Digital tax rules in operation across the globe

Digital tax rules – VAT, GST, consumption tax, sales tax, use tax – no matter what term is used the taxation of the digital economy is growing.

Nov 7, 2019

VAT, GST, consumption tax, sales tax, use tax – no matter what term, or name, is used it is clear that the taxation of the digital economy is growing in popularity.

Digital tax rules

Here we outline the tax jurisdictions where such destination-based tax rules are in place.

European Union

  • Date of introduction: January 1, 2015
  • Value-Added Tax (VAT) rate: 28 EU Member State VAT rates - taxation depends on location of the consumer

In January 2015 new rules on the taxation of cross-border supplies of digital services to EU-based consumers came into force.

The rules require the suppliers of services such as apps, games, software downloads, ebooks, music and video streaming to apply, collect, and remit the tax due for sales to EU-based consumers.

The tax to be collected is the value-added tax (VAT) rate based on the location of the consumer. The rules only affect business-to-consumer (B2C) supplies, not business-to-business (B2B) supplies of such digital services.

In July 2017 the EU revealed that in the first year of operation (2015) €3 billion was collected using the VAT MOSS system.

Québec (Canada)

  • Date of introduction:  January 1, 2019
  • Québec Sales Tax (QST): 9.975%

In March 2018 the Québec government, in its annual budget, revealed plans to force non-resident digital service suppliers to register, collect, and remit Québec Sales Tax (QST) to Revenu Québec.

Saskatchewan (Canada)

  • Date of introduction:  January 1, 2019
  • Provincial Sales Tax (PST): 6%

Foreign suppliers of digital services to consumers based in the Canadian province of Saskatchewan must register for the 6% Provincial Sales Tax (PST). Registration is with the Saskatchewan Ministry of Finance.

Bahrain

  • Date of introduction: January 1, 2019
  • Value-Added Tax (VAT) rate: 5%

One of the most interesting points of Bahrain’s new 5% VAT system, from the perspective of non-resident businesses selling digital services in Bahrain (B2C), is that there is no sales threshold to registration for Bahrain VAT. There are, however, thresholds for domestic businesses.

Turkey

  • Date of introduction: January 1, 2018
  • Value-Added Tax (VAT) rate: 18%

Turkey’s move to extend its VAT system to cover cross-border digital services supplied by non-resident businesses was officially announced via a Draft Communiqué released on December 5, and updated again on December 22.

The new rules came into effect on January 1, 2018.

Saudi Arabia

  • Date of introduction: January 1, 2018
  • Value-Added Tax (VAT) rate: 5%

In February 2017, Saudi Arabia ratified the GCC VAT framework and committed to introduce VAT on January 1, 2018.

The General Authority of Zakat and Tax (GAZT) is responsible for managing the implementation, administration and enforcement of VAT in Saudi Arabia.

United Arab Emirates

  • Date of introduction: January 1, 2018
  • Value-Added Tax (VAT) rate: 5%

Online registration for VAT in the UAE opened in mid-September 2017. On November 27, 2017, the VAT Executive Regulations were signed into law.

The VAT Executive Regulations were issued after His Highness Sheikh Khalifa bin Zayed Al Nahyan issued the Federal Decree-Law No. 8 of 2017 for Value-Added Tax (VAT) on August 27, 2017.

Belarus

  • Date of introduction: January 1, 2018
  • Value-Added Tax (VAT) rate: 20%

New rules for taxing the foreign supplies of digital services to consumers in Belarus were first revealed back in August 2016 when the Ministry of Finance published a draft law that included amendments to the Belarus Tax Code.

By October 2016 the upper house of the Belarus parliament (the Council of the Republic) had adopted these proposed amendments into law.

This meant that from January 1, 2018, a 20% VAT would apply to these foreign supplies of digital services.

Swiss Territory

  • VAT rate: 7.7% (changed from 8% on January 1, 2018)

The Swiss Federal Tax Authority (FTA) levies a Value Added Tax (VAT) on the supply of services from non-resident companies to residents of Swiss territory (Switzerland, the principality of Liechtenstein, and the German municipality Büsingen).

Article 10 of the Swiss VAT Act states that VAT is applied to a service supplied from “any person who carries on a business based abroad that supplies telecommunication or electronic services on Swiss territory to recipients who are not liable to the tax”.

So, what does this mean? It means that a company that supplies digital goods or services to a Swiss-based consumer must register for VAT if its total sales in the Swiss territory is above XXX (this threshold is based on a worldwide income base from January 2018) account for, collect, and remit VAT to the Swiss FTA.

Norway

  • Date of introduction: July 1, 2011
  • VAT rate: 25%

Norway has been the pioneer when it comes to the taxation of the digital economy with rules introduced back in July 2011. These regulations dictate that digital services supplied by non-established vendors to consumers in Norway (B2C) are subject to Norwegian VAT and the vendor must calculate, collect, and pay the VAT. The taxation system has been known since 2011 as VOES (Vat on e-Services).

As an alternative to ordinary VAT registration, vendors may opt to use a simplified registration scheme. More information here.

South Africa

  • Date of introduction: July 1, 2014
  • VAT rate: 15% (raised from 14% to 15% on April 1, 2018)

South Africa’s tax on digital services was unveiled by the South African Revenue Service (SARS) on June 1, 2014. There was an extension of the definition of affected digital services in April 2019 as well as an increase in the threshold for registration from ZAR50,000 to ZAR1,000,000. 

