Before looking at the taxation of NFTs, it is important to understand what they are. In short, an NFT, or non-fungible token, is a unique blockchain-based digital asset.
With the oftentimes booming crypto market, particularly the trade in NFTs for often staggering amounts of money, tax authorities globally have raised their eyebrows to the potential tax implications of the NFT market.Currently, a globally accepted and comprehensive solution to the taxation of NFTs remains indistinct. This is due to the fact that the tax treatment of NFTs would require various considerations as to their characterization and application within existing global tax rules.
On a global scale, the existing definitions of electronic services, per the European Union Council Directive 2006/112/EC, the Council Implementing Regulation No 282/2011 and the United Nations Model Convention 2021, may potentially be broad enough to include NFTs within the ambit of the definition of electronic services, specifically as it caters for the taxation of automated digital services that involve minimal human interaction.
However, before concluding that the supply of an NFT would fall into this definition for South African VAT purposes, it is necessary to consider whether it would, for purposes of the Value Added Tax Act, 1991 , be considered a supply of services. Considering it is supplied electronically, it can be concluded that the supply of NFTs should fall within the scope of the definition of electronic services and would therefore attract South African VAT.As simple as this seems, we caution that it becomes more complex, specifically when taking into account how blockchains function.