NFTs
Non-fungible tokens (NFTs) are unique digital assets that have gained enormous popularity in recent years.
How crypto NFTs work - with opportunities, risks and tax aspects
Overview of NFTs
Non-fungible tokens (NFTs) are unique digital assets that have gained enormous popularity in recent years. They are used to represent ownership or authenticity of digital or physical items. Below you can find out more about what an NFT is, how it works, what benefits and risks it offers, and how it is treated for tax purposes in Germany.
What is an NFT?
NFTs are unique digital tokens that are stored on a blockchain. Unlike fungible tokens such as Bitcoin or Ethereum, which are interchangeable, NFTs represent individual assets with unique properties. This makes NFTs ideal for representing ownership of unique digital or physical objects such as artwork, music, virtual real estate and many others.
Main features of NFTs
Uniqueness
Every NFT is unique and not interchangeable.
Proof of authenticity
NFTs provide immutable proof of authenticity and ownership.
Interoperability
NFTs can be used and traded on various platforms.
How do NFTs work?
Creation
NFTs are created through the process of "minting", where a unique token is created on the blockchain.
Sale and creation
NFTs can be bought, sold and traded on marketplaces. Well-known platforms for this are OpenSea, Rarible and SuperRare.
Proof of ownership
The purchase of an NFT gives the buyer ownership of the digital asset, which is recorded in a smart contract.
Transfers
NFTs can be transferred between wallets, with the blockchain documenting the change of ownership.
Advantages of NFTs
Uniqueness and scarcity
NFTs can represent unique digital or physical assets, which can increase their value.
Proof of authenticity
The use of blockchain technology provides secure and immutable proof of authenticity and ownership.
Market access
NFTs offer artists, musicians and developers new opportunities to monetize their work.
Risks of NFTs
Volatility
The prices of NFTs can fluctuate significantly, which represents a risk for investors.
Risk of fraud
Due to the decentralized nature of NFTs, there is a higher risk of fraud and counterfeiting
Ecological effects
The energy consumption of blockchain networks, especially Ethereum, has a significant ecological impact.
Tax treatment of NFTs in Germany
The tax treatment of income and gains from trading NFTs can be complex and depends on a number of factors. Here are some basic guidelines:
Income tax
- Private individuals:
Gains from the sale of NFTs that are considered private assets are subject to income tax if they are sold within one year of acquisition (Section 23 EStG). Profits are tax-free up to an exemption limit of EUR 1,000. - Speculation period:
If an NFT is held for more than one year, the capital gains are potentially tax-free. - Losses:
Losses from trading can be offset against gains from other private sales transactions in the same year.
Commercial activity
- Commercial traders:
If trading in NFTs is carried out on a commercial scale, the profits are deemed to be income from commercial operations and are subject to both trade tax and income tax.
Value added tax
- Buying and selling:
The sale of NFTs may be subject to VAT, especially if this is done as part of a commercial activity. It is advisable to check this individually.
Documentation and obligation to provide evidence
It is important to document all transactions and the acquisition of NFTs accurately. The burden of proof lies with the taxpayer. The following information should be recorded:
- Date of acquisition and sale of the NFTs
- Quantity and type of NFTs
- Purchase and sale price in euros
- Profits and losses
- Exchange logs and wallet addresses
Summary
Non-fungible tokens (NFTs) are unique digital assets based on blockchain technology that have a wide range of applications, including art, music and virtual real estate. In Germany, gains from trading NFTs are subject to income tax if realized within one year and must be carefully documented.
This information serves as a general guideline and cannot replace individual tax advice from our experts. The tax treatment may vary depending on your specific situation and the current tax regulations. It is strongly recommended that you contact our lawyers to clarify your personal tax situation and comply with the legal requirements.