European Union hit with Value-Added Tax from Linden Lab

by Surfdaddy Orca and Dreamingen Writer

SECOND LIFE — On Friday September 28th and with no advance notice, European Union (EU) residents in Second Life (SL) suddenly found themselves facing a 15–25% Value-Added Tax (VAT) for most SL goods and services.

The goods and services listed on the SL web site include:

• Premium account registration
• Purchases from the Land Store
• Land use fees (tier)
• Private Region fees
• Land auctions

Linden Lab (LL) individually contacted residents who would be affected by the tax. Instructions for EU residents are available at http://secondlife.com/corporate/vat.php

Inside the EU, governments retain sole responsibility for levels of direct taxation. This includes tax on personal incomes and company profits. According to the Europa web site, member states set the rate of tax on company profits and personal incomes, savings and capital gains themselves. VAT rates are an exception as they are fundamental to a properly functioning single market. They are established EU-wide on most goods and services.

Mondrian Lykin, a legal student and Second Life (SL) resident physically residing in the EU explains, “It’s like VAT in the U.S., it is charged on most goods, I’d say all of them here. Now, it means that when you purchase L$ you get charged +20% from Linden Lab, an American company, because they have to collect VAT too.”

Mondrian continues, “You see, it’d put them [Linden Lab] in a competetive advantage if they didn’t. Say another virtual world like Second Life comes up in Europe and they have to charge VAT. That’d mean Second life would be more competitive.”

Competitive advantage over potential vendors of other virtual world products is a legal liability. But why the overnight change in billing policy? According to the SL blog, “Second Life has been growing exponentially in Europe over the past six months. We consulted with a number of highly-qualified tax advisors, and the bottom line is that we must charge VAT to EU residents in order to comply with EU tax regulations.”

Mondrian comments, “You can avoid paying VAT if you have a company and that company has a VAT exemption—subject to particular situations. You have to give your VAT number to LL to do that.” Second Arts reports that the Swedish owner of Lauk’s Nest, a parcel of significant beauty and historical significance created by Laukosargas Svarog of Svarga fame, was put on the market after receiving notice of a 25% VAT to comply with Swedish regulations.

The new VAT stands to take a huge bite out of SL business revenues in an already depressed land market within SL. Looking at the SL map, there are large chunks of land for sale that are simply sitting on the market. Added to the recent ban on gambling, LL may face turbulent times ahead.

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