Non Fungible Tokens: Significant and Emerging VAT Issues

As tax authorities around the world look to grapple with the rapidly developing area of crypto tax, significant questions remain on how to apply various indirect tax rules. This is especially apparent when it comes to the treatment of non-fungible tokens (NFTs).

Innovative and a huge digital phenomenon, particularly in the arts and sports space, these tradable digital assets offer significant change for the creative content industries. But, like other evolving blockchain ecosystems, the complexity and speed of development is outstripping common agreement by policy makers on what an NFT is for VAT/GST purposes and how current rules should apply.

Drawing on our recent Global Crypto Tax Report and 2022 report on the legal, tax and accounting considerations around NFTs, we’ve pulled together what we’re currently seeing around various jurisdictions to help bring clarity for businesses.

The complexity of the NFT ecosystem and impact on tax considerations

Simplified NFT business model and types of transactions
Simplified NFT business model and types of transactions, Non-Fungible Tokens (NFTs): Legal, tax and accounting considerations you need to know

From a VAT/GST perspective, the main issue around NFTs is what is being supplied when an NFT is created or sold. Early trends are to treat NFTs as a service (not goods), meaning electronically supplied services (ESS) rules are likely to apply. There are currently no applicable VAT/GST exemptions.

Other important ESS aspects are:

  • Location of the consumer, which can be more complicated to identify
  • Seller's commission and how ESS rules would apply to a given series of transactions that could involve various commissions for market, valuation, AML and due diligence checks
  • Buyer's premium which might be paid for payment collection/facilitating/arranging the transfer of NFTs. Is this additional consideration for an ESS service?

And what happens when a marketplace is involved? There’s a growing trend to see the platform involved in the buying or selling as fully liable for collecting the VAT/GST due from the customer. This means online intermediaries need to decide if they are covered by the relevant marketplace or facilitator definition in the country where the consumer is located.

Finally, NFTs are typically paid for in other cryptoassets which raises the question of mutual or barter supplies. And although a growing number of countries have tax policies that cover use of cryptocurrency or digital tokens as payment, the majority are still developing their position.

Current VAT/GST positions by countries reveal there is no ‘one size fits all’ approach

The country with the most advanced position on NFTs is New Zealand. NFTs are excluded from the definition of ‘cryptocurrency’ in the Goods and Services Tax (GST) Act, which means sales of NFTs follow the standard framework for supplies of ESS/remote services. This includes tax liability for facilitating marketplaces. So:

  • Domestic transactions are subject to standard local GST
  • Inbound transactions fall under the ESS/remote services rules for offshore sellers/platforms if sold to New Zealand resident consumers
  • Outbound transactions fall under offshore ESS/remote services obligations (in many countries) for sales to non-residents.

Similar approaches appear in Australia, South Africa and Europe. These views are based on local interpretation of existing law and practice in the digital space and where there is no enacted law or guidance on NFTs. In March 2022 Spain became the first EU country to confirm NFTs are subject to ESS rules. We suspect others may follow suit in due course.

The new VAT regimes in the Middle East’s GCC Member States generally deal with e-commerce issues including ESS, but cryptoassets are not yet catered for.

In the US, 2018’s Supreme Court decision on South Dakota v Wayfair Inc had broad implications for the collection of sales tax for remote sellers. This is likely to include revenue from an NFT sales sourced to a customer in a US state. And while the analysis is complicated, the conservative viewpoint would characterise NFTs as digital goods - which are taxable in over half the US states with a sales tax or equivalent. As a starting point, the emerging trend is that revenue from NFT sales to US customers could likely have nexus and sales tax implications for foreign companies.

  Is there tax authority guidance on cryptocurrency? Is there tax authority guidance on NFTs? What is the VAT/GST liability of NFTs? Do NFTs fall within the definition of ESS/remote services? If a marketplace is involved, who has the obligation to account for VAT/GST on the sale of NFTs? Treatment of NFTs sold in exchange for cryptocurrency?
NZ Yes Yes Standard rated Yes Potentially marketplace Barter but cryptocurrency payment disregarded
Australia Yes No Standard rated Yes Potentially marketplace Single supply of NFT, cryptocurrency payment disregarded
Germany Yes No Unclear Unclear, potentially ESS Potentially seller Single supply of NFT, cryptocurrency payment disregarded
Ireland Yes No Unclear Unclear, potentially ESS Potentially marketplace Single supply of NFT, cryptocurrency payment disregarded
Netherlands Yes No Unclear, potentially standard rated Unclear, potentially ESS Potentially marketplace Single supply of NFT, cryptocurrency payment disregarded
Middle East No No Unclear Unclear, potentially ESS Unclear  Unclear
Singapore Yes No Likely to be taxable Unclear, potentially ESS/remote services Potentially marketplace Barter but digital payment tokens are disregarded
South Africa Limited No Unclear, potentially standard rated Unclear, potentially ESS Potentially marketplace Barter but cryptocurrency payment disregarded
UK Yes No Likely to be standard rated Unclear, potentially ESS Unclear Single supply of NFT, cryptocurrency payment disregarded
US Limited No Unclear, potentially taxable Unclear, potentially digital goods Potentially marketplace Unclear - potentially cryptocurrency payment disregarded

A complex and changing environment creates a challenge for tax authorities and businesses alike.

We’re already seeing more clarity on indirect tax rules as countries get to grips with aspects such as digital imports and platform economies. However, the innovation and speed around NFTs is outstripping the ability of tax policy makers to keep up.

This makes the international VAT/GST framework an uncertain environment to navigate. Regional variations in the tax treatment of NFTs means that market players cannot simply factor in a standard cost for tax in the transaction to address tax risks. And the potential difficulty in identifying the location of the buyer makes it challenging for both taxpayers and tax authorities to properly administer these transactions and remit or collect such revenues. So be sure to seek advice.

For a deeper discussion of how the taxation of NFTs, or other crytpoassets, might affect your business, please contact:


Contact us

Eugen Trombitas

Eugen Trombitas

Partner, PwC New Zealand

Tel: +64 21 493 903

Bart van Osch

Bart van Osch

Senior Director, PwC Netherlands

Tel: +31 (0)65 395 10 13

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