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EU reviews VAT on crypto-assets

EU’s VAT Committee reviews VAT treatment on cryptocurrency payment tokens

The European Commission’s VAT Committee is reviewing the Value Added Tax issues arising from cryptocurrencies such as bitcoin, Spice and utility tokens. The discussion covers the VAT position, including whether taxable supply, and then, if a supply, whether taxable or exempt.

The European Court of Justice (C- 264/14 Hedqvist4.) has previously ruled that such crypto-assets are non-fiat currencies, generally exempt from VAT as with other financial services and payments. They are therefore not physical commodity traded assets, such as gold or oil.

At the member state level, confirmation on Belgium Non-Fungible Token VAT and Spain VAT NFT has already been issued.

The EU DAC8 crypto-currency reporting requirements for intermediaries are due by the end of 2022.

VAT on cryptocurrencies

Stage Examples VAT Treatment
Crypto-assets Payment, security or utility tokens Treated as currency
Creation of tokens Mining or forging Out of scope of VAT
Supplies free of charge Airdrop Out of scope of VAT
Supplies for consideration Taxable; but exempt
Storage and transfer Hot or cold digital wallets Taxable; but exempt
Exchange for crypto-assets or cryptocurrencies Taxable; but exempt
Cryptocurrencies as consideration for supply Taxable; VAT due
Token modification Modifications, forks or splitting of tokens Out of scope of VAT

Cryptocurrencies and blockchain

Electronic non-fiat currencies, cryptocurrencies or crypto-assets exist as peer-to-peer payments systems without the support or regulation of state central banks. They generally use linked computers (‘nodes’) as distributed ledger systems (‘blockchain’) to record and provide proof of currency exchanges whilst protecting the identify of individuals. There are many examples, including bitcoin, Ethereum and Ripple.

Types of crypto-assets payment tokens

The Commission views crypto-assets as coming in three forms of tokens:

  1. Payment tokens, a virtual payment currency such as bitcoin
  2. Security tokens, investment tradeable assets such as Spice
  3. Utility tokens, a virtual prepayment for goods or services similar to vouchers

VAT and mining of cryptocurrencies

When a payment token or cryptocurrency is created – minded or forged – it is then supplied to the user. Typically this is without remuneration or transaction free and so for free and outside the scope of VAT. However, even though transaction fees for mining are not obligatory, they are in fact often paid as they constitute an incentive to make sure that a particular transaction is verified more quickly by the miner16. The miner may be entitled to a mining reward paid through being given new tokens or a protocol transaction fee, which is a percentage of the value of the transaction that is being processed and is paid from that transaction.

Nevertheless, even when within the scope of VAT, it is likely to be an exempt supply since it is a transaction concerning payments and currency – Articles 135(1)(d) and Article135(1)(e) of the VAT Directive.

VAT and digital wallets services

Cypto-assets or currencies then need to be held. There are four types of methods:

  1. Hot custodial wallet – third-party internet based service
  2. Hot non-custodial wallets – internet-based controlled by use
  3. Cold hardware wallet – offline device to hold the tokens and may be linked to internet for transfers
  4. Cold paper wallet – a paper evidence based record of the address and key.

Where any of the above are provided for a fee, then they are within the scope of VAT and VAT is due.

Exchange services and VAT

Crypto-assets, either as assets or fiat currency, can be traded online or office.  The trade is exempt (see Heqvist ECJ).

Token modifications and VAT

Modifications or ‘forks’ to tokens in the chain come in two forms:

  1. Soft fork: a modification to the overall protocol for all users, with no new tokens being created; and
  2. Hard fork: creates new tokens within the blockchain – known as chain split.

From the VAT perspective, modifications of a token are relevant, but their treatment would be similar to the treatment of mining/forging. Supplies of services which lead to the improvement of an existing token or to the creation of a new token would be subject to VAT and possibly exempt on the basis of Article 135(1)(e) of the VAT Directive as services concerning means of payment.

Summary of VAT issues on Crypto-assets

The discussion and above analysis is summarised as follows:

  • General principle: crypto-assets are treated as a currency.
  • Supplies of crypto-assets following their creation:
    • Free of charge (e.g. airdrop): in principle, out of scope,
    • For consideration (e.g. in principle – mining/forging): taxable, but exempt (Article 135(1)(e) or (d) of the VAT Directive).
  • Storage and transfer – digital wallets: taxable, but exempt (Article 135(1)(e) of the VAT Directive).
  • Exchange (crypto-assets for fiat currency or for crypto-assets): taxable, but exempt (Article 135(1)(e) of the VAT Directive).
  • Supply of goods or services remunerated in crypto-assets: the same treatment as any other supply for the VAT purposes.
  • Modification of a token: the same treatment that as of mining/forging.
  • Mining, forging, modification of a token for own use: out of scope.

EU VAT reforms

Reform (click for details) Update
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2035 Harmonisation of EU e-invoicing and domestic regimes Jan 2035
2030 Digital Reporting Requirements and e-invoicing harmonisation July 2030
Structured e-invoices supercede paper invoices July 2030
EC Sales lists replaced by Digital Reporting Requirements July 2030
2028 EU Customs reforms Published May 2023
€150 import consignment threshold removed Published May 2023
2027 Single VAT Registration in the EU - extension of OSS July 2027
Call-off stock VAT simplification ends July 2027
Harmonisation of B2B Reverse Charge rules July 2027
Proposal for VAT treatment of the platform economy July 2027
2026 DAC8 harmonised crypto asset reporting Approved May 2023
2025 VAT registration thresholds equivalence foreign businesses 1 Jan 2025
Virtual events VAT rule changes 1 Jan 2025
Financial Services VAT exemption reform proposals Consultation complete; proposal awaited
Tour operator margin scheme VAT reforms EC undertaking fresh review
2024 Payment providers' seller transaction reporting and bookkeeping obligations In effect since 1 Jan 2024
2023 DAC 7 - marketplace reporting harmonisation In effect since 1 Jan 2024
2022 IOSS reforms to prevent double taxation On hold
EU reduced VAT rate freedoms Entered into force 6 April 2022
VAT in the Digital Age proposals Published Dec 2022
EU DAC8 cryptocurrency tax reporting proposals Published Dec 2022
VAT Gap Initiative Q3 2022
EU Definitive VAT System On hold
2021 One-Stop-Shop (OSS) single EU VAT return In effect since 1 July 2021
Ending €22 import VAT exemption; new IOSS return In effect since 1 July 2021
Marketplace deemed supplier EU VAT reforms In effect since 1 July 2021
2020 EU four Quick Fixes for VAT In effect
Tax authorities anti-VAT fraud cooperation In effect
Tax Action Plan - 25 VAT and other tax reforms roadmap See 'VAT in the Digital Age' and others
2019 Simplification of e-services VAT compliance and thresholds In effect
Single and multi-use vouchers In effect
2018 Lower e-book and publications VAT rates In effect, although not all EU states have adopted the option


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