The increasing activity in the crypto/blockchain space has given rise to significant uncertainty about the application of value-added tax (VAT) and other indirect taxes to service providers and brokers facilitating such transactions. Companies can use the following overview to help them determine when VAT applies.

VAT is generally imposed on services provided (including electronic digital services) unless the transactions are specifically exempt (e.g., financial transactions). While there may be certain compliance exemptions for B2B transactions, B2C digital service transactions may generally be subject to VAT. There is usually no minimum value threshold.

What Does It Apply To?

Each country has a different definition of its own indirect taxes and which transactions they apply to. There are some general VAT rules applicable in Europe, essentially the EU, UK and Switzerland.

In general, VAT applies to any B2B or B2C services where the service provider is receiving compensation (whether in form of fiat or token payment) for providing crypto-related services to a customer, unless the transaction qualifies as a financial service or financial transaction.

Accordingly, the key question is whether the service is a crypto-related service or a financial service. Specific rules vary by country as to what may be a crypto-related service or an exempt financial transaction. For example:

1. Digital Wallets and Custody Services – Charges for maintaining digital wallets and other crypto-based accounts and assets may be treated as a digital service, to which VAT may apply.
2. Payments Received and Network Rewards – Issuance of security tokens/hard forks. Arguably no VAT applies. May be considered a financial transaction (electronic money).
3. Exchange Platform Transactions – Potentially VAT may not apply for providing a free crypto exchange platform or IT-based exchange system if such services are not compensated, but market marker commissions may potentially be subject to VAT.
4. Fee-Based Services – If use of a platform is fee-based, VAT may arguably apply on the up-charge component (not on gross amounts).
5. General Blockchain and Digital Asset Services – Blockchain companies generating crypto-related services revenues may need to register for VAT in customer locations.

Who Is Required to File?

Any entity providing crypto-related services is potentially required to register for VAT and to collect and remit VAT.

When Is the Tax Due?

Generally, it’s due one month after the end of calendar quarter, paid by filing VAT returns on a quarterly basis.

What Happens If You Don’t File?

Failure to file and pay results in penalties and interest (amounts vary by country).

If you have any additional questions or need help determining if your company is subject to VAT, contact our experts.