Linden Lab Official:Value Added Tax (VAT) Frequently Asked Questions
Introduction
In accordance with the sales tax regulations of several countries and areas in which Second Life Residents live, Linden Lab must collect and remit Value Added Tax, or VAT, from Residents. These countries and areas include Norway and the member countries of the European Union. Additionally, Linden Lab is required to collect and remit the Goods and Services Tax, or GST, from Residents living in Australia. The collection of these two types of taxes are functionally equivalent for Second Life Residents. This article explains:
- Who is charged VAT or GST in general
- How Linden Lab determines who to charge VAT or GST
- What items Linden Lab charges VAT or GST for
- How you can see what items had VAT or GST charged
- How you can register for VAT or GST exemption
- Other items of interest
Basic information
Who is charged VAT or GST?
Only Residents who live in the countries listed below are charged VAT or GST. These countries allow people and companies to register for VAT or GST exemption, which we abide by.
List of Countries and Areas Subject to VAT or GST
- Australia (GST)
- member countries of the European Union
- UK
- Norway
How does Linden Lab determine who to charge VAT or GST for?
When you registered your account, you told us what country you live in. If that country is in on the list of VAT or GST-subject countries, then VAT or GST is applied based on the country's specified tax rate.
What are the items for which Linden Lab charges VAT or GST?
Most services that you pay Linden Lab directly for have VAT or GST applied. This includes:
- Purchases from the Land Store
- Mainland Land use fees (tier)
- Private Region maintenance fees
- Land auctions
- LindeX transaction fees
What are the items for which Linden Lab doesn't charge VAT or GST?
Transactions in L$ between individual Residents, that do not involve Linden Lab as a direct party, are not subject to VAT or GST. Membership subscriptions (such as Premium, Plus, or Premium Plus) are also not subject to VAT or GST.
How can I tell what items had VAT or GST charged?
Your Account History in your Dashboard displays:
- Each transaction you've made
- Whether VAT or GST was applied
- The rate at which VAT or GST was applied
- The amount of VAT or GST charged for each transaction
How do I enter my VAT registration ID or Australian Business Number (ABN)?
If you have a VAT registration ID that makes you exempt from VAT or an Australian Business Number (ABN) that qualifies you for GST credits, enter it as follows:
- For an existing account for which you want to enter your VAT registration ID or Australian Business Number, navigate to [1] and click on the Add Exception link at the bottom of the page where you see your billing country listed.
I need an invoice that states the items for which VAT or GST was charged
Your Transaction History should tell you:
- Each transaction you've made
- Whether VAT or GST was applied
- The rate at which VAT or GST was applied
- The amount of VAT or GST charged for each transaction
Additionally, your Account Statements (downloadable as PDF files) contain a Summary section that groups all VAT or GST charges into a single total; this serves as a summary of VAT or GST invoices for each month.
How do I get an invoice for my payments?
To get an invoice to prove that you paid VAT or GST:
- Log in to your Dashboard on secondlife.com
- Click the Account section on the left to expand it
- Click Account Statements.
You can download statements for every month of your account's existence, up to and including the last complete month (for example, if you check in the middle of December 2012, you'll see November 2012 as the latest statement). These statements are permanently available and you can download them as many times as you like.
If you need to claim VAT or GST back from your tax office, the Summary section of the statement groups all VAT or GST charges into a single total; this serves as a summary of VAT or GST invoices for each month.
Linden Lab's approach to VAT and GST
Linden Lab is based in the United States. Why are you charging VAT for Norwegian and European Residents or GST for Australian Residents?
The best place to get full details about European legislation is at Europa, "the portal site of the European Union." It provides up-to-date coverage of European Union affairs and all legislation currently in force or under discussion.
The relevant section on that site is called "VAT: Special Arrangements Applicable to Services Supplied Electronically". (German) (Spanish) (French) (The Directives were implemented to create a level playing field for European Union (EU) businesses with regard to the indirect taxation of electronic commerce. Essentially, prior to this Directive non-EU-based companies providing electronic services to EU customers had an advantage in that they were not required to charge those customers VAT:
- "The objective of this Directive is to introduce new harmonised rules and thus eliminate distortions in competition for radio and television broadcasting services and electronically supplied services within the EU. The absence of a clear and fair tax regime was a disincentive to investment and put EU business at a competitive disadvantage."
Second Life classifies as an electronically supplied service in the definition below:
- "Electronically supplied services include services such as cultural, artistic, sporting, scientific, educational, entertainment, information and similar services as well as software, video games and computer services generally."
Under the Directive, Linden Lab is required to register with the tax authority and then to charge non-business customers VAT at the rate prevalent in their EU country:
- "Non-EU businesses are able to register with a tax authority in a Member State of their choosing. They are required to charge VAT to non-business customers in the EU according to the standard tax rate in the Member State where the customer lives."
The best place to get full details about Australian legislation is at [2] which provides up-to-date information about how GST works, how to register for an exemption, what goods and services are subject to GST, etc.
For information on VAT in Norway, and why it applies to Second Life, please visit [3]. If you are eligible for a VAT exception in Norway, you can read more about applying for that exception at the address above.
Is the Second Life billing office based in Norway, an EU country, or Australia?
No. Linden Lab has registered as a non-resident EU business, meaning that we do not have sales offices in Europe. Non-resident EU business that provide "Electronically Supplied Services" such as hosted applications, downloadable software and downloadable music, must charge each of its customers VAT according to the VAT rate of the country where the customer resides. Similarly, Linden Lab has registered as a non-resident Australian business subject to nearly identical restrictions in that country.
