The NTA has published the FAQs on tax treatment in relation to NFT transactions

On January 13, 2023, NTA published the FAQs for the tax treatment on NFT transactions aiming to clarify some uncertain tax treatments on NFT transactions, including individual/corporate income tax, inheritance tax, withholding tax, and JCT.

A summary of the NTA’s views in the FAQs regarding JCT implications on NFT transactions is as follows:

• (Re JCT for creators of digital artwork) When NFT that is linked to a digital artwork is sold to a Japanese consumer on a marketplace by the creator (as his/her business), such transaction is treated as licensing of copyrighted work online for JCT purposes. Therefore, it falls under the “provision of electronic services”, which is subject to JCT when the purchaser is located in Japan. The same applies even if the creator is a non-resident or a foreign corporation, as long as the NFT is sold to a Japanese consumer.
• (Re JCT for resellers of digital artwork) When NFT that is linked to digital artwork was initially sold by the creator via a marketplace and then resold by the reseller on the marketplace, the resale transaction is treated as an assignment of the licensed copyrighted work by the licensee (as opposed to licensing of copyrighted work online), which is subject to JCT if the reseller is located in Japan.

It should be noted, however, that the JCT treatment on NFT transactions may vary depending on the actual terms and conditions of the marketplace.

Key takeaway

Going forward, businesses that conduct NFT transactions should follow the tax treatment provided by the NTA’s FAQs. However, the current FAQs are not comprehensive and not legally binding, Japanese tax implications should be checked with the tax advisors based on the specific fact pattern.