Taxation NFTs – Cryptocurrencies

For a long time, gold or silver has been valued (and currently, it is valued too) above other metals that can be just as valuable. Why do they have more value? Because we give it to them and because there are many more people who also give it to them. NFTs (Non-Fungible Tokens) start from the same idea and consist of digital assets to which we provide value. In this article, we tell you what NFTs are with some examples, what is the taxation of NFTs and how they are related to cryptocurrencies.

As we said before, for years of history, people have given value to objects such as a painting, a sculpture or a stamp, which are things that we can touch and feel, but that same value can be given to a digital asset, something that cannot you can touch it, but it exists. An example of this is cryptocurrencies. But NFTs go one step further.

What are NFTs, and what are their characteristics?

NFTs are digital assets that use blockchain technology to determine their authorship and uniqueness. They are unique, and there cannot be two alike, so their characteristics are the following:

• Unique. First of all, they are unique, and in that sense, they resemble works of art because there may be copies of a painting, but there will only be one original.
• They are not divisible. Also, contrary to what happens with cryptocurrencies that can be divided into smaller parts, you cannot divide a work of art or an NFT into parts.
• They cannot be destroyed. This happens because they are stored in the blockchain, that is, chains of blocks and, therefore, it is impossible to delete or replicate them.
• They are not exchanged. They are also characterized by the fact that they cannot be exchanged for each other precisely because they are unique, contrary to what happens with cryptocurrencies.
• Its verification is very simple. The same is not the case as, for example, when collecting stamps, since, in that case, to verify the authenticity, you have to turn to a specialist and analyze the stamp, however, in this case, the chain of blocks saves a history of all purchases and sales of that NFT and information on who is the current owner and who are the previous ones.

To better understand it, we give an example. Christie’s auction house held an auction for a digital artwork titled Everydays: The first 5000 Days, by an artist alias Beeple. It is a fully digital work created by more than 5000 photos taken every day by the artist for 13 years.

What is the taxation of NFTs?

It is necessary to bear in mind that when crypto art or another NFT asset is bought or sold, there is an act that must be taxed.

• Taxation of NFT by VAT or ITP. The sale of NFT is taxed by VAT or ITP. If the person who sells is an entrepreneur or professional who acts within the framework of their activity, VAT is applied; in other cases, the ITP will be applied, that is when it is not a professional or entrepreneur. Along with the above, it is necessary to consider what type of property it is since it can be movable, immovable or a fundamental right. For example, if it is a photograph, it is considered movable property and will be taxed at a certain tax rate in VAT.
• Taxation in personal income tax. The sale of an NFT is also taxed in personal income tax since it must be considered as a return on economic activity; that is, if an artist sells a digital painting, he must include the profit obtained from the sale in his income statement. For example, if you are an influencer in a social network and you sell a tweet, the income you receive for that tweet is part of your business and, therefore, you will have to include it in the income statement. In the case of an individual who is not the author of the work but who sells it, even if it is not his professional activity, it must also be included as a capital gain.
• Information with Form 720. Along with all of the above, if the NFR has a value greater than 50,000 and meets the requirements of the applicable regulations, Form 720 (Informative Declaration of Assets and Rights in the Foreigner) to inform the Treasury about who is the owner of that asset.
  Corporate tax. If the owner of the property (NFT) is a legal person, that is, a commercial company, for example, a limited company, the returns obtained as a result of the sale of the NFT will be integrated into the profits of the company society when preparing the corporate tax.
• Wealth Tax. If you meet the requirements to file the Wealth Tax, you must also consider the NFTs in possession. In this case, it is necessary to take into account that it is a tax that is assigned to the autonomous communities, so the taxation from one place to another can be very different because the autonomous communities regulate the minimum exemption, the type of tax and deductions or bonuses from the fee.

As a consequence of all the above, it is necessary to know what regulations are applied in each case and what the taxation of the NFTs is like. For this, it is essential to have the advice of tax advisers experts in digital assets and cryptocurrencies so that they study your case, determine the taxes you have to pay and prepare and submit the corresponding returns. In this way, you will comply with your tax obligations, and, in addition, you will avoid inspections or sanctions by the Treasury that may affect your liquidity.