Can't I just say that I live outside the listed countries?
If you falsely claim that you live in a country that doesn't charge VAT or GST, it's very likely that discrepancies between your IP address and your declared country will prompt us to flag your account for review or even suspend it.
Why should European and Australian Residents pay more for everything in Second Life for no additional benefit?
Countries charge taxes for a number of reasons, typically to generate revenue to pay for services that benefit their citizens. For example, the EU Commission implemented the VAT rule about Electronically Supplied Services by non-EU resident entities in order to level the playing field for EU-based providers of services. The aim is to enable European providers of competitive services to Second Life to compete equally with non-EU-based providers as regards customer taxation.
VAT and GST are taxes collected by Linden Lab which are then sent (remitted) to the governments which made the laws requiring those taxes to be paid. Linden Lab does not keep VAT or GST funds.
Why is Linden Lab discriminating against Europeans and Australians?
We are not discriminating against Norwegians, EU citizens, or Australians. We are merely abiding by the laws that are applicable to providers of Electronically Supplied Services from outside the specified countries.
Doesn't this distort the market within Second Life to an extent?
All taxes distort markets in some way. For example, the aim of the EU's collection of VAT in this way is to enable EU-local providers of virtual worlds to compete fairly with Linden Lab. Its impact on affected entrepreneurs within Second Life appears to be a side effect.
Did Linden Lab implement VAT and GST to avoid having to make income tax declarations to the IRS for Second Life users?
No. Charging Residents VAT or GST and remitting it to the Residents' home country is required by the laws of those countries. The US government has published its opinion about taxation in virtual worlds here.
Does Linden Lab charge any US sales tax those required to pay VAT or GST?
No. There's no double taxation.
Do your prices already include VAT or GST, or are the taxes added on?
VAT and GST are added on top of the prices that we quote. Keeping the VAT and GST as a separate charge is important for record-keeping, and makes it easier for Residents to see exactly how their transactions break down.
Does Linden Lab charge additional VAT or GST in L$ for uploading animations or other content?
No. At present neither VAT nor GST apply to any inworld transactions.
When I purchase L$ on the LindeX, is there a VAT/GST applied?
No, because you are purchasing L$ from another Resident, not from Linden Lab.
Special circumstances
Can I be billed to my company's name?
- I own a business in real life that has a VAT ID or ABN but my Second Life account is listed in my personal name. How can I make sure all my bills from Linden Lab will be made out to my company?
Invoices from Linden Lab will be made out to the information that we have on file. If that address is in Norway, the EU or Australia, taxes are required. If you need to change the information that we have on file for you, please visit your Dashboard. Please be aware that if your billing information does not match the address you've provided us, you may have trouble paying and if the country of the IP address with which you regularly log into is different than your billing address our system may hold your account for potential fraud.
What if I've moved away from a VAT or GST-required country?
- I lived in the EU or Australia at the time I registered my account and now I don't. How do I change the information that you have on file for me?
Invoices from Linden Lab will be made out to the information that we have on file. If that address is in one of the listed countries, taxes are required. If you need to change the information that we have on file for you, please visit your Dashboard. Please be aware, if your billing information does not match the address you've provided us, you may have trouble paying and if the country of the IP address with which you regularly log into is different than your billing address our system may hold your account for potential fraud.
How do I handle taxes for European or Australian customers?
- I have Norwegian, EU member or Australian customers who are renting/buying land from me sometimes with L$ and sometimes through Paypal--how do I handle tax?
We recommend that you consult a qualified tax advisor.
What if I live in an area of the EU where VAT isn't charged, like the Canary Islands?
We are reviewing our records for these locations and will ensure that we do not charge VAT where it is not required.
Am I required to pay VAT or GST on Land Maintenance fees if I pay for it using credits on my account from selling L$?
Yes. The requirement to charge VAT or GST is determined by the SKU of the product that is purchased, not the source of the funds.
How does VAT or GST apply to group-owned land, when some of the members reside in Norway, the EU or Australia?
Group-owned land is supported by donated land allowances, sometimes referred to as 'land tier'. Premium members receive a certain amount of land allowance as part of their membership, and may choose to add additional land allowance if they wish. The monthly fee for this additional land allowance is determined by the number of meters of land allowance the member wishes to use. So, group-owned land is not charged to a method of payment directly; Premium members first pay for their land allowance (as part of their membership, or in addition to their membership) and then may choose to donate that land allowance so a group can own land. The fees for land allowance are applied to customer accounts, like membership fees, and those fees are subject to taxation if the account holder resides in a subject country. If a member of a group donates their land allowance toward supporting group land, and they live in the EU, Norway or Australia, they will be charged GST or VAT appropriate to their location for the land allowance they donate to the group. Please see Deeding land to a group for more information.
I made a change to my account information, but I'm still being billed at the old rate
Different countries charge different VAT rates; if you've moved to a new country and need to reflect that change in your account, it can take up to ten minutes for that change to take effect due to technical considerations. Any payments you make during that time will be subject to the old VAT rate.
If you've entered your VAT registration ID for VAT exemption, be aware that it may take up to two hours for this to take effect due to technical considerations.
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Warning: Please be aware that tax evasion is considered a serious crime in most countries, and that falsification of information to evade payment of VAT may result in fines and/or criminal prosecution. Linden Lab will cooperate with government authorities in cases involving potential falsification of information to evade payment of VAT. |