Trade and taxation of NFTs in Germany

How taxes work on NFTs and you are not at risk of tax evasion.

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

NFT Tokens kaufen und verkaufen – Ihre Eigentumsrechte erklärt!

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

First of all, it should be noted that there are still no mandatory tax regulations for NFT trading. Here are some initial considerations.

Preparation and circulation of NFTs

If you are a producer of NFTs, taxes depend on whether you produce NFTs as an independent artist (for example, NFT tokens related to NFT computer games) or whether you produce and trade commercially. As a freelancer, you have to give your creative work a certain degree of determination in the production process, § 18 ESTG. However, commercial production can be assumed if z. B. Selling NFTs independently in an online business (self-distribution) or buying rather than selling.

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

Selling NFTs tax free: private trade

As with cryptocurrencies, NFTs have so far been designated by the Federal Ministry of Finance as Other Economic Goods within the meaning of Section 23 I 1 No. 2 EStG. Therefore, the sale of NFTs has the character of a private sale transaction.

One way to sell tax-free NFTs as a private individual is to use the exemption limit of €600 per year which applies to all profits from private selling transactions (gold, cryptocurrency, art, etc.). If all sales at the end of the year are less than 600 euros, no tax will be charged. If you earn more than a penny, the full amount of the special sale transaction will be subject to personal income tax.

The second way to sell NFTs tax-free is to meet the one-year holding period. If you’ve held NFTs in your portfolio for a year, selling any amount is tax-deductible. However, be sure 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.

Money Laundering, Value Added Tax and Trade Law

In order to classify NFTs trading as commercial, the BFH’s limit criteria for securities and forex trading and the principles used by the BMF can also be used in the draft crypto taxation letter: https://www.bundesfinanzministerium.de/content/DE/Downloads/ BMF_Writing/Types of Taxes/Income Tax/2021-06-17-est-kryptowaehrungen.html.

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

As an NFT trader, you, as a commodity trader, can fall into a range money laundering law It falls and must comply with the due diligence, risk management and other obligations contained therein. Otherwise, even a violation due to negligence can result in a large fine.

what value added tax Concerns, may soon apply to trading in NFTs. Unlike cryptocurrencies, which are a means of payment and are not subject to sales tax, NFTs can be subject to sales tax if the merchant qualifies as an entrepreneur for sales tax law purposes and the internal transaction can be classified as subject to sales tax, delivery or other service. However, it does not matter who is buying the NFT or where the buyer is. This is still an issue as NFTs are usually traded using pseudonyms.

Once you select the type of business, trade tax to pay. It is usually 7 to 18 percent. Also, NFT traders cannot take tax-free profits as profits are taxed regardless of the holding period. But the losses can easily be compensated for.

do you have questions?

Do you have any questions about the tax treatment of NFTs or are you unsure of a potential obligation under the Money Laundering Act? Write us a message or call our office at 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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