The growing digital economy has caused an explosion in indirect taxes rules around the globe and this has created both complexity and opportunity. The Asia Pacific (Asia Pac) region is no exception to this phenomenon.
Very soon the number of countries with electronically supplied services (ESS) (or remote services) rules will exceed 100 and this will continue to grow. The Asia Pac region has seen a massive change in this area and nearby countries like Ukraine, Uzbekistan and Kazakhstan will also follow down this digital VAT path. The next big wave of indirect tax changes (not dealing with digital services) will be proliferation in the introduction, or modification, of existing low value imported goods (LVIG) rules in many countries; for example, New Zealand has (from 1 December 2019) followed the likes of Australia, Sweden and Switzerland, with Norway (from 1 April 2020) and the rest of Europe following closely behind.
The AsiaPac region can also expect to see changes in this area and the comprehensive China VAT reform will introduce a fascinating new dimension.
At a global level, even the non-VAT countries are reacting to the digital tsunami of change. The U.S. sales tax landscape has been massively transformed since the Supreme Court decision in South Dakota v Wayfair, Inc (585 U.S (2018)). There are now greater obligations placed on offshore sellers and platforms on sales of digital commodities – physical presence in the relevant state is no longer relevant for tax nexus purposes
As the recent OECD report Tax and Fiscal Policy in Response to the Coronavirus Crisis: Strengthening Confidence and Resilience (15 April 2020) suggests, there is significant work to be done in the future in relation to the correct tax policy settings. Digital taxation will be a vital pillar in this regard, both in relation to direct tax and indirect tax. Consensus in relation to international taxation regimes will be important as will be the need to maintain smoothly functioning global supply chains.
In the area of indirect taxes, the various digital (or e-commerce) rules for goods and services discussed with regard to India will play an important role for years to come
As the digital economy experiences rapid growth in India, the Government of India introduced a tax on digital services in late 2016 by borrowing certain existing provisions from other jurisdictions along with some indigenous complications. Hence, addressing the tax challenges of the digital service businesses for Foreign Service providers across international borders has become even more indispensable.
Who does it apply to?
Foreign suppliers of services providing specified services to government, local authorities or individuals or unregistered persons in India, who are receiving these services for any purpose other than commerce.
What are the specified services covered?
“Online information and database access retrieval” (OIDAR) service covers services:
- Whose delivery is mediated by technology over the internet or an electronic network; and
- The nature of the service renders their supply essentially automated and involving minimal human intervention and impossible to ensure in the absence of information
- Is there a threshold limit for tax liability?
A threshold limit does not apply to these services. Foreign service provider register in India under the Simplified Registration Scheme with an option to appoint an agent for registration and compliance requirements.
Key compliance
Foreign Service providers shall raise a tax invoice and charge GST at the rate of 18% on the same. Separate monthly returns are prescribed and include payment of tax on a monthly basis within the prescribed due date.
Online platforms
Non-resident online platforms being intermediaries for such electronic services may be required to obtain registration and discharge GST liability on behalf of the actual Foreign Service providers subject to certain conditions.
Practical Insights
Initiatives taken by Revenue
- With the introduction of tax obligations on digital services by Foreign Service providers, the Indian Government created awareness by releasing a flyer and education guide highlighting key guidelines for covered supplies and the related tax compliance requirements. Having said this, addressing certain practical challenges has been slack and ambiguities still prevail.
- The Government realizes that not every foreign supplier providing digital services to Indian customers is compliant with Indian GST Obligations, primarily as this is voluntary compliance with limited powers to the Government to recover dues from foreign service providers.
Electronic services liable to Indian GST
- Streaming/downloads of music, e-books, films etc.;
- Cloud-based or downloadable software;
- Membership fees to online sites, dating portals etc.
- Online gambling services
- Online advertising
Registration threshold
Indian registered providers of digital services must GST register once their annual sales raise above INR 10 lakh. Non-resident providers selling to Indian consumers must register immediately prior to their first sale.
- Foreign Service Providers are under an obligation to pay tax to the Indian Government on supplies made to end consumers (Customers who are not registered under India’s GST Law).
- No specific exemptions are provided to Foreign Service providers on the invoicing requirements under the GST Rules. Every supplier needs to insert details as prescribed under India*s GST Rules. This is important as non-compliance of these compliance requirements may attract penalties on digital service providers.
E- Invoicing under India’s GST Rules
With the introduction of e-invoicing requirements under India’s GST Rules from October 2020, the law provides that these requirements are applicable to all registered persons upon meeting a particular threshold criteria; however a specific exemption is provided to Foreign Service providers (registered under India’s GST Legislation) who are engaged in the supply of OIDAR Services. Hence e-invoicing requirements do not apply to them.
2020 and beyond
One thing is clear about the future. Innovation and embracing change will define the success of global indirect taxes reform in the future. Technology will play a key role for both businesses and regulators in terms of managing the indirect tax tsunami of change in the Asia Pac region as well as the rest of the globe.
Author Bio
I am the owner of a propreitorship providing website design and development services.My question is that since all my customers are usa and uk based,do I have to pay 18% GST on the services I provide to them or the income I received by them..?