Digital tax rules in operation across the globe

Mon Mar 7, 2016

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

Digital tax rules

Digital tax rules are rolling out piece-by-piece across the globe. Photo: Pixabay

Digital Tax Rules Across the Globe:

Here we follow up our recent post on what international jurisdictions are planning to introduce new rules by looking at a sample of four jurisdictions where such rules already exist.

1. European Union

Date of introduction: January 1, 2015

VAT rate: 28 EU Member State VAT rates – taxation depends on location of the end consumer.

In January 2015 new digital tax rules, specifically 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.

These digital tax rules are an upgrade on ones that have existed since 2003. The key difference in the 2015 revamp is that the location of the consumer rather than the location of the supplier now determines the VAT rate to be applied, collected, and remitted.

Pre-2015 this loophole allowed international digital service suppliers to set up their EU residence in low-tax jurisdictions. Since January 2015 these suppliers can no longer use this loophole thus – in the eyes of the rules’ architects – “levelling the playing field” between domestic and international suppliers.

2. Japan

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 February 2016 – five months after the introduction of the new consumption tax rules – 51 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.

Here’s our blog on the Japanese plans for taxing B2C eCommerce

3. 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 suppliers to consumers in Norway (B2C) are subject to Norwegian VAT and the supplier must calculate, collect, and pay the VAT. The taxation system is known as VOES (Vat on e-Services).

As an alternative to ordinary VAT registration, suppliers may opt to use a simplified registration scheme.The Norwegian Tax Administration has its own web page for the simplified scheme for non-established suppliers providing electronic services to consumers in Norway.

Revenue since introducing VOES is at least 2.55 billion Norwegian Kroners (€283.5 million; $316 million) — IntlTaxReview (@IntlTaxReview) September 9, 2015

At the September 2015 EU finance minister FISCALIS meeting in Croke Park, Dublin, Guri Stange Lystad of the Norwegian tax administration, explained (see above tweet) the success of VOES which has accumulated €283.5m since it was introduced in 2011.

4. South Africa

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’ , we have also compiled a useful list of FAQs on the topic.

All foreign digital service suppliers with sales revenue exceeding ZAR 50,000 (circa USD$3,150/GBP£2,265/EUR€2,900) need to register for VAT. Another element of these rules is that suppliers must also store transaction data for 15 years.

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

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