Canada is to tax cross-border digital services, effective from July 2021. Consequently, non-resident businesses providing digital services to customers in Canada will have to start charging sales tax. Many digital vendors will now have to register for GST/HST in Canada.
Up to now, only digital services businesses with local operations have had to charge customers sales tax, providing a potential advantage to non-resident businesses. The new measure aims to level the playing field for resident and non-resident providers of digital services.
Navigating the ‘Netflix tax’
The tax on digital services is far-ranging.
For example, the tax will apply to streaming services, digital marketplaces, and short-term accommodation provided on a digital platform.
The ‘Netflix tax’, as it is often colloquially known, puts digital platforms with operations in Canada on the same taxation footing as foreign companies.
Take note of digital tax registration requirements
Many non-resident providers of digital services to customers in Canada will now have to register for tax.
The threshold for registration is CA$30 000. Consequently, vendors providing digital services to a value exceeding CA$30 000 over a twelve month period must register for GST/HST.
Moreover, Canadian authorities specify that should a vendor have an expected revenue exceeding the threshold amount, they should register for GST/HST.
Digital services companies supplying the Canadian market should plan now for any future tax compliance obligations.
Registration and compliance procedures can vary between provinces and territories in Canada, so it is important to get full clarity on your potential obligations in the Canadian market.
Note that digital services limited to a specific location will be charged at the rate of that province or territory.
Canada’s new digital services regulations take effect in just a few months. Therefore, non-resident digital services businesses providing digital services to customers in Canada should prepare for the new regulations now.