The global digital economy has experienced remarkable growth, transforming the way businesses operate and the way consumers procure products and services. This includes e-commerce, digital streaming, software services, and online marketplaces, among others. Worldwide consumers have embraced digital services, shifting towards online shopping, streaming platforms, and cloud-based software solutions.
Even though Electronic Service Suppliers (ESS) have generally been on top of their compliance requirements in the countries in which they are based, they are often not aware that the other countries in which they are providing electronic/digital services also encompass VAT and other indirect tax compliance obligations on their services.
Generally, foreign governments require ESS to register and account for VAT on sales of electronic services to their respective citizens to establish fair competition and ensure equal tax obligations for all suppliers, regardless of their origin. The introduction of these laws and regulations sought to foster a more equitable business environment, generate additional tax revenue, and support the growth and sustainability of local businesses in the digital economy.
Each country’s laws and regulations prescribe the relevant thresholds, registration, and compliance requirements when electronic services are supplied to their citizens. While these laws and regulations bring benefits, they also impose compliance and administrative burdens on foreign-based ESS. Foreign ESS need to understand and comply with these respective VAT laws in countries where they are providing electronic/digital services. In most instances this requires in-country VAT registrations, maintaining appropriate records for reporting, and remitting VAT returns.
Seeking guidance from tax professionals well-versed in international VAT laws and regulations can provide valuable insights and ensure accurate compliance. Staying informed and proactive will help businesses maintain compliance with VAT laws and regulations, avoid penalties, and foster a smooth and successful operation in the international market.
Contact us today for assistance with your international electronic/ digital services supplies.
Article by:
Sean Dooms
Senior Business Development Manager