Lets talk about implications of the PayPal™ vendors for a moment. As it stands right now, profits in virtual currencies such as Linden™ dollars are widely considered to be as if you made a profit in marbles. By this I mean that while you have a profit in something valuable, it is not considered a “real currency” and therefore doesn’t count for income tax purposes until and unless you convert those profits back to a real currency (US dollar, Euros, etc.). If you’re accepting payments in “real currency” using PayPal, you now need to consider (and these vary by country, but I’ll cover my interpretation of UK law later):
- Do you need to register as self-employed?
- Do you need to charge sales tax?
- Do you need to pay income tax on the sales?
- Do you need to make pension contributions?
So lets be clear here; PayPal payments are not for everyone. If you’re spending a couple of hours a week making things in Second Life® for fun, this is probably not for you. If you have a full time real-world job, this is probably not for you. If you’re thinking of emigrating to a different continent, this is probably not for you, but that one’s probably just me.
However lets say you are a serious trader in SL, that this isn’t just a small time hobby for you, PayPal can bring you several advantages:
- Customers do not have to decide to convert money to L$, before they can buy from you. Converting to/from L$ involves a loss (from the spread between the bid and ask prices for L$ transactions, and the transaction fees charged by the LindeX™ currency exchange), so customers may be reluctant to convert money to L$. This particularly applies to newer users of SL.
- You do not have to convert L$ back into money. It can be used directly to pay for web hosting, hardware, or any of the other related costs in running an SL business.
- Both of the above advantages are magnified for non-US based sellers and customers, who do not necessarily have to deal with a conversion to/from US dollars as well.
- Institutional customers (education, business, etc.) are much more likely to be willing (and able) to buy from a PayPal vendor. Purchasing procedures typically do not handle an interim step through L$ before payments can be made.
- PayPal provides detailed transaction logs. Receipts are e-mailed automatically to seller and buyer, and both also get extensive details of the transactions on the website. They also can automatically report payments to external systems (which is how the vendors work).
Lets assume you do take your SL sales seriously, and are ready for this next step. Keep in mind, this is likely to include anyone who makes a RL profit from SL at all (certainly by my reading of UK laws on self-employment and income, anyway). You should look into how you register as self-employed in the country where you are resident. The list of things you need to be aware of may look scary, but they’ll have people to walk you through this, and it only has to be figured out once. In the UK, Business Link are your next step. In the US, the equivalent appears to be Business.gov. In Australia, http://www.business.gov.au/.
Personally, I’m not using these vendors due to the complexities of my own life. My sales just about cover my costs in land rental, image uploads, etc. Due to income from my day job I would be losing close to 80% of each transaction in fees, taxes and national insurance. On top of that I am intent on emigrating next summer, which would put me at risk of breaking all sorts of complex laws involving work visas AND possibly make me liable for taxes in two different countries simultaneously. My Second Life sales have always been, and continue to be, primarily for marketing.
I hope however that others will find these vendors of use. I hope that those people who take SL seriously can use them to progress virtual world transactions to their next logical step.