What tax sauce do NFTs eat?

“NFTs” (“non-fungible tokens”) are in vogue. Many operations involving these digital property certificates have made headlines in recent weeks. Wout van Aert thus sold NFTs representing his cycling victories (on the Champs-Elysées, on Mont Ventoux and in the Strade Bianche) for a sum of 47,000 euros. Another illustration of the growing enthusiasm for NFTs: A unique card (in the form of an NFT) by French star Kylan Mbappé was acquired for a sum of 416,000 euros during an auction on the Sorare platform.

The Minister of Finance was recently invited to comment on the tax treatment of NFTs. The time has come to take stock.

1. Tax on income from NFT operations

According to the Minister, the sale of NFT must have the same tax consequences as the sale of any other property. It thus considered that “speculative” capital gains on NFT should be taxable, without the need to adapt Belgian tax law in this regard. Let’s take a few examples to see it more clearly:

When an artist sells a work in the form of NFT, the income received must in principle be subject to personal income tax (IPP) as business income at progressive rates (the marginal rate is 50%). But in my opinion, the artist could try to argue that part of the price should be qualified as remuneration for the transfer of copyright, in order to benefit from the favorable tax scheme.

· What about the average investor who buys an NFT to resell it some time later with a capital gain? As a starting point, the capital gain will be exempt, provided that he performs a limited number of NFT-buy-sell transactions and that he limits his risk-taking (absence of borrowing, etc.). But the risk of taxing the capital gain at a rate of 33% is never far away when the investor starts trading on a speculative basis …

VAT

It is for VAT purposes that the Minister’s answer deserves all the attention. According to him, transactions involving NFTs are in principle subject to VAT. It refuses to put in the same bag transactions involving cryptocurrencies (exempt from VAT) and transactions involving NFTs: NFTs should therefore not be considered as a means of payment, but as a “digital collector’s item or a digital art object”. From here, he considers that trade with NFT should be equated with the provision of a service subject to Belgian VAT of 21% when it is estimated to take place in Belgium.

If an average investor buys an NFT and resells it some time later, there is nothing to worry about as it is an isolated transaction. No VAT is to be paid on this operation, as in this case the seller is not “liable for VAT”.

If, on the other hand, the seller of the NFTs is a “taxable person” for VAT (this is the case, for example, for the investor who repeatedly buys / sells NFTs), the VAT will generally be due. Then the question arises as to where (in which country) the VAT is to be paid and who is to pay it. If the taxable person sells NFTs to individuals established in Belgium, he must pay the Belgian VAT to the Treasury. If he sells NFTs to a person established in another Member State, e.g. France, he must pay French VAT in the country where the buyer is located (France). This is due to the assimilation – confirmed by the Minister of Finance – of the sale of NFT to a “service provided by electronic means”.

One thing is for sure: These VAT rules will be very difficult to implement because in practice it is almost impossible to identify sellers and buyers of NFT …

It is to be expected that the tax authorities (Belgian and foreign) will begin to pay more attention to trading in cryptocurrencies: it is, in fact, a welcome new source of tax revenue in these times of crisis. Especially as these transactions will soon be known by the tax authorities (everything that is known / tangible is potentially taxable …), thanks to the proposed directive “DAC 8” – which provides for an automatic exchange of information on transactions in cryptocurrencies and cryptocurrencies. assets (NFT) – which should be adopted soon.

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