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Spain has issued its first ruling in respect of VAT in relation to the sale of NFTS. Specifically, where the NFT involves the right to use an underlying digital artwork.
Here, the Spanish Tax Agency determined that the sale of NFTs is a supply of “electronically supplied services”. As such, if the place of supply is determined to be in Spain, then the sale will be subject to Spanish VAT. The prevailing rate is 21%.
However, there is an issue here in that a purchaser of an NFT is likely to be unknown due to the pseudonymous nature of the blockchain. As such, a seller of an NFT might encounter real difficulties in determining the location of the purchaser and, ultimately, whether or not they should charge Spanish VAT on the sale.
The Spanish Tax Agency now dictates that the sale of an NFT is not a supply of goods. This is on the basis that the underlying asset is digital in nature. As such, the analysis is that the NFT gives ownership rights over a digital asset rather than over a physical good.
The Spanish Tax Authority concludes that the sale of NFTs is therefore an “electronically supplied service” for VAT purposes. This definition can be found in Article 7(1) of Council Implementing Regulation (EU) No 282/2011.
As an “electronically supplied service” the applicable rate of VAT is 21% as opposed to the reduced rate (10%) that usually applies to art works.
In determining whether the seller must charge VAT at the general VAT rate of 21%, the place of supply rules are in point. These are based on the condition (business or consumer) and location of the purchaser.
If NFTs are sold to a company or to an individual acting in a business capacity, then the place of supply will generally be where the buyer has established its business. An exception might be where the business is located outside the EU.
Where the buyer is an individual not acting in a business capacity and the seller is established in Spain, then the place of supply will generally be where the buyer has his or her permanent home (or usually resides).
The position might be summarised as follows:
Of course, there is a fundamental issue in identifying the person acquiring the NFT and, therefore, their location. It is worth noting that EU Regulation No 282/2011 provides some guidance here and provides for a presumption that a customer in a ‘virtual transaction’ is based where their IP address, or any method of geolocation, is located. However, even this has its limitations.
If you have any queries about this article, Spanish tax, or the matters discussed more generally, then please do not hesitate to get in touch.
The content of this article is provided for educational and information purposes only. It is not intended, and should not be construed, as tax or legal advice. We recommend you seek formal tax and legal advice before taking, or refraining from, any action based on the contents of this article
For further resource on crypto assets please see www.cryptotaxdegens.com.
Portugal is often held up as an attractive place for crypto investors. More generally, it has an attractive regime for migrants moving to Portugal, who might be able to avail themselves of its Non-Habitual Residence (“NHR”) regime.
However, where the NHR regime is clear, the tax law around crypto-assets is more as a result of what the law does NOT say.
As stated above, Portugal has become a popular destination for those seeking a safe harbour for crypto gains.
It is estimated that between March and May 2020, the purchase and sale of cryptocurrencies in Portugal increased by 60% year on year. However, up until now, the Government has not acted to clarify or expand its legislation to cater for this relatively new asset.
In Portugal, there are three potential categories under which gains on the buying and selling of cryptocurrencies could be caught. These are as follows:
In respect of the first of these, the tax code specifies which cases will be subject to tax a as a capital gain. However, the class of items is an exhaustive list. In other words, the law only applies to something which is on the list. As crypto assets are not on the list they are not taxable.
In respect of Category E, this does not apply as the buying and selling of cryto-assets is not a yield on capital.
Category B is the one where we might fall into the tax trap. However, it is only likely to apply to certain cases. This category will apply where any crypto profits are as a resuly of a regular professional activity. Of course, this might be relatively easy to determine in extreme cases, but the lack of certainty for those in more marginal cases is a concern.
The current position means that Portugal is on a list of countries that still do not tax profits from this type of asset. Hence, why Portugal has become an attractive destination for crypto investors.
However, nothing lasts forever.
