Are NFT crypto assets transactions subject to EU digital services VAT rules?
Update: the Committee has produced its working paper on EU VAT and NFT’s in March 2023
Non-Fungible Tokens (NFT’s) trading is rising in popularity raising the question is they are liable to EU VAT as a digital service. Counties like Belgium and Spain have concluded they are – but will the rest of the EU follow suit? Or – since they are blockchain crypto assets – will the EU opt to make them exempt like cryptocurrencies such as Bitcoin.
The EU VAT Committee is reviewing VAT on cryptocurrency payment tokens. At the member state level, confirmation on Belgium Non-Fungible Token VAT and Spain VAT NFT has already been issued. New Zealand GST on NFT’s has also been confirmed. In the US, Washington state levied sales taxes on NFT‘s from 1 July 2022.
What are NFT’s – not cryptocurrencies!
Non-Fungible Tokens are unique digital certificates of ownership of digital assets such as online art, music recordings video and similar in the form for jpegs, MP3 or MP4 files. But they can also certify ownership of real-world assets such as property, and particularly collectible items like sports cards. NFT’s are held on blockchain shared ledger technologies which helps assure their security and prevent fraud. As they are tokenised, they can be sold between owners and buyers directly or via dedicated marketplaces.
Unlike cryptocurrencies, like Bitcoin, they cannot be exchanged for each other – the clue is in the name: non-fungible!
NTS digital assets are liable to EU VAT
Since NFT sales provide the new owner with access to digital files, this fits with the EU definition of a digital or electronic service. Their sale is therefore subject to VAT in the EU member states.
This means dealers or marketplaces selling NFT’s should consider their obligation to register for VAT and charge it to their customers – whether they are VAT registered businesses or individuals. This typically means monitoring the EU VAT registration threshold in their EU member state of establishment. Or, if non-EU resident, selecting any EU country of identification to report sales of NFT’s across the EU.
Most NFT transactions will be at full standard VAT rate. There may be exceptions in some jurisdictions.
What remains to be confirmed is if sellers of NFT’s wishing to report their VAT can use the One Stop-Shop return to declare sales and VAT collected across the Single Market.
Beyond the EU, over 70 other countries make digital services liable to VAT. Follow our global VAT on digital services tracker.
Cryptocurrencies exempted from VAT
Digital currencies in the EU – and in most of the rest of the world – are exempted from VAT. This is because they are considered a means of payment, and fall under the financial services VAT exemption. This was confirmed in the 2015 ECJ Skatteverket v. Hedqvist case. The ECJ held that bitcoin services fall within the scope of EU VAT. However, the digital currencies are effectively private money with no intrinsic value, like goods or commodities. This means their exchange is a financial service, similar to the exchange of national currencies, which are VAT exempt.
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How VATCalc can help get your NFT VAT right
VATCalc’s tax engine, VAT Calculator, can provide an instant live calculation tool for your NFT sales. And our VAT Auditor tool can help you validate the VAT you have been charged by your suppliers on their invoices.
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