Income tax: how to declare your NFTs

Since 7 April you have to declare your income for the past year. The cryptocurrency gains you have made are no exception to the rule. Your capital gains must be completed on Form 2086, listing all of your trades made in 2021. They will be subject to the one-time flat-rate deduction (PFU), known as a “flat tax,” which applies to capital income worldwide. The rate is a total of 30%, including 17.2% social security contributions and 12.8% income tax.

What about your cryptocurrency earnings from NFTs? There is legal uncertainty over the taxation of its non-replaceable tokens, which can be traded on the blockchain and guarantee the authenticity and uniqueness of a digital asset. “Should they be subject to the tax regime for works of art?” asks Alexandre Lourimi, tax lawyer at ORWL, a firm specializing in the digital economy. This is generally not the case now.

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If the famous collections of Bored Ape Yacht Club or CryptoPunks can be related to digital art, other NFTs, such as the cards sold by the startup Sorare, depicting soccer players, seem distinctly different.

Art or personal property?

If the qualification of artwork or collectible is maintained, the capital gain obtained from the sale of your NFT is subject to a tax rate of 36.2%. You can also choose to tax the total amount of the transfer (original purchase value of the NFT and cumulative capital gain) at a rate of 6.5%. In the event of a significant profit – of, for example, several thousand euros – achieved after the sale of an NFT, it is advisable to consult a tax lawyer.

On the other hand, the services associated with certain NFTs, which offer benefits and in particular voting rights, can remove these non-fungible tokens from the art field. In that case, they may fall under the broom regime for movable property. The capital gain realized on the resale of the NFT is then subject to a tax rate of 36.2%. However, transfers are not taxed if they do not exceed 5,000 euros. And after the second year of ownership by the NFT, a surcharge of 5% per year of ownership applies.

Simple digital assets

Everything therefore depends on the legal qualification used. “In any case, in order to get as close to reality as possible, it is necessary to take an interest in what the NFT stands for. It is impossible to think globally on this issue,” says Alexandre Lourimi.

Ultimately, many NFTs will be seen as purely digital assets, just like cryptocurrencies such as bitcoin or ether, and any fungible digital tokens that are interchangeable.

In this case, you will not be taxed as long as you do not get your money back in the form of “fiat” currency (fiduciary money managed by a central bank) such as the euro. Indeed, NFTs are bought and resold using cryptocurrencies – and ether in particular. However, the exchange of a digital asset for another digital asset, bitcoin against ether or an NFT against ether for example, does not generate any tax.

On the other hand, cryptocurrency gains from the resale of an NFT will increase the total value of your digital wallet, which you should take into account when calculating your capital gains obtained in euros after the resale of your crypto assets.

If you want to know how to calculate your capital gains in cryptocurrencies, subscribe to the 21 Million newsletter. This subscription gives you access to our “2022 Practical Guide to Declaring Your Crypto Earnings”.

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