The 12-month transition period in respect of the new Goods and Services Tax (GST) and the Harmonized Sales Tax (HST) rules applicable in Canada and its respective provinces for US vendors and distribution platforms has ended as of July 1, 2022.
New GST/HST rules came into effect in Canada on July 1, 2021. These rules generally require foreign-based vendors selling more than C$30K of digital products or services to consumers in Canada, as well as the digital marketplace platform operators that facilitate those sales, to register for, collect and remit the GST/HST on taxable sales made to Canadian consumers. The new rules also apply to goods supplied through fulfillment warehouses in Canada.
In administering these new rules, the Canada Revenue Agency announced that it would work closely with affected non-resident suppliers and platform operators to assist them in meeting their obligations. The Agency also agreed to take a practical approach to compliance and exercise discretion in administering the new measures during a 12-month transition period. This administrative relief, therefore, ended on July 1, 2022.
These changes in Canada are similar to trends occurring in the EU and UK. In both the EU and UK, revised VAT rules regarding “electronically provided services” went into effect on July 1, 2021 (January 1, 2021, for the UK). “Electronically provided services” are generally defined as any services automatically delivered over the Internet, where there is minimal or no human intervention, and the supply is provided by non-EU or UK-based vendors to EU- or UK-based consumers.
Therefore, under these rules, any electronically provided services to such consumers (typically referred to as “B2C transactions”) are fully subject to VAT rates applicable at the location of the EU or UK consumer. The rates are typically around 20%, without exceptions or revenue thresholds, and/or transition period relief since July 1, 2021 (or January 1, 2021, for UK transactions).
In addition, without going into much detail, there are complex and detailed provisions applicable per the above-mentioned dates in the EU and UK for electronic platforms or marketplace operators active in these markets. The provisions are in terms of their obligations to collect and remit EU or UK VAT for certain transactions with EU- or UK-based consumers, similar in nature to the Canadian provisions referred to earlier.