Taxes on Digital Products
page last edited on 26 March 2019
Digital products, or digital goods, are intangible (or non-physical) goods that exist in electronic or digital format (e.g. digital media, downloadable music, webinars and online courses, fonts and graphics, digital subscriptions, online ads, internet coupons, electronic tickets, downloadable software, mobile applications and online games, etc.). Digital goods are delivered to the end customer electronically, such as through email or online download. In X-Cart digital goods can be configured via the Downloadable Products facilities.
In many countries digital goods may be taxed separately from tangible goods and at a different tax rate.
Digital goods in the EU
In the EU the List of electronically supplied goods and services is uniform for all EU members.
In case a merchant is selling digital goods for personal use to the residents of the European countries it’s necessary to charge VAT (Value Added Tax) on such products regardless of whether the merchant is based in the EU or outside it. The merchant must charge the VAT rate applicable in the country where a buyer is established, has a permanent address or usually reside. VAT should be configured based on a customer billing address.
Some European tax authorities require that a merchant collects and records two pieces of evidence of a buyer’s location. This can be e.g. a customer’s billing address and IP. If an IP address appears to come from a different country, then a merchant should get another piece of evidence, e.g. the address of the customer’s credit card provider.
Digital goods in the US
Though there is no uniform federal list of digital goods and services in the US, the sales tax laws have been updated to include digital goods and services in different ways across the different US states.
Some of the states tax digital goods according to the Streamlined Sales Tax (SST) Definition of Digital Goods, another part of the states enacted state-level laws specifically addressing digital goods definition and taxation, and the rest - do not tax digital goods as at all.
Since sales tax in the US can be charged by a merchant only in states where the business has Sales Tax Nexus, it’s strongly recommended to consult an accountant or a local tax authority on the correct tax rates to be applied to digital products.
Digital goods in Canada
As of January 2019, only the province of Quebec levies tax on digital goods. Any digital service suppliers located outside of Quebec (either elsewhere in Canada or abroad) must register, collect, and remit Quebec Sales Tax (QST), if their annual sales exceed the CAD $30,000 threshold. The QST rate is 9.975%.
Digital goods in Australia
GST may apply to retail sales of digital products sold to Australian consumers since 1 July 2017. Retailers, online marketplaces and goods re-deliverers may need to register and pay GST to the Australian Taxation Office if they meet the threshold set.
The digital products include:
- digital products such as streaming or downloading of movies, music, apps, games and e-books
- services such as architectural or legal services.
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