As crypto regulation evolves across the EU, one topic remains persistently overlooked — Value Added Tax (VAT). While most crypto-asset service providers are rightly focused on licensing under MiCA, the VAT treatment of their services is often misunderstood or ignored entirely.
But if you’re storing tokens, executing trades, managing wallets, or offering investment advice, you’re almost certainly creating VAT obligations — some exempt, some taxable, and others entirely outside the scope. Getting this wrong risks underreporting, reclaiming VAT you’re not entitled to, or charging VAT when you shouldn’t.
This article kicks off a deep-dive series into how EU and Maltese VAT law applies to crypto-asset services, drawing on:
- The EU VAT Directive (2006/112/EC),
- CJEU case law (including Hedqvist and SDC),
- VAT Committee guidelines, and
- Malta’s local VAT Guidelines on DLT Assets.
We begin here with the foundations:
- why VAT matters,
- how token classification drives VAT outcomes,
- and the crucial role of place of supply rules.
Why Crypto Isn’t Outside the VAT System
Crypto-assets don’t exist in a legal vacuum. The Court of Justice of the EU has already confirmed in Hedqvist (C-264/14) that transactions involving crypto-currencies — at least when used as a means of payment — can fall under VAT exemptions meant for traditional currency.
Yet, many services in the crypto sector are not inherently exempt. Custody, advisory, infrastructure provision, or exchange services may all fall into different VAT categories, depending on the type of token involved and the structure of the transaction.
And with MiCA now formalising service categories (custody, exchange, execution, transfer, portfolio management, etc.), crypto businesses can no longer afford to leave VAT unaddressed. Clear definitions exist. So do liabilities.
Tokens: It’s Not About the Label
A common misconception in the crypto industry is that how you label your token — whether as a “utility token,” “security token,” or “payment token” — dictates the VAT treatment of services related to it.
That’s not how VAT law works.
Under VAT Guidelines on DLT Assets, it is clarified that VAT classification is function-based, not form-based. This means that what matters is how the token is actually used in the specific transaction, not how it’s described in a whitepaper, marketing deck, or legal memo.
Here’s the working classification used throughout this series:
🔹 Payment Tokens
These function as a means of exchange — like BTC or stablecoins. Services involving these may be VAT-exempt, provided the token is actually used as a form of payment. This is the only category directly addressed by the Hedqvist case (C-264/14), where the Court of Justice of the European Union (CJEU) ruled that the exchange of Bitcoin for fiat currency constitutes a taxable supply of services but is exempt from VAT under Article 135(1)(e) of the VAT Directive. The Court held that Bitcoin, when used as a means of payment, is comparable to traditional currency, even though it is not legal tender, and therefore falls within the exemption for transactions concerning “currency, bank notes and coins used as legal tender.”
Following Hedqvist, the VAT Committee issued Working Paper No. 1037, which clarified that this exemption also extends to crypto-to-crypto exchanges, provided both cryptocurrencies involved function as means of payment. This interpretation further solidified the VAT-exempt treatment of services involving exchange tokens when used in a currency-like capacity.
🔹 Security Tokens
These mirror traditional financial instruments — such as shares, bonds, or units in a fund. Trading or brokering these may be exempt under Vat directive Article 135(1)(f), but custody and administration are not.
🔹 Utility Tokens
These provide access to a platform or digital service. They’re not financial in nature and do not benefit from VAT exemptions. Services involving these are normally fully taxable.
🔹 Hybrid Tokens / Other Tokens
Tokens can be multi-functional, acting as both payment and utility. The context and use-case in each transaction dictates how VAT applies — not the token’s technical features alone.
Place of Supply Rules: Where Is the Service Taxed?
The place of supply determines which country’s VAT rules apply to a transaction. However, it is equally important for VAT reporting purposes: even if a service is exempt, it must still be reported correctly based on the place of supply, in accordance with the EU VAT Directive.
The key distinction is between B2B and B2C:
- B2B (Business to Business):
The place of supply is usually where the customer is established. If that customer is in another EU country and VAT-registered, the reverse charge mechanism applies. - B2C (Business to Consumer):
The place of supply is generally where the supplier is established — unless the service qualifies as an electronically supplied service (ESS), in which case it may be taxed in the consumer’s country and fall under OSS (One Stop Shop) rules.
There are also special rules for:
- Intermediary services (like brokering crypto transactions),
- ESS (like wallet access or platform tools),
Each of these is examined in service-specific detail throughout the series.
Conclusion: VAT Clarity Requires Precision, Not Assumptions
The crypto industry is maturing — and so is its tax footprint. MiCA may define the regulatory perimeter, but VAT defines the tax treatment of what happens within it.
Crypto businesses, advisors, and compliance teams must now adopt a token-sensitive, service-specific, and jurisdiction-aware approach to VAT.
In the weeks ahead, we’ll be unpacking each major service line — custody, exchange, execution, advice, and more — with practical guidance, examples, and links to both EU and Maltese legislation.
💬 Next article: When Is Crypto Custody VAT-Exempt? (And When It’s Not)
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📌 Written by Zachary Cachia – FCCA, FIA, CPA
Disclaimer: This article is for general information only and does not constitute tax, legal, or financial advice. Always consult a qualified advisor for tailored guidance.