EU VAT treatment on Non-Fungible Tokens (NFTs)

Although Non-Fungible Tokens (NFTs) have been around for quite some time, many countries still offer very little guidance regarding their VAT treatment. However, all the more countries are starting to dust off their VAT rules and are considering where NFTs fit into the picture. 

Previously, VAT on NFTs has been interpreted by applying the general tax rules to the NFT world. However, this proved to be challenging, as NFTs don’t perfectly fit into any current definitions or pre-existing VAT treatments. 

So, which rules apply and are EU member states able to agree on an aligned approach? Here's how different countries implement VAT on NFTs to combat the current legal uncertainty.

Are NFT crypto assets transactions subject to EU digital services VAT rules?

As NFTs become less of a novice service and rise in popularity, the biggest question regarding the trade and VAT is whether NFTs are considered a digital service and therefore need to apply the appropriate rules regarding VAT on digital services. 

The EU VAT law categorises supplies into two main categories: goods and services. As NFTs cannot constitute as tangible assets, they must be treated as services for VAT purposes. However, the VAT treatment of services also differs depending on whether the service constitutes digital services or transfers of IP rights. 

Some EU countries, including Belgium and Spain, have concluded that they are, in fact, digital services. However, it's yet to be determined whether or not the rest of the EU will follow suit. Alternatively, they could still be made VAT-exempt like other cryptocurrencies. 

VAT rules for Non-Fungible Tokens (NFTs) in Belgium

Belgium is one of the first member states to clarify VAT and accounting rules for Non-Fungible Tokens (NFTs). The Belgian Federal Public Services have established that NFTs are separate and unlike any other fiat or digital currency. They have also confirmed that they do not consider it an interchangeable means of payment. NFTs are therefore regarded as a digital certificate of authenticity. This eliminates its validity as either a digital currency or physical goods. However, unlike Bitcoin, Belgium authorities have decided that, unlike Bitcoin, NFTs are not considered VAT-exempt payments. Therefore, they are also not considered goods. 

In summary, The Service concluded that NFTs constitute as digital services and will be subject to the standard Belgian VAT rate of 21%. In addition, the sales of NFTs will also be subject to Capital Gains Tax, as with cryptocurrencies.

VAT rules for Non-Fungible Tokens (NFTs) in Spain

The Agencia Estatal de Administración Tributaria (AEAT) has determined that the provision of Non-fungible tokens is to be considered the provision of an electronic service and is subject to the standard rate of 21%. Similar to Belgium, Spain also considers NFTs as digital certificates of authenticity. Through blockchain technology, NFTs link to a unique digital file. This reiterates that NFTs are digital assets that cannot be mutually interchangeable, distinguishing them from cryptocurrencies. 

Furthermore, AEAT established two types of digital assets to clarify the role of NFTs in the VAT regime; 

1. Underlying digital assets: A digital image or video etc

2. Non-fungible token: Digital ownership of certain rights over the underlying digital assets

Ultimately, with new changes expected in 2023, the VAT treatment on NFTs is still open to change. Moreover, the majority of countries in the EU have yet to establish designated VAT rules on NFTs.

Rather than waiting to find out whether you're non-compliant, stay ahead of the compliance curve with regular updates and knowledge from experts in the field. 

Navigate NFT VAT compliance with VAT IT

When it comes to digital assets and VAT compliance, it can quickly feel as if you're shooting in the dark. With the already complex 'place of supply' rules, NFT VAT treatment adds an extra layer of uncertainty. Fortunately, you don't have to take on the burden of VAT compliance alone. Get in touch with our team of experts for complete global VAT compliance solutions.