What are the new proposed Digital Services Tax (DST) in the United Kingdom (UK)?
Many countries are trying to effectively deal with businesses operating in the digital economy and ensure they receive their fair share of taxes, whether it is sales taxes or corporate taxes.
The recent court case in South Dakota of the United States of America (the Wayfair case) is a good example of this as it lead to various states to set thresholds so that online sellers and out of state businesses who do not have a physical presence in a state still may be required to collect sales tax.
Starting April 1, 2020, the UK government will charge a 2% DST to businesses on the revenues earned on the following services that arise from UK users:
- Internet search engines
- Social media platforms
- Online marketplaces
- Any associated online advertising.
The DST is charged based on the size of a business group. The DST will only apply if a group exceeds the following annual thresholds:
- £500 million of worldwide digital services revenues and
- £25 million of UK digital services revenues.
However, if a business group exceeds the thresholds, the first £25 million of revenues earned from UK users will not be charged the DST. Also, it is important to note that the DST is charged on revenue, not profit and that the DST paid will not be applied as a credit against UK corporate taxes. Only one entity in a business group will be responsible for reporting the DST; however, each entity in the group will be charged its related DST based on its revenues earned.
As noted above, the affected revenues are only charged the DST on UK users. The UK government has defined a UK user as a user that is normally located in the UK.
If you would like to discuss doing business in the UK and your potential UK sales tax filing requirements, please contact our affiliate in London, Tim Cook.