The German government has stated Bitcoin is classed as a "unit of account" and is therefore deemed private money that is subject to tax.
Local newspaper Frankfurter Allgemeine Zeitung reports the finance ministry has declared mining the Bitcoin currency is a form of "money creation" as it is a unit of account.
A ministry spokesman told ZDNet: "Bitcoins are not yet regarded as an e-money or as legal tender. Bitcoins are acknowledged as a 'unit of account'"
Essentially, Bitcoins can be treated like shares, with any profit from them being subject to the country's capital gains tax.
Importantly, the tax is not payable once the Bitcoins have been held for over a year, whereas shares would.
Several nations are exploring ways to place taxation on the virtual currency. For example, a New York-based regulator has sent out subpoenas to 22 bitcoin-related firms, although it has not yet put new rules in place for Bitcoin.
By Claire Archer