Tax Questions: What You Need to Know About Taxing NFTs | news

• There are still no binding specifications for the tax regulation of NFTs
• Manufacturers of NFTs should choose between commercial classification and income from an artistic activity
• When trading in NFTs, a distinction is made between commercial and private trade

So far no binding specifications

As attorneys and tax consultants Winheller explain on their website, NFTs are non-exchangeable tokens. This sets them apart from “fungible tokens” like Bitcoin. While different bitcoins always have the same value individually, NFTs are unique. To date, such NFTs have mostly come as so-called artwork NFTs that embody an artistic image. As the subject of NFTs is still relatively new, there are currently no binding specifications for tax rules. Nevertheless, there are initial trend-setting considerations on how NFTs should be handled for tax purposes.


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Manufacturers of NFTs

As a manufacturer of NFTs, as Winheller explains, the tax assessment can be done in two different ways. In the production of digital works of art (mint), income from an artistic activity is plausible. An artistic activity is present if the taxpayer “performs an independent creative activity with a certain degree of creativity.” In the case of self-created and sophisticated works of art, producers of NFTs may fall into this income category.

Another option is the commercial classification of the type of income. In such cases, the tax office assumes that e-commerce of works of art is a commercial activity. However, this tax classification also has some disadvantages for the taxpayer, as they also have to pay business tax e.g.

Which of the two tax cases applies in each individual case must be decided on a case-by-case basis. “As the courts have not yet commented on this issue and there is no clarifying letter from the BMF (Federal Ministry of Finance), there is great legal uncertainty for producers of NFTs in many cases. To eliminate this, it is advisable to get the specific facts in the case examined by experienced experts in the field to get the area checked for the crypto tax, “Winheller explains.

Trade in NFTs

But apart from the producers of NFTs, the issue of taxation also arises for the income of those who buy and sell NFTs at a profit. Here, too, a distinction must be made between two cases: commercial trade and private trade. Which of the two cases applies in each individual case must always be decided on a case-by-case basis.

According to Winheller, it is advisable to use the delimitation criteria for trading in securities and currencies developed by the Federal Fiscal Court (BFH) to classify in commercial NFT trading and to apply their principles. According to this, there is commercial activity if one carries on business as a dealer or with a typical banking procedure. The extent to which NFTs are traded is also a factor, but is not crucial to this. Other signs of commercial trading include “maintaining an office or organization to conduct business, exploiting a market by applying specific professional experience or knowledge, or offering cryptocurrencies to the general public.” The classification as a commercial trade entails economic disadvantages for the taxpayer, as in the case of the manufacturer of NFTs, as trade tax of between seven and 20 per cent is payable and any profits are taxed regardless of a period of possession.

“In the opinion of the tax authorities, cryptocurrencies fall into the category of ‘other economic goods’, which is why the sale is a private sale. […] “, explains Winheller. The tax authorities will probably also apply this view to the tax classification of NFTs, as the public sector usually does not distinguish between individual features, such as the difference between fungible tokens and non-fungible tokens private crypto investors who are not engaged with commercial business by selling NFTs is a private sale transaction.If the sale of the NFT takes place within one year after the purchase of the same, the profit is taxed at the personal income tax rate.After this period, private crypto investors will be able to use the profit to earn tax free.

E. Schmal / Editor

Image sources: archy13 /, phloxii /

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