Global NFT Tax Regulatory Policies: Overview, Comparison and Prospects

Author: TaxDAO

NFT (Non-Fungible Token) is a token that uses blockchain technology to represent digital ownership. NFT can bind various virtual or digital assets, such as pictures, artworks, videos, music, game items, etc., so that they have unique identification and value. NFTs can be traded freely online, and traders often use cryptocurrencies as a payment method.

In recent years, the NFT market has developed rapidly, attracting the attention of many creators, collectors, investors and consumers. Statista predicts that the total transaction value of NFT in different fields is expected to reach 16 billion US dollars in 2023, an increase of about 33% from 2022. According to Influencer Marketing Hub, the total transaction value of NFT in the art field is expected to reach $450 million in 2023, an increase of about 25% from 2022. The innovation and diversity of NFT brings new possibilities and opportunities to the digital economy. However, investing in NFT may involve complex tax issues, because different countries or regions have different regulations or guidance on encrypted assets and digital ownership, and some countries even have no clear regulations or guidance. Therefore, it is necessary for investors to understand the taxation rules for NFT in their own region or the region where the transaction partner is located and abide by them. This article will summarize and compare the NFT tax regulatory policies of major countries and international organizations around the world, and analyze their future development trends, so as to provide information reference for NFT investors.

1 Countries and regions that tax or plan to tax NFT

At present, the tax regulations on NFT are not uniform in countries around the world. Some countries and regions have issued specific tax guidelines for NFT; Tax policy for NFT. This article first briefly sorts out the countries and regions where NFT has taxed or plans to tax, as shown in Table 1.

Table 1: Countries and regions that tax or plan to tax NFT

Except for the above-mentioned countries and regions that clearly tax or plan to tax NFT, most countries do not have a clear tax treatment method for NFT. Generally speaking, if a country or region has promulgated tax rules for cryptocurrencies/encrypted assets, and has not promulgated specific rules for NFTs; it can be reasonably inferred that NFTs follow the same taxation principles as cryptocurrencies, namely: cryptocurrencies are often regarded as Taxable assets under capital gains tax. If investors sell, exchange or gift NFTs, they may be subject to capital gains tax or incur capital losses. Investors may also be required to pay income tax if they obtain NFTs through mining, staking, or other means.

2 International framework for taxation or planned taxation of NFT

At present, there are no legal documents or tax guidelines that explicitly tax or plan to tax NFT internationally. However, some existing international tax and regulatory agreements are also applicable to NFT, such as regulations or regulatory documents issued by the European Union and OECD. Among them, the most representative document is the Market Encrypted Asset Regulation (MiCA) proposed by the European Union in September 2020. The regulation includes some rules that may apply to NFTs. **

MiCA defines encrypted assets as “digital representations of value or rights that are transferred and stored electronically using distributed ledger technology or similar technologies.” Regulation of distributed ledger technology and virtual assets. The Regulation is still in the first stage of the legislative process, to be approved or amended by the European Parliament and the Council. The European Commission expects the regulation to be implemented within 2024. As an EU regulation, it will directly bind all EU member states without the need for adoption by member state legislatures.

**According to MiCA’s classification, NFT is generally classified as “encrypted assets that are not a basket of asset tokens and electronic currency tokens” (crypto-assets, other than asset-referenced tokens or e-money tokens). **Under this category,**NFT does not need to provide a white paper when it is issued, but it needs to abide by MiCA’s marketing communication, marketing information release, marketing information modification and other rules. Furthermore, service providers (CASPs) that provide this type of NFT service need to be authorized by the EU Competent Authority and comply with MiCA’s operational compliance requirements. However, according to the nature of NFT, it may also be classified as utility tokens (Utility Tokens) or security tokens (Security Tokens). Such NFTs need to provide a white paper when they are issued and are subject to stricter supervision. **

In addition to the EU, other international organizations are also paying close attention to the development of NFT compliance. Michelle Harding, head of the OECD Tax Data and Statistical Analysis Department, said in a webinar that the OECD is studying some of the key issues involved in NFT, such as ownership, tax rights, and tax avoidance risks, and plans to publish a report on the NFT market. In terms of broader international cooperation, the United Nations 2019 report Tax Issues related to the The challenges and opportunities posed by emerging technologies such as encrypted assets and distributed ledger technology are mentioned in Digitalization of the Economy. The report pointed out the shortcomings of BESP2.0 and suggested that countries strengthen cooperation and coordination to deal with the impact of the digital economy on existing tax rules and principles. But in general, there is no institutional framework for unified tax management of NFT on a global scale.

3 Global NFT tax policy from a comparative perspective

As mentioned earlier, most countries regard NFT as a digital asset rather than a currency or financial instrument, which means that NFT may be taxed in accordance with property tax and income tax rules; There are different regulations on the holding period and issuance method. In terms of NFT taxation regulation, almost all taxed countries use self-declaration by traders as the main regulatory method, requiring NFT traders and creators to report and pay taxes, and to keep relevant transaction records and evidence.

Among major economies, the EU may become one of the regions with the strictest NFT tax regulation, because the proposed MiCA can classify and supervise NFT, and will also require NFT issuers and service providers to obtain EU competent authorized by the agency, and complies with MiCA’s operational compliance requirements. In addition, for the intellectual property issues involved in NFT, the EU also has a complete intellectual property protection system, including copyright, trademark, patent, etc. In comparison, the United States may be one of the countries with the loosest supervision of NFT at present. **On the one hand, the United States does not issue special regulations or guidelines for NFT, but treats NFT as digital assets or collectibles and taxes them according to existing tax rules; on the other hand, the United States does not classify NFT Instead, it is judged according to different situations whether NFT is a commodity, security or intellectual property, and no unified court case has yet been formed.

4 The development direction of NFT tax policy

** Clear and consistent regulatory framework. **With the continuous development and growth of the NFT market, governments and tax authorities of various countries may introduce more clear and unified NFT tax policies to reduce tax uncertainties for NFT traders and creators, as well as differences with other countries or regions. Tax differences and conflicts, such as the ongoing NFT regulatory opinion solicitation in the United States. In the future, the U.S. Congress may pass new bills or amendments to regulate the definition, classification, taxation methods and tax rates of NFT.

** More flexible tax policies. **With the continuous innovation of NFT technology, governments and tax authorities of various countries may adopt more flexible and innovative NFT tax policies to adapt to the diversified needs and changing trends of the NFT market, and to promote fair competition and sustainable development in the NFT field . The government may tax NFT differently according to different types, uses, sources, purposes and other factors, or provide some tax incentives or relief measures to encourage the creation, transaction, use and other activities of NFT.

** Towards international cooperation. **With the continuous expansion and globalization of the NFT market, governments and tax authorities of various countries may strengthen the coordination and cooperation of NFT tax policies to avoid the risk of double taxation or tax evasion by NFT traders and creators, and to maintain Order and security in the NFT market. In the future, bilateral or multilateral tax agreements and management mechanisms for NFT will continue to develop to standardize the taxation principles of NFT cross-border transactions and establish international information sharing and dispute resolution mechanisms.