You’ve just expanded your business into the online market, making it easier for customers anywhere in the world to get your products and/or services. But what you may not have accounted for is digital services tax.
Because the marketplace is always expanding and evolving every year, meaning that there is a new realm of taxes that vendors have to start taking responsibility for. So what are digital services tax and how do they work, exactly?
What is Digital Tax?
It is a tax that is applied to online business activities. This could be anything from social media companies to online content providers to the websites of big box stores.
A digital tax covers everything from digital goods, including ebooks, software, and digital movies. This is a tax that is placed on any piece of media that you receive digitally that doesn’t have a physical form.
Having a tax attorney to help you figure things out would be very beneficial.
The Pros of a Digital Tax
Although it seems a little burdensome at first, especially with having to pay more taxes, there are benefits to having this digital tax in place.
1- Large digital companies can be taxed wherever they’re serving numerous customers, which prevents them from moving to lower-taxed countries to avoid paying taxes.
2- Companies that have an online market to providing services and products abroad currently don’t pay any taxes for any profits they generate abroad; a digital tax would fix that problem.
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3- Digital taxation levels the playing field for everyone because there isn’t the burden on the local economy in countries that have lower tax rates in order to make up the difference
4- A digital tax system in place would improve transparency when it comes to how businesses are conducting themselves online when it comes to their profits.
5- The digital tax is an effort to ensure that all businesses are paying taxes on the money they make instead of letting them abuse a loophole by only operating online.
The Cons of a Digital Tax
Digital taxes may make some improvements in a system that doesn’t take online sales into account, it can also create some problems that not many businesses are prepared for.
1- Digital taxes may affect trade relationships with certain countries that may make it more difficult to export/import from those countries.
2- A digital tax could be very troublesome for start-up companies in their initial expansion phase because they don’t have the income to afford it.
3- There is the risk of double taxation when the tax is shifted from country of establishment to country of destination.
4- Digital businesses may end up passing on this digital tax to their customers, resulting in higher prices for their services and products.
Wrapping it up….
For digital business owners, it’s important that you understand how digital tax rules apply to your business and how you can adhere to them when you’re running your enterprise.
This can be a daunting task when tax departments are rarely very forgiving of mistakes. In order to avoid any problems, you may want to consider a qualified accountant experienced in digital tax to help you out before it’s too late.