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Governments worldwide are moving to modernize VAT systems to capture tax revenue from digital services provided by foreign companies. As digital transactions grow—reaching $3.82 trillion in 2022—countries are implementing new VAT rules to ensure tax parity between domestic and international businesses.
Key VAT Changes by Country:
Philippines – Starting June 1, 2025, a 12% VAT will apply to foreign digital service providers, including cloud services, streaming platforms, mobile apps, and e-learning tools. B2B transactions will follow a reverse charge mechanism, while B2C providers must register, collect, and remit VAT via the Bureau of Internal Revenue (BIR).
Sri Lanka – Plans to introduce an 18% VAT on digital services supplied by foreign companies. The tax will apply to music and video streaming, online gaming, digital subscriptions, and cloud-based services. Implementation is pending detailed regulations.
South Africa – Effective April 1, 2025, non-resident digital service providers will be exempt from VAT registration if they supply services exclusively to VAT-registered businesses. However, even a single sale to a non-registered entity would require full compliance.
Manitoba, Canada – From January 1, 2026, the province will extend its 7% Retail Sales Tax (RST) to cloud computing services, including Software as a Service (SaaS), cloud storage, and website hosting.
Dominican Republic – Has failed for the third time to implement a VAT on foreign digital services. Political and legislative disagreements have led to repeated reversals.
Implications for Businesses & Consumers
- Higher compliance burdens for foreign digital service providers.
- Potential price increases for consumers as VAT costs are passed down.
- More governments adopting digital tax measures, following OECD recommendations for taxing the digital economy.
As the global digital VAT landscape evolves, businesses operating across borders must stay informed and ensure compliance with new registration, reporting, and tax collection obligations.
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