If you provide digital services globally, you may need to comply with indirect tax regulations in over 100 countries. From a tax policy perspective, taxing digital services supplied from abroad to local consumers makes sense. It prevents competitive distortions—ensuring that foreign services are not VAT-free while domestic services are taxed—and aligns with the goals of consumption taxes like VAT or GST to tax all consumption.

In 2024 alone, five new countries implemented tax collection obligations for foreign remote sellers: Laos (effective August 1, 2024), Zambia (April 1, 2024), Morocco (January 1, 2024), and Senegal (July 1, 2024). More countries are preparing to introduce similar regulations in 2025. Concurrently, countries with existing measures are continuously updating their tax laws and definitions to keep pace with technological advancements. For example, South Africa is refining its regulations, and Japan is expanding tax collection obligations to include online platforms. However, some countries are bucking this trend, opting not to tax foreign providers of digital services or eliminating existing tax collection mechanisms.

Philippines enacts law to tax foreign digital services

On October 2, 2024, the President of the Philippines signed a new law imposing tax collection obligations on foreign remote sellers of digital services. This move aligns the Philippines with other regional nations like Singapore, Indonesia, Malaysia, and Thailand, which have already implemented similar tax measures. The new law is expected to generate an additional PHP 105 billion in revenue over the first five years of implementation.

The newly enacted legislation imposes a 12% VAT on digital services, including online search engines, cloud services, online media and advertising, and digital goods. Non-resident digital service providers (DSPs) must register for VAT if their taxable sales exceed PHP 3 million (approximately $55,000) within the past 12 months or if they reasonably expect to exceed this threshold in the next 12 months. If non-VAT-registered customers use these services, the non-resident DSP is responsible for remitting the applicable VAT. For transactions involving VAT-registered customers, a reverse-charge mechanism applies, whereby the recipient must withhold and remit the VAT due. Foreign online marketplaces must also remit VAT on transactions made through their platforms if they control key aspects of the supply, such as setting terms and conditions or being involved in the ordering or delivery of goods.

Brazil’s tax reform to affect non-resident digital service sellers

As part of Brazil’s tax reformstarting in 2026, non-resident providers of digital services will be liable for collecting new indirect taxes. The reform introduces two new taxes: the Contribution on Goods and Services (CBS) at a federal rate of 8.8% and the Tax on Goods and Services (IBS) at a state and municipal rate of 17.7%. These will replace the current tax system, which includes five taxes: the federal contributions for social integration (PIS) and social security financing (COFINS), the federal tax on manufactured products (IPI), the state VAT (ICMS), and the municipal service tax (ISS).

Key changes include the obligation for non-resident sellers to register, collect, and remit these new taxes when supplying digital services to Brazilian consumers. The proposed rules cover both business-to-consumer (B2C) and business-to-business (B2B) transactions, although Brazilian buyers may share tax liability in B2B transactions.

Digital platforms will also face new tax responsibilities. Platforms acting as intermediaries between non-resident sellers and Brazilian consumers must collect and remit CBS and IBS if they control one or more key elements such as payment processing, setting terms and conditions, or handling delivery. Platforms limited to providing internet access, processing payments, or advertising are excluded.

Further clarity on the new IBS/CBS obligations for non-residents is expected to be provided in 2025. The current proposal does not offer much detail on the registration mechanism for non-resident sellers, the application of joint and several liability for sales performed by non-residents, or the obligation for non-residents to issue e-invoices.

Japan shifts tax collection responsibility to platform operators

Effective April 1, 2025, Japan will introduce significant changes to its consumption tax (JCT) for digital services provided through online platforms. Currently, foreign sellers are required to collect and remit JCT on their sales to Japanese consumers, even when these sales are facilitated by online platforms. The new legislation will shift the tax collection responsibility to “specified platform operators,” who will be deemed as suppliers, thereby simplifying compliance.

Specified platform operators—defined as those facilitating sales exceeding ¥5 billion annually—must start collecting and remitting the 10% JCT on B2C digital services provided by non-resident businesses. B2B transactions will remain outside the scope and continue to be subject to the reverse charge mechanism. Platform operators meeting the sales threshold were required to notify the National Tax Agency (NTA) by September 30, 2024, and will be designated as specified platform operators by December 31, 2024. They will then have until April 1, 2025, to begin fulfilling their new tax obligations. The NTA will publish a list of all designated operators, who must also notify foreign sellers of their tax responsibilities.

South Africa to simplify VAT compliance for foreign digital service providers

As the digital economy evolves, countries are revising and adjusting their VAT laws on the taxation of digital services provided by foreign suppliers. In South Africa, the National Treasury began consultations on August 1, 2024, to develop new regulations based on the 2024 budget. The upcoming changes reflect lessons learned over the years and aim to adapt legislation to the current digital landscape.

Starting April 1, 2025, South Africa plans to implement several changes to its VAT regulations concerning digital services. Key revisions include limiting the scope of VAT obligations to non-resident sellers supplying digital services to consumers, effectively excluding B2B transactions. This aims to reduce administrative burdens and compliance costs for foreign businesses, as B2B transactions are unlikely to generate additional tax revenue for South Africa. The proposed amendment will result in many foreign remote sellers, who have registered for VAT over the last 10 years, now needing to deregister.

South Africa first imposed VAT on digital services in 2014. Amendments effective from April 2019 updated the definition of digital services to include any services supplied via electronic agents, electronic communication, or the internet, subject to certain exceptions. Despite the term “minimal human intervention” being used in the explanatory memorandum for the 2019 amendments, this concept was never introduced in either the VAT Act or the regulations. It is now proposed that the interpretation of which services fall within these regulations and the VAT Act be as broad as possible, without regard to the term “minimal human intervention.”

Currently, non-resident sellers required to register for VAT in South Africa must appoint a representative who resides in South Africa and open a South African bank account. However, non-resident suppliers of digital services were exempt from these requirements. The proposed amendment aims to streamline compliance for digital service providers by allowing them to appoint a representative without the requirement that this person must reside in South Africa. Additionally, the exemption from opening a South African bank account will be retained.

The recipient of imported services is currently required to account for and pay VAT within 30 days of receiving the invoice from the supplier or when any payment is made, whichever is earlier. Meeting this 30-day timeframe has often proven impractical, leading to penalties and interest for late payments. To address this issue, there is a proposal to extend the time period from 30 to 60 days, aiming to mitigate penalties and interest associated with late payments.

Peru, Dominican Republic, and Argentina: a countertrend in digital taxation

While most countries concentrate on increasing revenue from foreign remote sellers of digital services, some are moving in the opposite direction. On August 4, 2024, Peru enacted a decree requiring foreign sellers providing digital services to Peruvian consumers to register for and collect VAT. Initially set to take effect on October 1, 2024, the law was later delayed to December 1. However, a bill to repeal this decree is currently under consideration in Congress.

While the future of Peru’s digital taxation reforms remains uncertain, similar proposals were even more short-lived in the Dominican Republic. On October 8, 2024, the Dominican Republic’s Ministry of Finance introduced the Fiscal Modernization Law to Congress. This legislative proposal aimed to extend VAT to digital services provided from abroad when consumed within the country. However, on October 19, 2024, the President announced the withdrawal of the bill due to insufficient political support.

Argentina is another country that has shifted away from generating revenue from foreign digital services. Rather than requiring foreign sellers to register for VAT and collect taxes, Argentina enforced a VAT withholding requirement on payment providers processing consumer payments to overseas providers since 2018. This requirement was abolished on September 1, 2024.

The opinions expressed in this article are those of the author and do not necessarily reflect the views of any organizations with which the author is affiliated.