Trading and taxation of NFTs in Germany

How taxation of NFTs works and you are not at risk of tax evasion.

After the cryptocurrency boom of the last decade, the current focus is on NFT trading. We have already explained what NFTs are and how ownership is structured in a previous article.

This article deals with the tax treatment of non-fungible tokens in Germany.

First of all, it should be noted that there are still no mandatory tax rules for NFT trading. Here are just a few initial considerations.

Creation of NFTs and their trading

If you are a producer of NFTs, taxation depends on whether you produce these NFTs as an independent artist (eg NFT tokens related to NFT computer games) or whether you produce and trade commercially. As a freelancer, you must give your creative work a certain degree of design in the production process, § 18 ESTG. However, commercial production can be assumed if z. B. Sell NFTs independently in the online store (self-distribution) or buy instead of selling.

The boundaries are fluid. It always depends on the specific individual situation, but the nature of the company is completely different from a tax point of view. Among other things, because business tax must be paid.

Tax Free Sale of NFTs: Private Trading

As with cryptocurrencies, NFTs have so far been classified by the Federal Treasury as other financial goods under Section 23 I 1 No. 2 EStG. Therefore, the sale of NFTs has the nature of a private sale transaction.

One way to sell NFTs tax-free as a private individual is to use the exemption limit of €600 per year that applies to all profits from private sale transactions (gold, cryptocurrencies, art, etc.). If all sales at the end of the year are less than EUR 600, no tax will be charged. If you earn just one kroner more, the entire amount of the private sales transaction will be subject to personal income tax.

The other way to sell NFTs tax-free is to adhere to the one-year holding period. If you have had NFTs in your wallet for a year, selling any amount is tax free. However, remember to write down the date of purchase to avoid mistakes.

As with any personal sales transaction, you can carry forward, carry forward, or carry forward a loss for a year if there is no profit in that year.

Law on money laundering, value added tax & trade

To classify trading in NFTs as commercial, the BFH’s threshold criteria for securities and currency trading and the principles that the BMF also applies in the draft letter on the taxation of cryptocurrencies can be used: https:// www.bundesfinanzministerium .de/Content/DE /Downloads/BMF_Writing/Tax types/Income Tax/2021-06-17-est-kryptowaehrungen.html.

It is likely that these principles will soon apply equally to NFTs. High demands are placed on the commercial character. Follow standard merchant or bank procedures. It is not enough to just sell a lot of NFTs, there must be concrete evidence of trading activity. This is the use of commercially established companies and short-term and frequent turnover using external capital. In any case, the individual case should be considered.

As an NFT trading trader, you as a commodity trader can fall within the scope of Law on money laundering fall and must comply with due diligence, risk management and other obligations contained herein. Otherwise, even a negligent violation can result in a hefty fine.

What value added tax concerns, it may soon apply to trading NFTs. Unlike cryptocurrencies, which are considered a means of payment and are not subject to VAT, NFTs may be subject to sales tax if the business qualifies as an entrepreneur under VAT legislation and the internal transaction can be classified as a taxable supply or other service. However, it does not matter who buys the NFT or where the buyer is located. This can still be a problem as NFTs are typically traded using pseudonyms.

Once the business type is established, trade tax to pay. It is usually 7-18 percent. NFT traders also cannot earn tax-deductible profits, as profits are taxed regardless of the holding period. But losses can easily be compensated.

Do you have questions?

Do you have questions about the tax treatment of NFTs or are you unsure about the possible liability under the Money Laundering Act? Write a message or call our office on 04202 / 6 38 37 0. We will take care of your concerns and, if necessary, take legal action on your behalf.

Sources

https://www.winheller.com/bankrecht-finanzrecht/non-fungible-tokens/besteuern-nft.html

https://www.stuttgarter-nachrichten.de/inhalt.nft-steuerfrei-verkaufen-mhsd.15085f4b-cc45-4bc3-afa6-0272ec1ba024.html

https://www.cmshs-bloggt.de/steuerrecht/ertragssteuerliche-treatment-sog-non-fungible-token/

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