In lack of any legislation at EU level or Luxembourg national level, there are few questions that arise in context of Value Added Tax (VAT). First and foremost, there is a question of the VAT consequences for the creators, seller and buyers of NFTs: should those be considered as goods or services? Where is the place of supply? Which VAT rate is applicable?
Several national EU member States recently released initial VAT guidelines on the topic. The Spanish VAT Directorate excludes the possibility for NFTs to be considered as a good, due to lack of physical delivery. Consequently, it is to be regarded as a transaction involving transfer of the digital certificate of authenticity. Thus, NFTs beyond doubt constitute a service in Spain, while a similar approach has been taken in Estonia.
However, it is worth to mention that Spanish differentiated two types of crypto assets at the time of their creation: 1) the underlying digital file; and 2) the token itself embodying the digital property of the underlying file. Alternatively in Estonia, NFTs are treated as other types of cryptocurrencies.
Hence, Luxembourg VAT Administration has several options on how to regard the supply of NFTs. Based on EU VAT Directive the supply goods is defined as transfer of ownership of tangible property, while an electronically supplied service is a service delivered over an electronic network, which’s nature is substantially automated and requires minimum human intervention.
If the NFTs are to be considered as other types of cryptocurrencies, the trading should fall within the exemption provided by Circular 787. On the contrary if they are to be regarded as digitally supplied services those transactions should not benefit from any exemption and be subject to VAT. Thus, standard 17% VAT rate should be applicable and accounted based on the general rules governing the place of supply of electronical services, unless “crypto art” could at one point of time be recognized as a piece of art for VAT purposes as well and fall within the scope of an amended list of items benefitting from a reduced VAT rate like it is applicable to items entirely executed by hand by an artist.
Finally, it is yet uncertain whether creators/sellers of NFTs would be capable of registering under One Stop Shop regime or whether the creators themselves would be subject to requirement of VAT registration upon creation of an asset. It cannot be excluded that this may be revolutionary course of action regarding VAT and digitally supplied services created by use of blockchain technology.