Judicial Decision Regarding Taxation of Non-Fungible Tokens (NFTs)
In a groundbreaking decision, the Lower Saxony Financial Court in Hanover, Germany, has ruled that sales of Non-Fungible Tokens (NFTs) are subject to Value Added Tax (VAT) at the standard rate of 19% under German VAT law.
The court's ruling, announced on Wednesday, provides clarity on the taxation of NFT transactions, addressing the specific case of an NFT trader who considered their transactions VAT-exempt.
The court's decision clarifies that NFT sales are not the sale of goods but a supply of other services. The actual supply is made by the individual seller to the buyer, not by the digital marketplace, such as OpenSea.
The court also rejected the idea that NFT sales could be VAT-exempt or that the marketplace acts as the reseller under the German VAT Act. Even if buyers' wallet addresses are pseudonymized, this does not exempt the seller from VAT obligations or prevent identifying service recipients in principle.
The place of supply is generally Germany if the buyers are non-entrepreneurs located in Germany, so VAT applies accordingly. This means that NFT sellers in Germany must treat their transactions as taxable electronic services and charge the 19% VAT rate unless they can demonstrate that the buyers are entrepreneurs who provide proper VAT identification numbers.
This ruling is significant because it establishes that NFT sales in Germany are fully subject to the VAT regime for digital services, requiring sellers to charge and remit VAT even if the transactions use blockchain and smart contracts, and despite the complexity of buyer identification.
The court's ruling could impact other NFT traders who consider their transactions VAT-exempt, providing a precedent for future NFT transactions taxation. This landmark ruling by the Lower Saxony Financial Court provides a clear path for the taxation of NFT sales in Germany, marking a significant milestone in the growing NFT market.
[1] Lower Saxony Financial Court, Press Release, [Date of the Press Release], URL [2] Lower Saxony Financial Court, Judgment, [Date of the Judgment], URL
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