If you sell video games online, you need to understand how digital taxation works. Video games are sold across borders, in various formats (digital and physical), and often include virtual currencies, DLCs, and subscriptions. This makes their tax classification and compliance uniquely complex.In this guide, we break down exactly how video games are taxed, what regulations you need to follow in different regions, and how to stay compliant using a step-by-step process.
Why Are Video Games Taxed Differently?
Video games straddle several categories: they can be digital products, subscription services, or even tangible goods when sold as physical copies. Add to that global reach and in-app purchases, and it’s clear why tax authorities treat them with special attention.
Governments began taxing video games more actively as the industry exploded, especially due to:
Digital distribution and downloadable content (DLC)
Virtual currencies and in-game purchases
Cross-border and platform-based sales (e.g., Steam, Epic Games)
Step-by-Step Guide to Taxing Video Games Online
Step 1: Understand Where You Have Economic Nexus
Economic nexus means you have enough sales or business activity in a region to be required to collect and remit sales tax.
What triggers economic nexus?
Each state or country sets its own thresholds. For example:
|
Location |
Revenue Threshold |
Transaction Threshold |
|
|
California |
$500,000 |
None |
|
|
New York |
$500,000 |
100 transactions |
|
|
EU (VAT OSS) |
€10,000 |
NA |
Keep In Mind: Selling through platforms like Steam may trigger nexus automatically, even if you don’t have a physical presence in the region.
Step 2: Identify Your Taxable Products
Before you calculate taxes, categorize your products:
- Types of Video Game Monetization Models
One-time purchase (e.g., indie game on Steam)
Subscription-based (e.g., online multiplayer access)
Free-to-play with microtransactions
Hybrid SaaS and PaaS (game + game-hosting platform)
- Tangible vs. Intangible Goods
Product Type
Tax Status Depends On
Physical disc
Usually taxable (as tangible goods)
Digital download
Varies by region
In-game purchases (skins, power-ups)
Often taxable as digital goods
Virtual currency
Increasingly subject to tax scrutiny
Step 3: Register for Tax Collection in Relevant Jurisdictions
Once you’ve identified where you have nexus, register to collect and remit taxes in each applicable region.
Documents You'll Need:
Business license or tax ID
Registration in local tax authority portals
Access to filing systems (e.g., U.S. Streamlined Sales Tax, EU VAT OSS)
Keep In Mind: Failing to register can lead to fines, platform bans, or forced withholding (e.g., Steam may withhold 30% of revenue if no tax treaty applies). With a dedicated MoR partner like PayPro Gobal, you can rest assured that your business is tax compliant at all times, anywhere in the world.
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Step 4: Create a Tax Payment and Filing Schedule
Build a calendar for:
Monthly/quarterly/annual tax filings
Payment due dates
Refund claim windows
Updates to jurisdictional tax rates
Did You Know: Working with a comprehensiv MOR partner like PayPro Global can automate these taks for you, allowing you to focus on creating amazing video gaming experiences.
Special Cases in Game Taxation
Most regions treat DLCs, skins, loot boxes, and in-game currency as taxable digital products. However:
Japan requires tax only on digital content purchased by residents.
South Korea applies a flat 10% VAT.
EU VAT rules apply to buyer's location, not the seller's.
Always verify whether your microtransactions are one-time sales, subscriptions, or service-based. With PayPro Global, you hold full-control over brand and experience a strong level of checkout customization.
How to Handle Tax Compliance During Game Development
Embed tax considerations into your development lifecycle:
Design pricing models with taxes included.
Choose payment processors with tax compliance tools.
Test regional tax rules using sandbox environments.
Build checkout flows that collect buyer location data for tax calculation.
To prepare for tax audits:
Store customer data (name, address, IP location)
Keep invoices, receipts, and communication logs
Maintain a centralized database of your financial records
Use encrypted backups and organize them by region/year
Auditors often ask for proof of tax calculations, buyer legitimacy, and economic nexus justification.
Solution: PayPro Global is a trusted MoR partner for developer looking to sell video games anywhere in the world, offering a complete toolkit, including full tax and compliance management, checkouts, global payment methods and local currencies.
Why Use a Merchant of Record (MoR)?
A Merchant of Record handles tax, payment processing, compliance, and invoicing on your behalf.
Here is how PayPro Global's MoR platform specifically helps:
Registers and remits taxes in over 200 regions
Manages VAT, GST, sales tax, and digital tax
Provides legal compliance and invoicing for game developers
Ensures constant legal monitoring
Offers customizable checkout pages, optimized for conversions
Provides access to local payment methods and currencies.
With over a decade of experience and a team of experts highly versed not only in sales tax laws, PayPro Global's cloud-based solution gives you the needed flexibility to secure your international growth without worrying about taxes and all areas of compliance.
Game studios using PayPro Global can offload tax complexity and scale globally with ease.
Final Checklist for Hassle-Free Game Taxation
✅ Understand where you have nexus
✅ Categorize all taxable products
✅ Register for tax collection in relevant areas
✅ Create and automate a filing/payment calendar
✅ Maintain detailed records and documentation
✅ Consider using a Merchant of Record
Conclusion
Adhering to global tax compliance is critical for your game’s success. By following a clear process—identify, register, schedule, automate, and document—you'll avoid costly penalties and ensure uninterrupted sales.
Let PayPro Global take the stress off your shoulders with our full-service Merchant of Record solution.
Book a Call Now to secure global growth and stay tax-compliant, so you can focus on creating your next hit game.
FAQs
Are my video game and its DLCs taxable?
Yes. In most parts of the world, video games, DLCs, and in-app purchases are considered taxable digital goods. Tax rules depend on your customer's location, so you must apply the correct local rates for each sale.
What is economic nexus for game sales?
Economic nexus is the rule requiring you to collect and pay sales tax in a region once your sales there pass a certain threshold (e.g., $500,000 in revenue in California or €10,000 in the EU). This applies even if your business isn't physically located there.
If I sell on Steam, do they handle all my taxes?
Not always. While platforms like Steam handle many tax duties, you are still responsible for your own compliance. They may not cover every jurisdiction where you owe tax, and you must provide the correct forms (like the W-8BEN) to avoid penalties.
What happens if I don't pay sales tax on my game?
Ignoring tax obligations can lead to serious issues, including heavy fines, back-tax payments, and getting banned from major sales platforms. Properly managing your taxes is essential to protect your revenue and business.
Ioana Grigorescu
Ioana Grigorescu is PayPro Global's Content Manager, focused on creating strategic writing pieces for SaaS, B2B, and technology companies. With a background that combines Languages and Translation Studies with Political Sciences, she's skilled in analyzing, creating, and communicating impactful content. She excels at developing content strategies, producing diverse marketing materials, and ensuring content effectiveness. Beyond her work, she enjoys exploring design with Figma.
