The metaverse — a parallel digital reality where users can navigate virtual worlds and engage with others — is the hottest topic in e-commerce right now
Some think it will revolutionize the way we shop forever, marrying the advantages of in-person and online shopping and unlocking new possibilities for how we buy and sell products (both physical and digital).
All commerce is regulated, and it’s still unclear what that looks like in this ethereal space. How will purchases be taxed in a world with no borders? What kind of information will be collected and how will it be secured? How will we pay for goods and services? What novel questions have yet to be considered?
It’s unclear how regulations will evolve in the metaverse, but current frameworks may very well hold some clues to the rules that will define this new, virtual environment. If Mark Zuckerberg’s vision for digital life becomes a reality, here are a few things you need to know about doing business in the metaverse.
Taxes will still be tied to a physical location
Purchases are going to be taxed, and it is likely that physical location is still going to dictate which taxing jurisdiction to apply to transactions. While fully virtual transactions may not tie directly to the physical world, a user’s physical location is the easiest way for governments to ensure that no purchase goes untaxed.
Current regulations stipulate that the taxation of services is based on the location or habitual residence of the buyer, while the taxation of physical goods is based on the ship-to location or jurisdiction.
No matter how tax regulations evolve, brands selling in the metaverse will need a way to ensure that appropriate taxes are collected. This means gathering sufficient information from the end consumer purchase and applying the right tax decision, so brands will need to be sure that they’re receiving accurate location information from customers. In the event of an audit, brands would be wise to keep a record of the baseline information used in the tax decision, as regulatory agencies will certainly be watching the metaverse with a keen eye.
Brands will need to invest in compliance
Regulatory compliance is complex and challenging in the physical world, and it will be a critically important consideration for businesses entering the metaverse. New forms of customer interaction in the digital world are going to bring new categories of complexities, and businesses will need to be ready to comply with rapidly evolving requirements.
For many companies, this likely means further investment in compliance as part of their everyday operations. Whether that involves building up internal staff, incorporating new technology, or outsourcing to ensure proper compliance and risk protection, most companies will need to expand how they manage regulatory compliance.
With the added complexities and security concerns that come from selling in an uncharted digital environment, brands need to be sure that they fully understand their compliance obligations and are positioned to take the necessary steps to manage them. Businesses looking to outsource these responsibilities should consider a partner that enables secure transactions while ensuring that compliance and tax regulations are appropriately fulfilled.
Physical borders are still going to matter
The metaverse could open new doors to sell globally, and companies need to make sure they are ready for the increased opportunities that doing business in the metaverse could generate. One thing that is certain: participation in the metaverse will expose global consumers to brands, products and services they may never have encountered in the physical world. No matter how expansive or realistic the metaverse will turn out to be, life is still lived in the physical world, and physical boundaries will continue to be a consideration for the cross-border sale of goods.
Businesses without experience selling across international borders may not be prepared to comply with the requirements for cross-border trade, including export, taxes, duties, and tariffs. That means they’ll need support navigating complex regulations and ensuring that they can get the product to the end consumer as efficiently as possible.
Businesses need to decide on a cross-border trade and tax strategy and understand the regulations, taxes, and duties that apply to their products in the import country. Customers will need to know whether there is an option to pre-pay import taxes or whether they will have to settle all taxes on delivery.
Putting it all together
It’s hard to say definitively what commerce in the metaverse will look like, but regulation in the physical world could be a sort of fossil evidence that points to future evolution. The constant data collection duplicate worlds will raise new questions on personal privacy and novel legal issues, but regulations that have evolved from centuries of buying and selling won’t suddenly be ignored. While it may be the biggest leap to date in the continued evolution of e-commerce, even a fully digital world new rules will likely remain tethered to existing regulatory frameworks.
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