One of the fastest-growing assets classes to emerge over the last year were Non-Fungible Tokens (NTFs). NFTs are defined as a unique and non-interchangeable unit of data stored on a blockchain, a form of digital ledger. NFTs can be associated with reproducible digital files such as photos, videos, and audio.
If you were lucky enough to get in early on some popular NFT projects, there were huge potential profits to be made for investors. But how are these assets treated for tax purposes in Ireland compared to other investments? That is what we are going to discuss in this blog post.
The Revenue Commissioner guidance for cryptocurrencies in general is that there are no specific rules that deal with them. The tax rules that govern other investments such as stock also apply to crypto.
There are 2 types of angles we need to look at it. From the investors perspective and the creator.
NFT Taxes for Investors in Ireland:
Buying an NFT with crypto
When you purchase an NFT, you will usually be using another crypto as a form of payment. So firstly, if there had been any gains made on that crypto that you are using for payment, then capital gains tax will be charged on these now realised profits.
For example, if you had bought 1 Eth for €1,000 and then it had appreciated in value to €3,500. Then subsequently, used this 1 ETH to pay for an NFT, the capital gain of €2,500 will need to be included in your next capital gains tax return.
The capital gains tax rate in Ireland is 33% and every year you are entitled to an annual exemption of €1,270 to offset against gains. Similarly, if you make a loss this can either be offset against your other capital gains, or unused losses can be carried forward into future years.
Selling an NFT for crypto or fiat currency
You bought your NFT and hodled for months and now it has appreciated in value. If you decide to sell your NFT then this gain will be taxable as a capital gain. It is important to note that this also includes selling your NFT for another crypto.
If you decide to swap one NFT for another, this will also be deemed as a taxable event. At that point, it will also be necessary to calculate the gain or loss on your NFT at that point and include it in your next tax return.
NFT farming refers to staking an NFT to receive rewards in tokens or staking tokens to receive an NFT as a reward.
These staking rewards will be taxed at your marginal income tax rates. Which can be as high as 52% in Ireland.
NFT Taxes for Creators in Ireland:
Is minting an NFT taxable in Ireland?
If you ever have considered creating your own NFT, this process is called minting. This is not a taxable event.
Tax on Selling an NFTs which you created – Irish tax rules
Selling an NFT that you have created in exchange for cryptocurrency or fiat is a taxable event. The proceeds will be regarded as income and therefore you will be taxed at your marginal tax rate which can be as high as 52% in Ireland.
This post is for educational purposes only and should not be construed as financial advice.
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