How are your NFTs taxed?

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What is Kylian Mbappé worth? In the NFT marketthings are clear: the value of the French football star is rising. A crazy buyer (or savvy investor) has become the owner of a unique copy of the PSG player, in the form of an NFT, for the modest sum of 416,493 euros. The transaction took place this week on the Sorare platform, which has created a system for collecting and exchanging virtual stickers of football players, a kind of Panini 3.0 collection.

NFTs (non-fungible tokens or non-fungible tokens) are digital certificates of ownership. They certify the ownership of a work or a virtual object. Like bitcoin, they use blockchain technology. Today, these digital assets are at the center of a real speculative fever. According to a study by online broker HelloSafe, the global NFT market is worth $ 16 billion.

This madness did not escape the tax authorities. What tax sauce will your NFT investments eat? My money goes around the issue.

Is the capital gain taxed?

If you make a good deal on reselling your NFTs, then do you have to pay capital gains tax? The tax authorities assess that the rules in this area are the same as those that apply to other types of virtual assets, such as cryptocurrencies. A distinction must be made between three cases.

21%

VAT must be paid on the sale of NFT. If the seller is a Belgian taxable person and he sells his NFT to a Belgian resident, the tax is 21%.

  1. Normal management of private assets. A taxpayer who performs a limited number of transactions without taking too many risks is considered one investor acting as a good father. In this case, the capital gain is not taxed. “The rule is the same as for the taxpayer who trades: his capital gains on shares are also exempt,” points out Denis-Emmanuel Philippe, associate at Bloom Law.
  2. speculative management. A taxpayer who realizes a high number of operations can be considered by the tax authorities as a speculator. This is the case if the investor buys and resells many NFTs, for very short periods. “Then we enter a gray area,” said Denis-Emmanuel Philippe. There is no fixed scale in relation to the number of operations or their frequency. The speculative aspect of the taxpayer’s activities will therefore be assessed from case to case. If the tax authorities place him in this speculative category, the taxpayer will be taxed as “miscellaneous income”, up to 33%.
  3. Professional management. This is the case for the taxpayer who makes resale of NFT his main activity or who establishes a professional management of his portfolio of NFT. “We’re talking about an NFT trader. This is an extreme case“, emphasizes Denis-Emmanuel Philippe (Bloom Law). The capital gain is then considered as business income, taxation can reach 50%.

Is VAT payable on the sale of NFT?



“Until now, no one has imagined that VAT would be paid on the sale of an NFT. It’s a mini-shake for investors.”

Denis Emmanuel Philippe

Partner at Bloom Law

For VAT administration, an NFT is considered “a digital collectible or a digital art object“. This was recently answered by Finance Minister Vincent Van Peteghem on a parliamentary question. The consequence is that sale of an NFT is subject to VAT. “It’s a mini-shock for investors. Until now, no one has imagined that VAT would be paid on this type of transaction,” says Denis-Emmanuel Philippe.

Attention : only a seller liable for VAT must pay the said tax. An occasional investorwho carries out the single transaction, is not a taxable person and must therefore not pay VAT.

On the other hand, an investor who makes recurring transactions or who sells NFTs as part of his professional activity must pay VAT. If he sells an NFT to a buyer established in Belgium, the tax is 21%. If the buyer is domiciled abroad, the amount of the tax depends on the tax system of that State.

Do your heirs have to pay inheritance tax?

The answer is yes. As long as they have a certain value, NFTs are assets to be mentioned in the inheritance declaration. They are therefore subject to inheritance tax.



“The risk of NFTs being discovered by the IRS will increase.”

Denis Emmanuel Philippe

Partner at Bloom Law

Omission of declaration may be sanctioned. “The risk of the tax authorities’ discovery of NFTs will increase,” warns Denis-Emmanuel Philippe. A new European directive in preparation (DAC 8) plans to extend the information exchange mechanisms in the field of cryptocurrencies and toincrease transparency about transactions involving NFTs.

Summary

  • NFTs, these digital property certificates, are at the center of a speculative fever.
  • The crazy amounts exchanged in the market have attracted the attention of the tax authorities.
  • Property capital gains tax, VAT, inheritance tax: NFTs are not exempt from taxation.

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