Non-fungible tokens (NFT) are on everyone's lips. However, the VAT practice on supplies in connection with blockchain and distributed ledger technology, published by the FTA in June 2019, does not (yet) contain any specific guidance in this area. Hence, certain VAT-related questions currently remain unclarified.

Given the steadily increasing popularity of Non-Fungible Tokens (NFTs), the NFT market has seen exponential growth in the recent past. However, many NFT holders seem to be unaware of the associated VAT issues.

NFTs are cryptographic tokens that exist only once on the blockchain and (in contrast to Bitcoins and other tokens that are issued in larger numbers of equal units) represent a unique, non-interchangeable item. Because of this characteristic, NFTs can be used as representatives of digital content (such as artwork, trading cards, images, music, or the like) or physical objects (such as gold bars or diamonds) and are effectively a digital title deed or proof of digital ownership. In the case of digital content, NFTs are often synchronized with a license right to use the underlying intellectual property. From a civil law perspective, NFTs that are linked to digital content or physical objects are therefore usually considered to be absolute, property-like rights (BCP Class 3).

As regards the VAT treatment of corresponding NFT transactions, it should be noted that the FTA's VAT practice on supplies in connection with blockchain and distributed ledger technology, published in mid-2019, does not contain any specific guidance on NFTs. However, the general approach made in the VAT practice to distinguish three main types of tokens proves unsuitable due to the uniqueness of NFTs. Therefore, the FTA’s view on the VAT treatment of NFT transactions is currently still open and an individual case-by-case assessment has to be carried out for each NFT.

In this light, the following VAT-related questions come up in connection with the issuance and sale/purchase of NFTs:

  • Type of synchronization of the NFT with digital content, physical objects, or combinations of supplies (e.g., as an absolute right, as a relative right, or without an enforceable right)
  • Qualification of the issuance or sale of NFT against consideration as a taxable supply of service for VAT purposes
  • Applicability of VAT exemptions, such as the supply of cultural works by their creators
  • Proof of the place of supply for VAT purposes, especially in the case of sales of digital content or combinations of supplies to domestic and foreign recipients
  • Mandatory VAT liability of the seller resulting from an annual entrepreneurial turnover of CHF 100'000
  • Liability of the buyer to account for acquisition VAT (reverse-charge) or treatment as an electronically supplied service leading to a VAT liability of the seller in the buyer’s country when cross-border transactions involve digital content or combinations of supplies
  • Import VAT and customs duties in cross-border transactions with movements of physical goods or combinations of supplies

Many NFT owners and traders appear to be unaware of the mentioned issues or simply ignore the possible VAT consequences despite the applicable criminal provisions. A further complicating factor that appears when trading via platforms such as OpenSea is that buyers and/or sellers cannot identify each other, making it virtually impossible to prove the place of supply of digital content. Consequently, there is not only a risk that Swiss sellers would be liable to pay 7.7% Swiss VAT on such transactions, but also the possibility to trigger a VAT liability abroad if the sale was actually made to a foreign buyer.