What tax and financial issues arise when gaming studios operate internationally?

The video games industry is inherently global. Studios often sell games to players around the world, work with overseas publishers and platforms, and collaborate with development teams in different countries.

While this global reach creates commercial opportunities, it also introduces accounting and tax considerations that studios need to understand as they grow internationally. Transactions may take place in different currencies, revenue may be earned in multiple jurisdictions, and agreements with publishers or partners may involve cross-border payments.

Studios also need to be mindful of indirect tax considerations. Selling into overseas territories can sometimes create local VAT or sales tax registration obligations, depending on how and where supplies are made. In addition, receiving services from overseas suppliers may trigger reverse charge VAT obligations in the UK, which can impact a business’s UK VAT registration position and ongoing compliance requirements.

In this article, we explore some of the key tax and financial issues that can arise when game studios operate internationally.

How are international royalty payments taxed?

Game studios working with overseas publishers or distributors may receive royalty payments for the use or distribution of their games.

In some countries, these payments may be subject to withholding tax. This means that a portion of the payment is deducted by the payer and remitted to the local tax authority before the funds are received by the studio.

Without planning, this can reduce the amount of income ultimately received by the business.

Can double tax treaties reduce withholding tax?

Many countries have double tax treaties with one another, including agreements between the UK and a wide range of other jurisdictions.

These treaties are designed to prevent the same income being taxed twice in different countries. In the context of royalty payments, they may allow the withholding tax rate to be reduced or eliminated in certain circumstances.

However, accessing treaty benefits often requires specific documentation or claims to be submitted, and the rules can vary depending on the countries involved.

What should studios consider in publishing and royalty agreements?

Currency issues can also arise in the contracts studios enter into with publishers or distribution partners.

Agreements may specify which currency payments will be made in, how revenue shares are calculated and how exchange rates are applied when revenue is generated in different markets.

These details can affect the value of payments received by the studio, particularly where exchange rates move significantly between the time revenue is generated and when payments are made.

For this reason, currency clauses in publishing or royalty agreements can have a meaningful financial impact.

Creative industry tax reliefs and international income

Many UK game studios benefit from the UK’s creative industry tax reliefs, such as Video Games Tax Relief or the newer Video Games Expenditure Credit regime.

Where studios earn income internationally or incur costs in different currencies, exchange rates may affect how certain amounts are recognised within the calculations for these reliefs.

Ensuring the correct treatment of foreign currency amounts is therefore an important part of preparing claims.

What financial reporting issues should studios be aware of?

Alongside tax, international operations also affect how results are reported in the accounts.

Studios may need to:

convert foreign currency transactions into their functional currency
retranslate overseas balances at the year-end
recognise foreign exchange gains or losses in the profit and loss account

These adjustments can introduce volatility into reported results, even where underlying trading performance is stable.

We explore these mechanics, including foreign exchange movements and hedging, in more detail in our FX-focused article.

Can currency movements affect distributable profits?

As foreign exchange gains and losses are recognised in the accounts, they may influence the company’s retained earnings position. This can have implications for decisions around dividend payments and profit distributions.

For companies with significant foreign currency exposure, understanding how these movements flow through the accounts can therefore be important when planning distributions to shareholders.

How can Price Bailey help?

International operations can introduce additional complexity for growing game studios, particularly where transactions take place in multiple currencies or involve overseas partners.

At Price Bailey, we work with businesses across the technology and gaming sectors and understand the financial and tax challenges that can arise when operating internationally. Our team can help studios overcome issues such as foreign currency accounting, international royalty arrangements and cross-border tax considerations.

By providing practical advice and support, we aim to help studios manage the financial aspects of global growth while allowing them to focus on developing and bringing their games to market.

We always recommend that you seek advice from a suitably qualified adviser before taking any action. The information in this article only serves as a guide and no responsibility for loss occasioned by any person acting or refraining from action as a result of this material can be accepted by the authors or the firm.

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