Real Estate for Bitcoin: What Applies Legally When Paying with Crypto

German property: the prohibition of sec. 16a GwG

Since 1 April 2023, consideration for the acquisition of real estate located in Germany may no longer be paid by means of crypto assets – nor with cash, gold, platinum or precious stones (sec. 16a of the Anti-Money-Laundering Act, GwG). The notary must monitor compliance; completion requires proof that payment was not made by a prohibited route. A direct "Bitcoin property purchase" in Germany is therefore ruled out.

What remains permissible, of course, is converting crypto assets into euros first and using the proceeds as purchase price. The income-tax consequences must be considered: a disposal within the one-year holding period is taxable (sec. 23 EStG; Federal Fiscal Court, judgment of 14 Feb 2023 – IX R 3/22). Anti-money-laundering also remains relevant – notaries are obliged entities under the GwG and must scrutinise the origin of funds where indicated. Complete documentation of the crypto assets' provenance (acquisition dates, platform records, transaction history) considerably eases completion.

Foreign property and other assets

Where property located abroad is sold wholly or partly for cryptocurrency, permissibility follows the law of the situs; German parties frequently have accompanying arrangements – escrow and security agreements – notarised here. For movable assets, company shares or other rights, sec. 16a GwG does not apply: consideration in crypto assets can be agreed (legally an exchange, sec. 480 BGB).

Drafting contracts with crypto consideration

The particularity lies in settlement. The contract must reflect the technical characteristics of blockchain transactions:

• Time of performance: when is payment deemed effected – on signing the transaction, on inclusion in a block, after a number of confirmations?
• Exchange-rate risk: a fixed crypto amount, or a euro-linked adjustment clause with reference price and date?
• Evidence: documentation of transaction ID and receiving address in the deed or its annexes.
• Defaults: what applies to network congestion, transfers to wrong addresses, or hard forks?
• Concurrent performance: escrow or multi-signature structures can secure simultaneous exchange of both performances.

Anti-money-laundering and origin of funds

Notaries are obliged entities under the Anti-Money-Laundering Act. Where funds from the sale of crypto assets flow into an acquisition, heightened scrutiny is to be expected: the origin of funds must be plausible and documented. A complete transaction history, evidence of the original acquisition and records of the conversion into euros via a regulated provider are helpful. Compiling these documents early avoids delays in completion.

Bitcoin as collateral instead of Bitcoin payment

Where direct payment with crypto assets is ruled out (sec. 16a GwG), crypto wealth can nonetheless play a role in financing – for instance as collateral for a loan used to provide the purchase price in euros. Such collateral and pledge arrangements can be structured contractually; valuation fluctuations, margin obligations and realisation in the event of default must be considered. Here too: the contractual and proprietary structuring is one thing, the tax assessment of any disposal is another.