcoin are neither money in the civil law sense nor e-money, even if they are considered a means of payment in economic terms. Income from capital assets requires a claim to a monetary payment, i.e., to legal tender. Lending crypto tokens does not meet this requirement. Rather, the transfer of currency or payment tokens constitutes the transfer of an asset. Therefore, crypto lending falls under the catch-all provision for other income pursuant to Section 22 No. 3 of the German Income Tax Act (EStG). Other income under Section 22 No. 3 EStG is not subject to the withholding tax under Section 32d EStG, but rather to the individual tax rate.

The Tax Court granted leave to appeal on points of law due to the fundamental importance of the case. The Tax Court's decision is not yet final. The appeal is pending before the Federal Fiscal Court (BFH) under case number VIII R 22/25.

Practical Significance

The difference between the legal classification of income from crypto lending as income from capital assets or as other income lies not only in whether the income is taxed at the taxpayer's individual tax rate or at the flat withholding tax rate of 25%. It can also have different effects depending on whether the savings allowance applies (and capital gains from other sources must be taken into account here) or the tax-free allowance of Section 23 Paragraph 3 Sentence 5 of the German Income Tax Act (EStG). Finally, the loss offsetting options also differ.

When filing tax returns, the ruling of the Cologne Tax Court and the pending proceedings before the Federal Fiscal Court (BFH) should be considered.