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VAT is applied to goods bought and sold. I buy goods I am charged VAT (everything pretty much in the UK is charged 17.5% VAT) at a consumer level. (not all international goods are, i guess they should be though!). If I happen to be a VAT registered LEGAL company with filed accounts there are a number of things i can do. I can claim back a flat rate 4.5% of the VAT. I can claim back the VAT on every purchase I make assuming I get a VAT legal invoice from the supplier. I can also charge VAT on services i provide.

Here is where it gets interesting, subject to the law, if I charge Rent within the game (which is not VAT'd because its not money right...) thats ok. However if i was running a private island I *should* charge VAT on the USD land tiers paid via payal. This is ofcourse if i was a company that was VAT registered. If i make less than £64,000 per annum, I dont have to charge VAT (but i still pay it on stuff i buy).

So in theory if i was a company that bought and sold the exact same amount of VAT chargeable goods each month in the EU i would be VAT neutral. I'd also be a charity.

Profit and VAT are not related. You can offset loss making versus Company Taxation, but the best than can get you is a zero tax bill. But to offset the tax for that, you'd have to have employee's... and that would incure employer NI contribution....

I dont really mind paying the VAT, its the law. I mind being suprised. I mind they implemented it 1 day before my tier was due and applied it. I mind that they arent applying local sales taxes across the entire population. Isn't it pretty much 5% across most of the states.

I also mind that they are assuming that from my IP address and that I registered as being in the UK. That this part of my life operates out of the UK. I could easily form a shell company to run this out of from somewhere tax neutral.

Needless to say if the VAT invoice of sale i recieve from Linden Labs is not Legal. I will be reporting them to the VAT office in the UK.

Without notice.

Zal