Coronavirus: Online Gaming and Digital Conferencing Surge May Mean Extra Attention to VAT Compliance
The Coronavirus outbreak has lead to a surge in the usage of certain digital services such as online gaming and conferencing apps. Tech companies within these industries are seeing an unprecedented increase in users since millions of people across the world have been forced into self-quarantine due to the coronavirus outbreak. But with increased users signing up for the services in many more jurisdictions, these digital services companies will have to be wary of the international VAT implications.
With pubs, bars and restaurants closing their doors and the annihilation of sport-viewing pleasure, online gaming platform Steam reported that 20 million gamers connected to the platform at the same time over a weekend in Mid March - a record number of players and viewers. (source)
The largest work from home initiatives in human history has also been initiated worldwide so digital conferencing and chat apps such as Zoom, Microsoft Teams, Google Hangouts Cisco’s WebEx have also seen a colossal increase in users over the past few weeks.
Cisco reported seeing 22x increase in users in the APAC region following lunar year celebrations in China. Zoom has dropped its 40-minute time limit on free video calls allowing users in China to use the service for as long as they want for free. Microsoft Teams also saw a 500% increase in users across China. (source) The rest of the world is soon to follow these trends as more and more people in other countries go into quarantine.
Another area of digital services that merits some exploring during these times is the use of e-learning platforms. While there isn’t yet data available to determine whether these platforms have seen an increase in users yet, there is a lot of demand for innovative learning solutions while students are stuck at home as well as others looking to use their time at home wisely and learn new crafts or skills. If the uptake of online learning increases it could transform the entire education industry forever meaning that any e-learning platforms will see an increase in learners in the future.
VAT Compliance Implications
There has been an increasing number of countries that are implementing VAT levies on digital services provided to their residents by non-resident businesses. Just this year, over five new countries have created VAT charges for digital services - and the first quarter isn’t even over yet. In a bid to generate more revenue for their countries, tax authorities have imposed VAT regulations on foreign digital services companies who enjoy the profits of another country without paying their dues.
Therefore, while online gaming companies, conferencing tools and e-learning platforms may “enjoy” a rise in users, we suggest that those businesses within these sectors look to VAT register in the foreign countries where you may be making sales of your digital service. Not doing so could result in significant penalties later down the line.
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