Tax Matters: What You Need to Know About Taxing NFTs | newsletter

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

So far there are no binding specifications

As Winheller attorneys and tax advisors explain on their website, NFTs are non-fungible tokens. This is what distinguishes them from “redeemable tokens” such as Bitcoin. While different bitcoins always have the same value individually, NFTs are unique. So far, such NFTs have mostly appeared as works of art NFTs embodying an artistic image. Since the topic of NFTs is still relatively new, there are currently no binding specifications for tax regulations. However, there are initial directional considerations regarding how to treat NFTs for tax purposes.


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NFTs manufacturers

As a manufacturer of NFTs, Winheller explains, tax assessment can be done in two different ways. In digital artwork production (Menten), income from artistic activity is acceptable. An artistic activity exists if the taxpayer “performs an independent creative activity with a certain level of creativity”. In the case of self-developed and self-developed artworks, producers of NFTs can fall into this income category.

Another possibility is the commercial classification of the type of income. In such cases, the tax office assumes that online trade in artwork is a business. However, this tax classification also has some drawbacks for taxpayers, as they also have to pay trade tax, for example.

Which of the two tax conditions apply in each case must be determined on a case-by-case basis. “Since the courts have not yet commented on this matter and there is no explanatory letter from the Federal Ministry of Finance (BMF), there is a great deal of legal uncertainty for manufacturers of NFTs in many cases. In order to eliminate this, it is advisable to examine the specific facts of the matter from by experts with experience in the field to examine the field of crypto tax law,” explains Weinehler.

Trading NFTs

But apart from the manufacturers of NFTs, the question of taxes also arises with respect to the income of those who buy and sell NFTs for profit. Here, too, two cases must be distinguished: commercial trade and private trade. Which of the two applies in each case should always be determined on a case-by-case basis.

According to Winheller, in order to rank in the NFT trading business, it is recommended to use the demarcation criteria for securities and forex trading established by the Federal Financial Court (BFH) and apply its principles. Accordingly, a business exists if a person pursues the business of a merchant or with a typical banking procedure. The extent of NFT trading is also a factor, but it is not critical to that. Other signs of trading include “holding an office or establishment to conduct business, exploiting the market by employing specific professional expertise or knowledge, or offering crypto assets to the general public.” Classification as a commercial trade has financial disadvantages for the taxpayer, as in the case of the manufacturer of NFTs, where between seven and 20 percent business tax must be paid and each profit is taxed regardless of the holding period.

In the opinion of the tax authorities, cryptocurrencies fall into the category of “other economic good,” which is why the sale is a private sale. […] It is also likely that tax authorities will adopt this view of the tax classification of NFTs, since the public sector usually does not differentiate between individual minute details, such as the difference between exchangeable and non-fungible tokens, and private crypto investors not involved in the business When NFTs are sold, it is a private sale transaction.If the NFT is sold within one year of purchasing the same, the profits are taxed at the personal income tax rate.After this period, private cryptocurrency investors can use the tax-free earning profits.

North / editor of

Image sources: archy13 /, phloxii /

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