VAT on Non-Fungible Tokens (NFTs)

Robert Pelletier
June 16, 2022

The recent popularity of non-fungible tokens (NFTs) has captivated investors, governments and tax authorities. An NFT is a digital asset that represents real-world objects such as a piece of digital art, an audio clip, an online game or anything else. NFTs are purchased and sold online and are typically encoded with the same software as cryptocurrencies. They are stored in the blockchain to authenticate and track ownership of the NFT.

NFTs are generally one of a kind and can fetch tens of millions of dollars for a single NFT. The total market value of NFT sales skyrocketed into the billions in 2021. The high values and increase in sales have inspired several governments to introduce VAT legislation to define and tax these digital assets.

NFT VAT legislation

Multiple countries have announced specific VAT measures for the treatment of NFTs:

Spain: Spain is the first country in the EU to apply VAT to NFTs. The General Directorate of Taxes in Spain issued a ruling stating the supply of NFTs is an electronically supplied service subject to the standard VAT rate of 21%.

Belgium: The Belgian Finance Minister confirmed that the supply of NFTs is an electronically supplied service subject to the standard VAT rate of 21%.

Norway: The Norwegian tax administration defines the supply of NFTs as an electronically supplied service. It’s important to note that the creation or mining of an NFT will not attract VAT in contrast to a sale.

Washington State (U.S.): The Washington Department of Revenue is expected to announce that NFTs are subject to the state’s sales and business taxes as a digital product. This ruling will make Washington the first state to issue sales tax policies on NFTs.

In other countries, such as Switzerland, the supply of NFTs is generally considered an electronic service; however, there is a Swiss VAT exemption for electronic works of art directly sold by a creator that may apply to NFTs. VAT treatment of works of art may create implications for tax authorities when classifying NFTs.

Place of supply for NFTs

Another area of VAT concern surrounding NFT transactions is the place of supply. Place of supply for VAT purposes typically requires buyers and sellers to exchange domicile information such as a billing address. NFT transactions conducted through blockchain can avoid sharing personal information with intermediaries via an anonymous ‘wallet,’ which may lead to privacy concerns and other issues for tax authorities as they attempt to bring these transactions within the scope of VAT.

The VAT treatment of NFTs is still in its infancy and will continue to evolve alongside the digital asset industry. More insight into the classification of NFTs and the determination of the place of supply of such transactions will come as more tax authorities issue rulings analysing these unique digital assets.

Take Action

To find out more about what the future holds, download the 13th Annual VAT Trends whitepaper. Follow us on LinkedIn and Twitter to keep up to date with regulatory news and updates.

Sign up for Email Updates

Stay up to date with the latest tax and compliance updates that may impact your business.

Author

Robert Pelletier

Robert Pelletier is a Junior Regulatory Counsel at Sovos Compliance. Within Sovos’ Regulatory Analysis function, Robert specializes on research and analysis of global VAT and GST. Robert received a B.A. magna cum laude in Legal Studies from Quinnipiac University and a J.D. cum laude from Suffolk University Law School. Robert is a member of the Massachusetts Bar.
Share This Post

EMEA IPT
June 15, 2022
In Focus: Why is Italy’s IPT Regime so Challenging?

Tax compliance in Italy – where do we start? From monthly tax settlements to an annual declaration, prepayment, additional reporting and treatment of negative premiums – all these factors make Italy unique and one of the most challenging jurisdictions from an insurance premium tax (IPT) compliance perspective. Let’s break it all down: Insurance taxes IPT […]

EMEA VAT & Fiscal Reporting
June 15, 2022
Reciprocity Agreements and Why They Matter When Recovering VAT

Sovos recently hosted an online webinar on VAT recovery where we covered reciprocity agreements between the UK and EU Member States when making 13th Directive VAT refund claims. One of the questions that kept coming up is what are reciprocity agreements and why do they matter? Reciprocity When making 13th Directive refund claims, each EU […]

E-Invoicing Compliance EMEA
June 14, 2022
Draft Resolution Introduces Changes to Peru’s E-transport Document

E-invoicing was introduced in Peru in 2010, following the continuous transaction controls (CTC) trend in Latin American countries for a more efficient collection of consumption taxes. Since then, the government has rolled out measures to encompass a significant number of taxpayers under the country’s mandatory e-invoicing regime and advance new technical and institutional structures within […]

E-Invoicing Compliance EMEA
June 9, 2022
Belgium Steps Closer to Mandatory E-Invoicing

In line with the obligations set by the European Directive 2014/55 on electronic invoicing in public procurement, Belgium introduced a mandate for public entities to receive and process electronic invoices in 2019. For Brussels, Flanders, and Wallonia the initiative went beyond the bare minimum of the EU Directive requirements and introduced obligations to also issue […]

EMEA VAT & Fiscal Reporting
June 8, 2022
How to Prepare for a VAT Audit

Our previous articles covered audit trends we have noticed at Sovos and common triggers of a VAT audit. This article discusses the best practices on how to prepare for a VAT audit. Each country and jurisdiction may have different laws and requirements related to the VAT audit process. Tax authorities can carry out audits in […]