Indeed, on 13 May 2022, finance minister Fernando Medina confirmed that the Government is contemplating how it might tax crypto gains in the future. He did say there were no firm proposals to introduce any such legislation.
If profits from the buying and selling of crypto assets was brought into the tax net in Portugal, then it would seem likely they would be subject to tax at 28%.
However, Mr Medina did acknowledge that an imposition of high levels of tax might “bring revenue down to zero” so he is at least aware of the tight rope his Government might be treading.
If you have any queries about this article, Portugal crypto tax, or the matters discussed more generally, then please do not hesitate to get in touch.
The content of this article is provided for educational and information purposes only. It is not intended, and should not be construed, as tax or legal advice. We recommend you seek formal tax and legal advice before taking, or refraining from, any action based on the contents of this article.
For further resource on crypto assets please see www.cryptotaxdegens.com.
Like most jurisdictions around the world, there are no specific tax rules that apply to the buying and selling crypto assets in Ireland.
Therefore, like those other jurisdictions, the tax position on the sale of crypto assets will be subject to general Irish tax law principles.
In addition, the Irish Revenue has also issued guidance in some particular areas.
This article will mainly discuss cryptocurrencies – such as bitcoin, Ethereum and Dogecoin. The position for non-fungible tokens (“NFTS”) and other digital assets might differ.
As one might surmise, the purchase of cryptocurrency is unlikely to give rise to any direct tax implications. For instance, there is no stamp duty on crypto assets (as there might be on the purchase of shares, for instance). Further, it is unlikely there will be any VAT implications where we are looking at an investor or trader buying and selling crypto-assets.
However, the purchase of the cryptocurrency will be relevant for determining the base cost of the crypto when the investor decides to sell the assets.
The Irish tax position will depend on the Irish residence position of our crypto-investor. Specifically, whether they are:
If an Irish resident individual sells such an asset at a gain then it will usually be subject to capital gains tax. This is currently 33%.
Where the disposal results in a loss, then this capital loss can generally be:
The position is slightly different if the person is carrying on a ‘trade’ of dealing in crypto. Here, any profit on the sale of crypto would be subject to income tax. Marginal income tax rates of up to 55% – where one includes social charges – might therefore be payable.
It is worth noting that a trading classification is only likely in exceptional cases with the trading needing to be carried out in a deliberate and commercial fashion.
A non-Irish resident individual (who is also non-ordinarily resident) is liable to Irish CGT on gains arising in Ireland from the disposal of Irish ‘specified’ assets only (e.g. land and buildings in Ireland). As such, crypto gains should not be taxable.
An Irish resident company that disposes of crypto at a gain will be subject to capital gains tax at 33%. Similarly, losses will also be treated in the same way as set out above for individuals.
Where such a company conducts a ‘trade’ of dealing in crypto, then it’s profits will generally be subject to corporation tax at 12.5%.
Again, the threshold at which activities might be considered a trade is a high one. However, it is generally thought that a company might satisfy this more easily than an individual.
The Irish Revenue has not provided any guidance on the position when it comes to the mining of cryptocurrencies.
If they follow the UK tax authorities position on the same activity, then the treatment will depend on whether:
Here, the person will be taxable on the trading profits generated from the mining activities.
A company will pay tax at 12.5% but an individual will be subject to tax at their marginal rates.
Where the activities fall short of a trade, then the income received by the person will be treated as ‘miscellaneous’ income.
Miscellaneous income tends to qualify for fewer reliefs than trading income.
A company will pay tax at 12.5% but an individual will be subject to tax at their marginal rates.
If you have any queries about this article, crypto tax in Ireland or the matters discussed more generally, then please do not hesitate to get in touch.
The content of this article is provided for educational and information purposes only. It is not intended, and should not be construed, as tax or legal advice. We recommend you seek formal tax and legal advice before taking, or refraining from, any action based on the contents of this article
For further resource on crypto assets please see www.cryptotaxdegens.com.