Federal government extends Goods and Services Tax net to foreign e-services
The federal government of Canada has imposed 5% Goods & Services Tax obligations on foreign providers digital or electronic services to its consumers. This came into effect from 1 July 2021. This will affect the following:
- foreign providers of digital or electronic services to Canadian consumers;
- home-sharing platforms (see below); and
- Canadian distribution platforms that facilitate the sale of goods located in Canada and owned at the time of the sale by a foreign seller
The government’s intention is to level the playing field for local providers of streaming media, apps, online gaming, ebooks, membership to online membership sites, SaaS services etc. The measure will only apply to B2C sales. In the case of B2B sales, the provider must obtain and validate the local business’ GST number online. The B2B customer must self-assed the GST based on the reverse charge rules. Whilst an invoice is required, it is the simplified version with limited information on the charge, GST and net amount.
Canada is also considering a 3% Digital Services Tax for Jan 2022. Check our global VAT and GST on digital services tracker to see which other countries have introduced indirect taxes on electronic services to consumers.
Online accommodation sharing included
The reforms include imposing a liability on non-resident marketplaces distributing on behalf of foreign providers, plus online accommodation sharing sites. Foreign providers will have to register with the Canadian Revenue Agency to report GST collections. However, there is a CAD$30,000 threshold for GST registration. There is a simplified GST registration process, potentially with no ability to recover local input GST.
A number of provinces have already extended their local sales tax to digital services, including: Quebec and Saskatchewan. British Colombia started in April 2021. Manitoba has imposed local state tax at the end of 2021.
You can check the right GST calculations on individual or batch transactions with our Advisor and Auditor services.
North America VAT on digital services
| Comments (click for details) | Rate | Implementation Date | Threshold | Comments |
| Canada | 5% | Jul 2021 | C$30,000 | |
| Canada British Columbia | 7% | Apr 2021 | C$10,000 | |
| Canada Manitoba | 7% | Dec 2021 | C$10,000 | B2C; accommodation sharing |
| Canada Quebec | 9.98% | Jan 2019 | C$30,000 | |
| Canada Saskatchewan | 6% | Jan 2019 | Nil for non-residents | |
| Mexico | 16% | Jun 2020 | Nil | |
| United States | Up to 10% | 2018+ | Varies by state |
