Spain: Non-Fungible Tokens (“NFTS”) and VAT

Introduction – Spain NFT VAT

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 nature of NFTs for VAT purposes

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.

VAT implications

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).

In summary

The position might be summarised as follows:

• The buyer resides in Spain: the sale would be subject to Spanish VAT:
• The buyer resides in another EU Member Sate: the sale is subject to VAT in the EU Member State of consumption, unless below the €10k threshold in the year: and
• The buyer resides outside the EU: he sale would fall out of the scope of Spanish VAT (unless the use and enjoyment rules are applicable)

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