About a month ago I wrote about NFT Gaming and Vietnam. In that blog, I discussed some of the issues with Axie Infinity—as their recent massive funding round was the prompting for the post. But I did not really dig into the legal issues of buying and selling virtual assets in games in Vietnam with what is referred to as In-game units. We recently did some research on this issue for a client so I’m going to borrow from that. (Thank you to Thai Gia Han and Ly Nghia Dung for your work on the client’s matter that allows for this blog post.)
The exact legal term for in-game units is “virtual currency”, which is defined as a type of toolset out by video game providers for being used to exchange and/or purchase in-game virtual items, reward points and skills. Video game providers are only allowed to create in-game virtual items, virtual currencies, or reward points in accordance with the contents or scripts as reported in their approved dossiers and in their periodical reports.
The rules for in-game units in Vietnam
In-game units can be virtual currencies, virtual items, reward points which must be specified in the dossier for obtaining the MIC’s approval for specific video games’ content and script (the “Approved Games Script”) and the periodical report of such video game provider for such game and can only be created by the licensed video games providers in accordance with such Approved Games Script. According to the Approved Games Script, the players can buy in-game units via intermediary payment services (e-wallets), bank-based payment services, and other permitted payment methods under the laws.
The creation and provision of in-game units must comply with the regulations of the MIC, including:
- In-game units can be exchanged for in-game virtual items created by the video game provider in question;
- The video game provider in question is responsible for managing all in-game units in accordance with the Approved Games Script;
- In-game units can only be used within the game in question and in accordance with the purposes as reported by the video game provider in question. In-game units are not assets and not convertible into money, payment cards, coupons, or other valuable items outside the game in question; and
- Any trading of such in-game units between users in any form is prohibited.
Video game providers must be duly established and operate under the laws of Vietnam with the appropriate business lines and obtain the applicable sub-licenses / permits for each game in correspondence to the specific type of game they provide. According to the WTO Commitments, foreign investors may not hold more than 49% of the legal capital of enterprises involved in video game services.
Pursuant to the foreign exchange rules, the transactions related to purchases of in-game units by the players are not one of the cases of permitted use of foreign exchange within the territory of Vietnam. Accordingly, such transactions must be paid in Vietnam Dong.
In-game units are unique legal virtual assets that can be bought by Vietnam Dong and recognized under the prevailing laws of Vietnam. Any act of creating, providing, and using in-game units not in accordance with the Approved Games Script including the exchange of such in-game units into money, payment cards, coupons, or other valuable items outside the game will be subject to administrative sanctions, i.e.: a fine up to VND200 million.
What the rules for in-game units mean in Vietnam
Now, in relation to Axie Infinity, despite the fact that they are essentially a Vietnamese startup they are officially a Singapore company (see Vietnam’s Outward Investment Problem, Establishing an Offshore Company for Vietnamese Startups, and From Offshore Holding Company to Vietnamese Subsidiary in Vietnam for more information regarding the process of offshore-ing a Vietnamese startup) and that means they are not subject to these restrictions regarding In-game units.
They can use cryptocurrency as the legal means of payment to purchase virtual assets within their game, they do not have to obtain the approval of the MIC prior to initiating the use of in-game units, nor do they have to abide by the rules regarding the transfer of value outside the game itself.
As it is, I am not familiar with the exact situation of Axie Infinity in its infancy and cannot testify whether they began as a Vietnamese startup, per se, before or after they began the use of cryptocurrency for the purchase of Axies. However, it is applicable to Vietnamese startups prior to their offshore-ing if they want to use In-game units for the purchase and sale of virtual assets within their games.
And again we come to an obstacle that suggests that the government of Vietnam would be best served by allowing cryptocurrency and virtual assets to be used in Vietnam. Take for instance, Axie Infinity. If they had remained a Vietnamese company and the use of virtual assets was allowed, the government not only would be able to gain from the influx of $152 million, but they would be able to charge Value Added Tax (VAT) for every sale and purchase of Axies that originated in Vietnam.
On the other hand, that raises an interesting issue which I do not believe they have considered to date: how will the Vietnamese government tax outbound e-commerce transactions, especially if they were to involve virtual assets? Presumably, outbound e-commerce transactions that resulted in physical shipping of goods by say, Tiki.vn, would be charged export fees and VAT and ultimately Corporate Income Tax, but what if a Vietnam-based company were to start selling virtual assets, like NFT art or In-game units, offshore? Would VAT apply to those sales? How would the government monitor the income from such sales when it is made in cryptocurrency that is variable and untraceable?
While opening cryptocurrency and outward investment restrictions would allow Vietnam to fight for a position as a regional investment hub for startups and scalable SMEs, it also creates difficulty for the government’s tax authorities. How to monitor and tax transactions that exist only on a global network of blockchains that have no geographical boundaries? While the potential for tax on inbound sales is great, there is potentially little they could do to tax outbound sales in such an instance.
Something to think about.