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Canada issues update on digital services GST/HST

Canada recently announced its plan to tax digital services provided by non-resident companies. The new GST/HST charges are to take effect on 1 July 2021.

Canada has now issued an FAQ on GST/HST in relation to the electronic supply of digital products and services. The FAQ aims to provide further clarity on the new measures to businesses and consumers.

What is a digital platform?

The FAQ notes that a digital platform generally refers to “a website, an electronic portal, gateway, store or distribution platform or any other similar electronic interface”. They guidance also notes that the definition of platform excludes interfaces that solely processes payments.

Distribution platform broadly refers to online marketplaces.

Who accounts for sales tax?

Why is the distinction between digital platform and distribution platform relevant? Under the proposed regulations non-resident vendors of digital products or services to customers in Canada are required to register for GST/HST and collect and account for the tax on the taxable supply of those goods. 

On the other hand, distribution platform operators will generally be required to collect and remit the relevant sales tax on behalf of the non-resident vendors using the platform. That is, the online marketplace will be responsible for managing GST/HST.

What are the rules regarding accommodation platforms?

GST/HST will generally apply to all short-term accommodation booked through a digital platform. In general, the operator of the platform will be responsible for managing the relevant GST/HST.

The applicable sales tax rate will be determined by where the property is located.

What services are subject to digital GST/HST?

Digital services such as video and music streaming will be subject to GST/HST. Also note that the FAQ clearly states that “traditional services such as legal and accounting services” will also be subject to the relevant sales tax if they are provided by a non-resident vendor through a digital platform.

Are you ready for digital services VAT?

More countries are adopting digital services VAT/GST/HST each year. If you provide digital services to customers in markets abroad, you need to ensure you have the correct processes in place.

Vatglobal’s technology-driven VAT compliance solution makes managing your global VAT obligations simple, easy and efficient. Get in touch with Vatglobal to avoid the risk of penalties and ensure your business can continue to operate in all its most profitable markets.

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