The VAT rules in South Africa require non-resident suppliers of certain “electronic services” to South African residents (or if payment originates from South Africa) to register for VAT.

South Korea

  • Date of introduction: July 1, 2015
  • VAT rate: 10%

The South Korean VAT system extension to cover cross-border sales to customers based there also comes with no threshold to registration.

The reasoning behind the extension of the VAT system to cover these supplies was the government’s motivation to “level the playing field” between domestic and international goods and service providers. The overwhelming belief – at Government level – was that domestic suppliers were being undercut by their international counterparts, who were not subjected to the standard VAT rate.

New Zealand

  • Date of introduction: October 1, 2016
  • Goods and Services Tax (GST) rate: 15%

New Zealand became the first to extend their indirect taxation system to the cross-border supplies after the Organisation for Economic Cooperation and Development (OECD) released their final Base Erosion and Profit Shifting (BEPS) report.

This was significant as it validated the OECD’s approach, and points to the future of digital VAT/GST implementations.

Japan

  • Date of introduction: October 1, 2015
  • Consumption tax rate: 10% (changed in October 2019 from 8%)

A then 8% consumption tax on B2C eCommerce supplies by foreign companies to Japanese consumers came into law on October 1, 2015. Japan Consumption Tax is now at 10%. 

The Japanese government also created a registration system whereby foreign eCommerce suppliers must designate a tax agent in Japan for the purpose of remitting the tax collected.

Russia

  • Date of introduction: January 1, 2017
  • VAT rate: 20% (raised from 18% on January 1, 2019)

Russia extended their VAT system to non-resident digital service suppliers in January 2017. Like the EU and Serbia, there is no sales threshold included. This means that one digital sale supplied by a foreign company to a Russia-based customer will trigger compliance requirements.

Registrations with the new Russian digital VAT system are listed by the Federal Tax Service here.

Serbia

  • Date of introduction: April 1, 2017
  • VAT rate: 20%

The extension of Serbian VAT law to cover cross-border supplies has followed the example of the European Union (EU) regulations by having no sales threshold. This means that, for example, if a US-based makes one digital sale to a Serbian consumer then they become liable to register, to file, and to settle VAT with the Serbian tax authority.

To add further complexity the new rules also specifically state that affected digital businesses must appoint a local VAT representative in Serbia. Bilingual invoices are also required.

Taiwan

  • Date of introduction: May 1, 2017
  • VAT rate: 5%

The rules introduced in Taiwan mean foreign businesses that supply digital services (e.g. video gaming, streaming, image downloads, etc) to Taiwan residents will have to register for VAT in Taiwan, file VAT returns, and pay VAT to the Taiwan Tax Administration.

On May 1 the taxation of digital services supplied by a foreign-based business to a consumer based in Taiwan changed. From this date forward it is the responsibility of the digital service supplier to collect and remit VAT so as to comply with the new rules.

Australia

  • Date of introduction: July 1, 2017
  • GST rate: 10%

The Australian legislative change means their GST system no longer favours international digital service providers ahead of domestic Australian-based providers. This is a theme that is repeated when we see new legislative amendments, this eagerness to “level the playing field” between international and domestic digital service providers.

As a result, since July 1, 2017, supplies of digital services (e.g. movie streaming, image downloads, etc) purchased by Australian consumers from overseas are subject to 10% GST.

India

  • Date of introduction: July 1, 2017
  • GST rate: Variable, 18% for digital services

India overhauled its entire taxation system in July 2017 with the introduction of a new national GST system. In December 2016 India made the first steps in taxing the supplies of foreign providers via their previous service tax mechanism. The service tax was then subsumed into the new GST system that was unveiled on July 1, 2017.

Prior to the new rules going live Taxamo discovered that there was no sales threshold, meaning every non-Indian seller of digital services with one sale to an Indian consumer had to register for GST in India.

It was a major development as there had been a working assumption that a threshold would apply to digital services supplied by foreign companies to Indian consumers because one was applied in the previous service tax regulations. This assumption was wrong. There is no threshold. See page 163, section (v), here.

Colombia

  • Date of introduction:  July 1, 2018
  • VAT rate: 19%

VAT rules governing the cross-border supply of digital services from non-resident digital platforms came into effect on July 1, 2018. 

The published law confirmed the liability for foreign suppliers to register, collect, and remit VAT at 19% in Colombia for sales to individuals. For more detail on Colombia's plans click here.

Angola 

  • Date of introduction:  October 1, 2019
  • VAT rate: 14%

On July 1, 2019, Angola was to have introduced a new VAT system to replace Angola’s Consumption Tax code. However, prior to the introduction it was delayed for introduction until October 2019. 

Non-resident digital service suppliers that want to register for Angola VAT will need to appoint a local fiscal representative. The law in its current form also refers to a simplified registration system for non-resident digital service suppliers. More here

Azerbaijan

  • Date of introduction: January 1, 2017
  • VAT rate: 12%

Rules in Azerbaijan for foreign suppliers of digital services to pay VAT at the place of consumption have been in place since January 2017.

However, the rules differ in Azerbaijan from those proposed by their neighbours across the Caspan Sea, Kazakhstan and Uzbekistan, as the burden of the collection is currently with the local card issuers. We will, of course, update you if there is a change to this obligation. More here.

 

NOTE: This blog post will be updated as we source more information on  international tax jurisdiction plans to introduce destination-based indirect tax models for digital sales.

Taxamo content is created for guidance only, please consult your local tax advisor.

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