Global VAT Revolution in E-commerce and Digital Services Tax – January 2025 Update!

Recent developments in global VAT taxation of e-commerce activities and digital services tax in January 2025

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Highlights

ViDA Updates: Impact on E-commerce and Marketplaces in the EU – A Comprehensive Analysis
- Significant Changes in VAT Compliance: The Council of the European Union has amended the ViDA proposal, introducing new VAT reporting requirements and platform responsibilities, particularly affecting e-commerce and digital marketplaces, with implementation phases extending through 2035.
- Deemed Supplier Obligations and Single Registration: Online marketplaces will now be held responsible for collecting VAT on behalf of non-VAT-registered suppliers, necessitating updates to their processes. Additionally, the One Stop Shop (OSS) scheme has been expanded, streamlining registration for businesses engaged in cross-border transactions while imposing new threshold requirements.
- Enhanced Reporting Requirements and Future Preparedness: The ViDA updates include expanded reporting obligations and modifications to the reverse charge mechanism for certain cross-border B2B transactions. Businesses must adapt to these changes, leveraging technology solutions, such as those offered by Vertex, to automate VAT reporting and compliance management amidst the evolving regulatory landscape.
Italian 2025 Budget Law removes 5.5 million euros digital revenue threshold for digital services tax
- Removal of Revenue Threshold: The Italian 2025 Budget Law eliminates the €5.5 million local digital services revenue threshold for the IDST, expanding the number of potential taxpayers subject to this tax, applicable to entities with revenues exceeding €750 million.
- Revised Payment Deadlines: The law introduces an advance payment for IDST due by November 30, equal to 30% of the previous year’s tax, with the balance due by May 16 of the following year, while the IDST return deadline remains June 30.
- Scope of Taxable Digital Services: The IDST applies to various digital services, including advertising and data transmission, at a rate of 3%, and taxpayers must analyze their revenue streams to limit their taxable base under this tax regime.
Booking.com’s EUR 94M VAT Case: Compliance Lessons for Global Digital Platforms
- VAT Evasion Allegations: The Italian Revenue Agency accused Booking.com of evading nearly EUR 153 million in VAT from 2013 to 2019, asserting that the platform failed to charge VAT on transactions involving non-professional hosts, thereby neglecting its responsibilities as an intermediary.
- Settlement and Financial Consequences: Following the investigation, Booking.com reached a tax settlement agreement, agreeing to pay EUR 94 million, along with filing a VAT return of EUR 19 million for 2022, highlighting the financial impact of non-compliance on both the company’s finances and the Italian tax revenue.
- Lessons for Digital Platforms: The case underscores the necessity for digital platforms to regularly reassess their VAT compliance strategies, understand varying national regulations, and engage with tax authorities to prevent misunderstandings, as this trend towards stricter VAT enforcement could impact various sectors, including short-term rentals and e-commerce.
Taiwan Proposes Increased Tax Threshold for Electronic Services from 2025
- Increased Tax Thresholds: Starting January 1, 2025, the business tax threshold for sales of services in Taiwan will increase from NTD 40,000 to NTD 50,000 monthly, while the taxation registration threshold for electronic service providers will rise from an annual sales amount of NTD 480,000 to NTD 600,000.
- Public Comment Period: The Ministry of Finance (MOF) has initiated a 60-day public comment period regarding the draft amendment to Ruling No. 10604539420, which outlines these changes and will take effect once officially announced.
- Requirements for Foreign Entities: Foreign entities without a fixed place of business in Taiwan that sell electronic services and exceed the new annual threshold of NTD 600,000 will be required to register for tax and file VAT returns, with the previous threshold of NTD 480,000 still applicable until the directive is officially implemented.
United Arab Emirates: World’s first Tax Refund System for E-Commerce Retail Purchases for Tourists
- he Federal Tax Authority (FTA) of the UAE has launched a new VAT refund system that allows tourists to reclaim VAT on all their purchases made during their stay in the UAE, applicable to both traditional stores and registered e-commerce platforms.
- Effective from January 1, 2025, the FTA has introduced a Decision outlining the “Mechanism for Correction of Error or Omission in the VAT Return.” Taxpayers must submit a Voluntary Disclosure to rectify errors in VAT returns when there is no difference in due tax, including issues like incorrect emirate-wise reporting or misclassification of supplies.
- The FTA has released an updated list of charities eligible to recover input VAT, which now includes “Sheikh Rashid Bin Saied Islamic Institute” in Dubai and “Hamda Taryam Charitable Foundation” and “Friends of Cancer Patients” in Sharjah, effective from December 16, 2024, subject to compliance with specific conditions for VAT recovery.