The National Tax Agency put out a document on the 13th that summed up how NFTs are usually taxed (non-fungible tokens). Along with rules for when income tax is applied, there are also rules for when consumption tax is applied.
Concerning the profit-and-loss calculations of blockchain game transactions, which are popular in Japan and around the world, he said, “In-game currency (tokens) are often bought and sold, and it’s hard to figure out how each transaction turned out.” The “simplified method” for figuring out “other income” was approved. This method calculates the amount of income based on the in-game currency (token) and looks at it all at the end of the year.
How NFT transactions are handled at the moment
He explained that the rewards you get from playing blockchain games are, in general, considered other income and are taxed as such. But if the in-game tokens you get as a reward can only be used within the game and cannot be traded for assets outside of the game, they are not considered taxable.
Also, it made clear how the tax law treats “theft or disappearance of NFT unauthorised access,” which was not clear before.
But it’s important to note that the FAQ only answers questions about how things are handled in general. It also says that “individual transactions may be handled differently from the answers.” At the time of the final tax return, it is important to check with experts and the National Tax Agency about the details of how the calculations will be done.
Some situations are called “capital gains.”
If a person makes an NFT and sells it to a third party, this is called “primary distribution.” If a person buys an NFT and then sells it to another person, this is called “secondary distribution,” and the profit is taxed as “income.”
In this case, the idea is called “transfer of rights related to viewing digital art,” and the money made from it is called “other income or business income” for primary sales and “transfer income” for secondary sales. is taxed as
In either case, tax is usually taken out of the amount left over after expenses are taken out of income. Also, it was made clear that the only costs that NFT creators are responsible for are the “costs necessary to compose the NFT” from the digital art, not the costs of making the digital art itself.
If you give NFT to a friend for free, you may not have to pay taxes on the gifting side, but you may have to pay taxes on the gifting side. On the other hand, corporations usually have to pay taxes.
The National Tax Agency looks at “content, nature, transaction status, etc.” when deciding who should get the gift. He said that taxes will be put on gifts and inheritances after each person is evaluated. If there is a market price at the time of taxation, that price could be used to make the decision.
Unauthorized access, for example
This rule acknowledges that “if the purchased NFT is lost due to unauthorized access by a third party,” it will be subject to miscellaneous loss deductions, etc., and clearly states the following.
Concerning the loss amount, it is said that “the purchase amount may be used” if the market price at the time the NFT disappeared is unknown.
It also said that NFTs received as payment for services and NFTs given as gifts when a certain product is bought are also taxable. It also says that if the NFT you get when you buy a product can’t be traded for anything else and it’s hard to figure out how much it’s worth on the market, the market price of the token will be set to 0 yen.
How to handle sales tax
The National Tax Agency also said how consumption tax should be handled on NFT transactions.
If someone makes an NFT and sells it to Japanese consumers through the market and gets paid for it, the person who made the NFT will have to pay consumption tax.
Also, as a secondary distribution, if “a domestic business operator receives consideration as a business” when the bought NFT is sold to someone else, the business operator will have to pay consumption tax. and kept going.
Also, “a transaction done by a salary earner” is still a business transaction if the secondary sale of NFT for money is done over and over by different people and is done repeatedly.
