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.
Here we outline the tax jurisdictions where such destination-based indirect tax rules are in place.
- 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, e.g. 20% for UK-based consumers, or 19% for German-based consumers. The rules only affect business-to-consumer supplies, not business-to-business supplies of such digital services.
To simplify the registration, collection, and remittance process the EU also created a system called the Mini One-Stop Shop (or MOSS as it has become to be known). The MOSS system allowed a non-EU company to register and declare all their sales via one EU Member State, referred to as the Member State of Identification (MSI). The relevant VAT due on the company’s sales in the rest of the EU was remitted to the correct EU Member State via the MSI.
In July 2017 the EU revealed that in the first year of operation (2015) €3 billion was collected using the VAT MOSS system.
- VAT rate: 8%
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.
- VAT rate: 25%
Norway has been the pioneer when it comes to the taxation of the digital economy with rules introduced back in July 2004. 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.
The Norwegian Tax Administration has its own web page for the simplified scheme for non-established vendors supplying electronic services to consumers in Norway.
At a September 2015 EU finance minister FISCALIS meeting in Dublin, Guri Stange Lystad, of the Norwegian tax administration, explained the success of VOES which has accumulated €283.5m since it was introduced in 2011.
Suppliers must register with Norway’s VOES when the total value of their sales NOK 50,000 (circa USD$6,400, EUR€5,400, GBP£5,000) over a 12-month period.
- Date of introduction: July 1, 2014
- VAT rate: 14%
South Africa’s tax on digital services was unveiled by the South African Revenue Service (SARS) on June 1, 2014. 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. The current VAT rate in South Africa is 14%.
The key details of the South African VAT system are contained in the ‘Registration Guide for Foreign Suppliers of Electronic Services’.
All foreign digital service suppliers with sales revenue exceeding ZAR 50,000 (circa USD$3,800, EUR€3,200, GBP£3,000) need to register for VAT. Another element of these rules is that suppliers must also store transaction data for 15 years.
- 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.
South Korea (along with Norway, Iceland, and the EU) became one of the early adopters of the destination-based taxation mechanism. This means that taxation is based on the consumer’s location, not the location of the supplier.
It is important to note that South Korean law has specifically introduced rules for Intermediaries to be liable to collect and remit South Korean VAT in order to simplify the collection of the tax.
- 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.
In terms of legislative design, New Zealand follows the path of the EU in determining the location of a consumer. The extended GST law also requires the supplier to collect two pieces of evidence to determine the correct place of consumption.
Suppliers must register with for New Zealand GST when the total value of their sales exceed NZD$60,000 (circa USD$43,500, EUR€36,500, GBP£33,500) over a 12-month period.
- Date of introduction: October 1, 2015
- Consumption tax rate: 8%
A new 8% consumption tax on B2C eCommerce supplies by foreign companies to Japanese consumers came into law on October 1, 2015.
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.
As of the end of June 2017 – 18 months after the introduction of the new consumption tax rules – 75 multinational companies had registered with the Japanese National Tax Agency (NTA). The NTA updates this foreign business registration list on a regular basis showing what companies have registered with the new consumption tax rules.
Suppliers must register with for Japan’s consumption tax when the total value of their sales exceed JPY¥10 million (circa USD$91,000, EUR€76,200, GBP£70,500) over a 12-month period.
- Date of introduction: January 1, 2017
- VAT rate: 18%
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. As of June 2017, six months after the rules were introduced, a total of 118 companies were listed as having registered with the Russian Federal Tax Service.
- 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.
- 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.
In a press release heralding the legislative change, the Taiwan government stated that the reasons for doing so were “in order to respond to international trends and for the government to control tax sources.”
Suppliers must register with for Taiwan VAT when the total value of their sales exceed TWD480,000 (circa USD$16,000, EUR€13,300, GBP£12,300) over a 12-month period.
- 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.
It is important to note that Australian law has specifically introduced rules for Intermediaries to be liable to collect and remit the Australian GST in order to simplify the collection of the tax.
Suppliers must register with for Australian GST when the total value of their sales exceed AUD$75,000 (circa USD$60,000, EUR€50,000, GBP£46,000) over a 12-month period.
- Date of introduction: July 1, 2017
- GST rate: Variable, 18% for digital services
India overhauled its entire taxation system in July 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.
Other jurisdictions with similar rules include:
This blog post will be updated as we source more information on the jurisdictions listed above, as well as other international tax authorities that introduce destination-based indirect tax models for digital sales.
Note: Taxamo content is created for guidance only, please consult your local tax advisor.