The art of digital ownership: Are NFTs tax free assets?

Are NFTs tax-free assets? It might not be your first thought if you are buying a non-fungible token (the ownership of a digital product, from art to an album or concert tickets). But as far as the Dutch taxman is concerned, the central question is whether you bought it for love or as an investment. Blue Umbrella explains.

Normally, crypto-currencies are considered an asset, so Box 3 tax will apply. On January 1, at the beginning of the tax year, the value of what you own is assessed, but within Box 3, there is an interesting exemption: if people purchase art, then it is excluded as an asset.

Nowadays, though, we have what many people would consider a new form of art: the NFT. I think that we can make the case that if you purchase an NFT, and you buy it with the same thought process as when you buy art, you would not have to declare it in your income tax return, even if you make profits or losses in the future.

Box 3

The future of Box 3, where you declare your investments, assets and savings, is currently in question. A court ruling last year said that savers were being taxed at unfair levels given the low rates of interest, so the tax has been suspended and the government is drawing up new plans. However, it is expected that assets will still be taxed in some way in the future, and various accountants have raised questions about what this means for digital ownership.

In Blue Umbrella’s view, if you want to claim that you have bought an NFT as an artwork, you will need to be prepared to demonstrate the subjective conditions of why it was an art purchase and not an investment.

The central idea is that if you bought it as an art purchase, we would argue that it should be excluded, but if you bought it as an investment, then it should be included in your tax declaration.

Art and NFTs as a story

Before you buy an NFT, here’s a tip: set down your reasons and purpose for buying the NFT upfront. For example, you might want to be identified with the jpeg or the picture that you have bought because you would like to use it as a profile picture - and this is part of your artistic way of expressing yourself publicly. Art is always subjective, so it is about your story.

If you have bought the NFT for love and not for money, as it were, any gains you make will not be taxable if you sell it (and you will not be able to offset any losses either). But currently, this art asset class - rather like your car or the contents of your home - is treated differently from assets such as second homes.

You should keep an eye on developments, however. Box 3 is currently being revised and it is unknown whether the Dutch government will look at the tax exemption for art again - whether you can hang it on your wall and enjoy it with a whisky and cigar…or whether it is an NFT in your digital wallet!

Still have questions regarding buying NFTs and what it will mean for your taxes? If so, get in touch with the experts at Blue Umbrella. Their experienced and professional team offer comprehensive tax support for expats and internationals in the Netherlands.