Starting 1 July 2021, non-resident digital companies must collect and remit GST / HST on digital service sales across Canada. Previously, foreign vendors selling digital services in Canada had to pay sales tax only in three Canadian provinces.
For a long time, Canada remained one of the few large countries that did not tax digital services provided by non-resident companies. Currently, only three Canadian provinces, namely British Columbia, Quebec and Saskatchewan, have introduced a sales tax for non-residents selling digital services.
From 1 July 2021, digital services and products provided by non-residents to Canadian consumers are taxed throughout Canada. Interestingly, the rate and the name of the tax vary depending on the province or territory of Canada.
From July 1, 2021, digital economy businesses selling digital services in Canada have to charge and collect GST / HST. This requirement applies to the following types of companies:
- A non-resident vendor who sells taxable digital products or services, such as online music streaming or traditional services, to Canadian consumers and Canadian entities who are not registered under the normal GST/HST regime
- A non-resident distribution platform operator who makes or facilitates supplies of taxable digital products or services through its platform
- An accommodation platform operator that facilitates supplies of short-term accommodation in Canada through its platform
Taxable digital products and services include, but are not limited to:
- online subscription-based video or music streaming
- mobile apps
- online video gaming
- traditional services such as legal and accounting services
Tax registration requirements for foreign digital economy companies in Canada
The registration threshold is set at CAD 30,000. If the company’s sales in Canada in the past 12 months exceeded the threshold, or if sales are expected to exceed that limit in the next 12 months, the company will be required to register for the GST/HST. GST stands for Goods and Services Tax, and HST stands for Harmonized Sales Tax.
By default, digital economy businesses that are not resident in Canada are required to register under the simplified GST/HST regime. An important point: the simplified registration regime does not allow companies to claim input GST/HST. At the same time, foreign companies that must register under the simplified scheme can voluntarily apply to register for normal GST/HST. In this case, they would be able to claim input tax credits, but at the cost of increased compliance requirements.
Once a foreign vendor is registered for GST/HST in Canada, they would have to charge, collect and remit tax on cross-border sales of digital services to Canadian consumers as well as to prepare and file GST/HST returns.
The simplified registration regime allows you to choose one of three currencies for filing a tax return and paying taxes:
- Canadian dollar
- U.S. dollar
Tax rates for cross-border sales of digital services and products in Canada
An applicable tax rate depends on the specific province or territory in which the end-user is located. There are special rules for determining whether a user belongs to a particular Canadian province.
In the table below, I have summarized the tax rates for all provinces in Canada.
|Province||Tax Type||PST/QST||GST||HST||Total Tax Rate|
|British Columbia||GST + PST||7%||5%||12%|
|Newfoundland and Labrador||HST||15%||15%|
|Prince Edward Island||HST||15%||15%|
|Quebec||GST + QST||9.975%||5%||14.975%|
|Saskatchewan||GST + PST||6%||5%||11%|
Please note that the existing provincial sales tax (PST) on cross-border digital services is retained for British Columbia, Quebec and Saskatchewan. On top of that, the federal GST is added from 1st July 2021. However, the PST is still administered by the provincial tax office. This increases the burden associated with filing tax returns and paying taxes for digital non-resident companies.
For a long time, Canada remained the only G7 country in which sales of digital services by non-residents were not subject to VAT. This created unequal conditions for local Canadian companies due to a higher tax burden compared to that of foreign companies. It also encouraged ordinary Canadians to buy similar digital services overseas. Unsurprisingly, the Canadian government has decided to level the playing field.
On 1 July 2021, new rules take effect that significantly broadens the obligations of non-resident businesses to register for and comply with the Canadian GST/HST. The Simplified Registration Regime will apply to a non-resident vendor even if they sell digital services completely outside of Canada and do not “carry on business in Canada”.
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