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Taxing the Digital Economy

The Minister of Trade, Mr. Bandula Gunawardena recently stated that the Sri Lankan Government is contemplating introducing a system to regulate the online business platforms and bring some of them under its tax regime. 

The digitalization of the economy and its rapid growth has been a key focus of tax debates in recent years and has been paired with policy debates about the taxes that digital companies pay and where they pay them. Digital service companies would often conduct business in one jurisdiction but recognize revenue and profits elsewhere, thereby not paying taxes within the jurisdiction where its business activity is conducted. In order to address this, several countries have introduced digital service taxes in an attempt to make digital businesses liable to pay tax in the jurisdiction where they engage in business operations.   

Taxing digital activities affects many organizations as it overlaps with a range of taxes such as customs duties, VAT, income tax and sale and use taxes. The two most prevalent such taxes are specific DST (Digital Service Taxes) and VAT.  

Digital services taxes are gross revenue taxes with a tax base that includes revenues derived from a specific set of digital goods or services or based on the number of digital users within a country.  

The following infographics illustrate the tax rates charged by countries which have currently enacted Digital Service Taxes along with the applicable tax base and countries imposing Value Added Taxes on the Digital Economy (Table 01 for more details). 

Table 01 

Country 

Rate 

Who does it apply to 

Hungary 

27.0% 

Non-resident companies with no local Permanent Establishment (PE), Non-resident companies with local PE, Resident Companies. 

Croatia 

25.0% 

Non-resident companies with no local PE, Non-resident companies with local PE, Resident Companies. 

Denmark 

25.0% 

Non-resident companies with no local PE, Non-resident companies with local PE, Resident Companies. 

Sweden 

25.0% 

Non-resident companies with no local PE, Non-resident companies with local PE, Resident Companies. 

Finland 

24.0% 

Non-resident companies with no local PE, Non-resident companies with local PE, Resident Companies. 

Greece 

24.0% 

Non-resident companies with no local PE, Non-resident companies with local PE, Resident Companies. 

Poland 

23.0% 

Non-resident companies with no local PE, Non-resident companies with local PE, Resident Companies. 

Portugal 

23.0% 

Non-resident companies with no local PE, Non-resident companies with local PE, Resident Companies. 

Italy 

22.0% 

Non-resident companies with no local PE, Non-resident companies with local PE, Resident Companies. 

Slovenia 

22.0% 

Non-resident companies with no local PE, Non-resident companies with local PE, Resident Companies. 

Uruguay 

22.0% 

Non-resident companies with a local PE. 
Non-resident companies with no local PE provided that their income is not exclusively derived from the capital factor. 
Resident companies. 

Resident individuals if they are CIT taxpayers 

Argentina 

21.0% 

Non-resident companies with no local PE 

Belgium  

21.0% 

Non-resident companies with no local PE, Non-resident companies with local PE, Resident Companies. 

Czech Republic 

21.0% 

Non-resident companies with no local PE, Non-resident companies with local PE, Resident Companies. 

Ireland 

21.0% 

Non-resident companies with no local PE, Non-resident companies with local PE, Resident Companies. 

Latvia 

21.0% 

Non-resident companies with no local PE, Non-resident companies with local PE, Resident Companies. 

Lithuania 

21.0% 

Non-resident companies with no local PE, Non-resident companies with local PE, Resident Companies. 

Netherlands 

21.0% 

Non-resident companies with no local PE, Non-resident companies with local PE, Resident Companies. 

Spain  

21.0% 

Non-resident companies with no local PE, Non-resident companies with local PE, Resident Companies. 

Austria 

20.0% 

Non-resident companies with no local PE, Non-resident companies with local PE, Resident Companies. 

Bulgaria 

20.0% 

Non-resident companies with no local PE, Non-resident companies with local PE, Resident Companies. 

Estonia 

20.0% 

Non-resident companies with no local PE, Non-resident companies with local PE, Resident Companies. 

France 

20.0% 

Resident platform users (entities and individuals). 
Non-resident users who perform sales or services in France. 

Slovakia 

20.0% 

Non-resident companies with no local PE, Non-resident companies with local PE, Resident Companies. 

Chile 

19.0% 

Non-Resident companies with no local PE 

Colombia 

19% 

Non-Resident companies with no local PE 

Cyprus 

19.0% 

Non-resident companies with no local PE, Non-resident companies with local PE, Resident Companies. 

Germany  

19.0% 

Non-resident companies with no local PE, Non-resident companies with local PE, Resident Companies. 

Romania 

19.0% 

Non-resident companies with no local PE, Non-resident companies with local PE, Resident Companies. 

Azerbaijan 

18.0% 

Citizens and civilians of the Azerbaijan Republic who are not registered in the Tax Authorities as taxpayers 

Malta 

18.0% 

Non-resident companies with no local PE, Non-resident companies with local PE, Resident Companies. 

Turkey 

18.0% 

Non-resident companies with no local PE. 

Israel 

17.0% 

A foreign entity deriving income from online transactions with Israeli residents 

Luxembourg 

17.0% 

Non-resident companies with no local PE, Non-resident companies with local PE, Resident Companies. 

Russia 

16.67% 

Non-resident companies with no local tax registered presence/branch/PE. 

Mexico 

16.0% 

Non-resident companies with no local PE, Non-resident companies with local PE, Resident Companies. 

South Africa 

15.0% 

Non-resident companies with no local PE. 

Costa Rica 

13% 

All non-resident companies providing cross border digital services 

Ecuador 

12.0% 

Non-Resident digital service providers 

Indonesia 

10.0% 

Overseas sellers 

Paraguay 

10.0% 

Non-resident companies or people 

South Korea 

10.0% 

Non-resident companies with no local PE. 

Singapore 

7.0% 

Companies belonging outside Singapore with no business establishment or fixed establishment in Singapore from a GST perspective 

Thailand 

7.0% 

Foreign businesses providing digital services in Thailand 

Taiwan 

5.0% 

Resident Companies, Non-resident companies with local PE 

United Arab Emirates 

5.0% 

All companies including non-resident companies with no local PE 

Vietnam 

5.0% 

Foreign Contractors 

2021-09-23
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