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New VAT circular related to virtual currencies

On 11 June 2018, a new circular (787) (“the Circular”) was issued by the Luxembourg VAT authorities (Administration de l’Enregistrement et des Domaines) in order to clarify the VAT treatment of transactions related to virtual currencies.


On 22.10.2015 the European Court of Justice (ECJ) ruled that the exchange of Bitcoin with traditional currency was exempt from VAT (Skatteverket v David Hedqvist Case C-264/14). It led to the conclusion that Bitcoin could be “assimilated” to a currency for VAT purposes.

Today thousands of different Coins/Tokens, besides Bitcoin are existing. Ether is the one representing the second biggest market capitalization after Bitcoin. Although the features of such digital assets and their use are only limited to one’s imagination, three categories tend to be emerging:

  • Cryptocurrency: used exclusively as a means of payment within a network for transactions between users or between the network operator and users

  • Utility Token: providing the Tokenholders rights to services or goods (e.g. access right to a network, future products, …)

  • Investment/Securities Token: Tokens comparable to conventional securities (e.g. debt instruments and equity instruments). In practice most Tokens are hybrids, usually bearing more than one of the above-mentioned features. i.e. most utility/security Tokens also act as means of payment within the respective network/application. A clear-cut classification is therefore quite difficult. In this context, clarification on the VAT treatment of this new ecosystem becomes more and more needed.

Definition of virtual currency

The Circular issued by the Luxembourg VAT authorities, extends the VAT treatment ruled by the ECJ case on Bitcoin to any other virtual currencies.

The Circular indirectly outlines a definition of “virtual currency” as being:

  • a sole means of payment; and

  • accepted by several operators

How to understand this Circular and what are the consequences?

As detailed above many different types of Coins/Tokens are emerging and very few are meant to be solely used as a mean of payment.

In this context, it is clear that most of the Coins/Tokens on the market and to come, would not fall under the VAT exemption regime based on the “currency” exemption (article 44 Luxembourg VAT law) referred in the Circular.

Although this Circular does not come up with clear guidance on how to assess the VAT treatment of Tokens, it at least indirectly hints that most of the existing Tokens should be subject to VAT.

In absence of further guidelines and clarifications, the so-called substance over form principles is recommended to be applied on a case by case study.

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