More and more companies are moving, or considering a move, to have a presence in a metaverse. As metaverses are developing, they’re blending online multiplayer gaming, cryptocurrency, 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 creating personalized experiences.

Whether it’s fashion brands that sell digital accessories or clothes to dress up your avatar (sometimes even creating both a digital and physical product), car brands that facilitate your personalized mode of online transport, or even your favorite artists who perform online, there is always a tax angle. Indirect taxes such as VAT and sales tax will be at the forefront of these developments, but 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 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 sold to private users before and are resold via such virtual marketplaces. Right now, accumulation can’t be avoided by using margin scheme rules for the sale of secondhand 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 crypto currencies the company receives in return.

The question rises at what time these gains are taxable. Is this at the moment of the virtual transaction? Or 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. The time when a taxable event may arise 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 should determine this before the business is commenced to avoid lengthy exit tax discussions with tax authorities.

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

It’s also important to consider 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 tax resident in the US, for example, while the company developing the NFT is a tax resident of the UAE. In those 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 has 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 and off-ramping of funds into the “real” world. While the lack of legal clarity can be challenging in the short term, this also creates opportunities to work proactively with tax authorities and be on the forefront of doing business in the metaverse environment.

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