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Key takeaways

  • The metaverse ecosystem is attracting businesses across industries and is no longer limited to companies with an existing in-depth presence in the digital space.
  • When exploring a move to the metaverse, it is prudent for companies to carefully consider the tax implications of both indirect taxes, such as VAT and sales tax, and direct taxes at the onset.
  • While digital developments always evolve much faster than tax laws can ever adapt, there are areas of opportunities to be at the forefront of doing business in the metaverse environment.

In depth

More and more companies are either building or considering building a presence in a metaverse. As metaverses continue to develop, they’re blending online multiplayer gaming, cryptocurrency, non-fungible tokens (NFTs), and virtual reality into a new immersive digital experience for their users.

While metaverses initially seemed to attract companies with an existing in-depth presence in the digital space, a significant number of retail companies and fashion brands are gradually moving toward the metaverse. They see opportunities for new sales for both digital and physical “goods” as well as new interactive advertising opportunities, such as collaborations with gaming platforms that create personalized experiences.

Whether it’s fashion brands that sell digital accessories or clothes to dress up avatars (sometimes even creating both a digital and physical product), car brands that facilitate a personalized mode of online transport, or even music artists that perform online, there is always a tax angle that should be taken into account. While indirect taxes such as VAT and sales tax will be at the forefront of these developments, one should also carefully consider the potential direct tax consequences right from the start.

In this article, we aim to provide a non-exhaustive overview of some high-level tax aspects to consider when expanding into the metaverse ecosystem.

Indirect Tax

Retail brands generally sell physical goods to their customers; however, digital products such as NFTs, skins, and avatar accessories may, for EU VAT purposes, be regarded as a provision of electronic services, which potentially brings a different set of VAT rules to the table.

Companies should therefore take into account that physical wholesale operations may change to digital retail operations in a metaverse. For example, instead of having an international wholesale channel to local physical shops in a country where only local VAT rates are charged, identifying the physical location of all your virtual customers becomes important. The reason for this is that every sale potentially triggers the requirement at a headquarters level to remit VAT to the respective jurisdiction in which that customer is located.

Additionally, new business concepts such as virtual metaverse-based marketplaces will have to deal with tax legislation that is not yet updated to account for these developments. As a result, undesirable consequences such as the risk of accumulation of VAT may occur if transactions between private users take place on these platforms. This can happen, for example, when (re)selling unique “second-hand” digital goods—a concept that was simply not possible before NFTs were introduced.

Current VAT deemed reseller rules (as laid out in Article 9a of the EU VAT Implementing Regulation 2011/282) still seem to apply/extend to resales of digital goods where they’ve been previously sold to private users and are resold via such virtual marketplaces. Right now, accumulation can’t be avoided by using margin scheme rules for the sale of second-hand goods, as Article 316(1) of the VAT directive states that the margin scheme doesn’t apply to the sale of services and, therefore, not to digital products.

Direct Tax

A company moving into a metaverse environment should be aware that its actions may have direct tax consequences as well. For example, a company that buys or rents virtual real estate in a metaverse in exchange for cryptocurrencies may realize a taxable gain on its cryptocurrency, depending on the tax legislation of the jurisdiction in which the company is a tax resident. If a company decides to develop its own NFTs and sell those in a metaverse—such as a fashion company selling unique branded clothes which can be worn by an avatar—any gain realized on an increase of value of the relevant NFT may also be taxed along with the cryptocurrencies the company receives in return.

An important question to consider is at what time these gains become taxable. Is it at the moment of the virtual transaction? Or is it at the moment that the cryptocurrency is converted into euros or dollars? It may even be that a certain increase in value is taxed annually, based on the value at a certain moment during the year or the average value over the year. At what time a taxable event may arise therefore depends entirely on where the entity is a tax resident.

In practice, one should carefully consider where to set up the business entity that will operate in a metaverse and to determine this before the business is commenced to avoid lengthy exit tax discussions with tax authorities.

The entity, however, may not only be taxed where it is a tax resident. Part of the profits may also be taxed in jurisdictions where employees carry out their activities, depending on where developers/employees carry them out. One should therefore carefully consider what kind of activities employees carry out abroad for the entity.

A last point of attention is the transfer pricing aspects of selling combined products, such as selling clothes in the real world to which an NFT is attached that an avatar in a metaverse can use. In those cases, the actual sale of the item may be done by a company who is a tax resident in the US, for example, while the company developing the NFT is a tax resident of the UAE. In such cases, one should determine how much profit should be allocated to the US tax resident company, and how much should be allocated to the UAE tax resident company.

Of course, selling combined products also potentially carries a significant indirect tax impact—not only from a place of supply point of view but also whether a single supply or multiple supplies take place.


As digital developments always evolve much faster than tax laws, more questions can be raised than answers can be given when it comes to transactions inside the metaverse ecosystem and the on-ramping/off-ramping of funds into the “real” world. While in the short term, this lack of legal clarity can be challenging, this also creates opportunities to work proactively with tax authorities and be on the forefront of doing business in the metaverse environment.

For questions and clarification about this article, contact the authors. 

* This article was first published by Bloomberg Tax on 13 September 2022


Roger van de Berg, a Legal Director in the Amsterdam office's Indirect Tax group, provides practical solutions and hands-on advice mainly on VAT and other indirect taxes. His work includes advising on European and Dutch VAT aspects of cross-border transactions, M&A, due diligence, supply chain restructuring, fiscal representation matters, holding companies, margin scheme rules and compliance issues. Roger regularly speaks at conferences on VAT, due diligence and bitcoin/blockchain technology. He also wrote on the EU VAT treatment of bitcoins in the Weekblad Fiscaal Recht (Weekly Tax Law) as well as a formal recommendation to the OECD with respect to the taxation of cryptocurrencies in Europe.


Henrik Stipdonk is a counsel in the Amsterdam Tax Practice Group and a member of the US Focus Group. He concentrates on Dutch and international tax law. Henrik has a strong focus on advising US multinationals and private equity firms on complex direct tax matters and practiced tax law for several years in Chicago. After he started his career at Baker McKenzie in 2008, he worked several year at a big four company. He returned to Baker McKenzie in 2019.

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