One of the issues that has created the most attention in DAOs over the past few months has been the tax issue associated with DAOs. In today’s article we will talk in detail about everything you need to know before creating a proposal about the tax implications it has.
How is your proposal taxed?
Using one of the recent winning proposals as an example to better understand the tax implications of the Proposals we will use Nouns Builder.
The proposal received a funding of 1000ETH, therefore, being a US Unincorporated Nonprofit Association (“UNA”), it must pay 30% of those funds in order to use them legally in the US.
This example puts into context the importance of taking into account tax liabilities when carrying out an initiative. It should be a priority for all of you who are thinking of creating a proposal to consider how you should declare the required amount to the DAO and the % you must pay depending on the country you are in.
What are the taxation implications of DAOs in the United States?
In the United States, The DAO’s governance tokens were deemed securities by the Securities and Exchange Commission, suggesting that DAOs may be subject to taxation. When it comes to payments made by DAOs, any crypto received in exchange for goods or services is considered taxable income in the country/state in which the sale took place.The profits made when these tokens are sold will also be subject to crypto capital gains tax.
How can DAO members ensure they are compliant with taxation laws?
Given the lack of clarity from governments on how to handle DAO taxation, it is recommended that members of DAOs seek the advice of a local tax professional to determine the best way forward. It is important to note that taxation for DAOs varies from country to country, making it even more complicated for DAO members. Until governments provide clearer guidance on taxation for DAOs, it is up to individual members to be aware of the potential tax implications and to take the necessary steps to ensure they are compliant. Seeking the advice of a local tax professional is the best way to ensure that you are up to date on the applicable laws and regulations.
Could the pass-through entity tax be a model for future DAO taxation?
It is speculated that in the U.S., the pass-through entity tax may serve as a model for future DAO taxation. If this were the case, members of the DAO would need to report their share of the DAO’s profits on their personal income tax returns, regardless of whether or not that income had been distributed to them.
What are the taxation implications of payments made by DAOs?
When it comes to payments made by DAOs, any crypto received in exchange for goods or services is considered taxable income in the country/state in which the sale took place. Furthermore, any governance tokens or NFTs received as part of a DAO’s launch or as an incentive or reward are likely to be reported as ordinary income. The profits made when these tokens are sold will also be subject to crypto capital gains tax.
In conclusion, there is still no consensus on the way in which a DAO should be structured as it is a very new type of organization and very different from all the previous structures seen before. It seems that the states are looking for the best way to create guidelines for DAOs, even so, it is important to understand that these laws are in an initial phase and will be subject to changes. However, we recommend that you contact qualified professionals in your country to learn more about what to do and what to expect in the future.