NFT sales, summary of global tax treatment

This article is about NFTs, which are the most common today – when an NFT is a digital code that grants the owner access to a digital good.

In this article, I tried to give a general overview based on the opinion of countries that have already formulated their position in writing regarding the taxation of such transactions (the US, Poland, Norway, Spain, the UK, Belgium, Switzerland, and New Zealand).

For VAT and sales tax purposes, an NFT is not a form of digital currency. When an NFT is a digital code that gives the owner access to a digital asset, it is taxed as a digital service. Examples include digital photographs, audio-file, artwork, video clips, autographs, etc. Sales of digital products are generally subject to VAT and sales tax at the buyer’s location.

Price

Generally, the selling price of an NFT is measured by the amount of money received by the seller. If a seller receives crypto-money in exchange for an NFT, for taxation purposes the value of the cryptocurrency tendered must be converted to Euro/US dollars or other corresponding currency as of the time of the sale.

If the sale of an NFT contains a royalty payment to the NFT creator or another party who holds the right to royalties for future sale or distribution of the NFT. The gross income from royalties might be subject to withholding royalties tax.

Peer-to-peer NFT sale

Peer-to-peer (often abbreviated as “P2P”) is an exchange model where two individuals interact with each other. Such transactions may be facilitated by an NFT marketplace or might be conducted without external facilitation.

Marketplaces that facilitate retail sales of NFTs may qualify as market facilitators for tax purposes. That means that they are obliged to calculate and remit VAT or sales tax from such transactions. Insofar as the sale of NFTs is deemed to take place in a country of a customer, the standard VAT or sales tax rate applies, as they are not regarded as works of art. Please see more about Marketplace obligations here.

Credit vat (incoming VAT)

Added value concept doesn’t apply to the re-sale of digital services.  Since NFTs are not goods, taxable resellers of NFTs cannot invoke the special tax regime for the profit margin. In practice, it is rather difficult to apply a tax deduction, since either the seller of VAT is not registered and cannot issue an invoice, or the buyer is in another country. And the taxable turnover in each country is calculated from the total proceeds.