October 21st, 2024
Navigating the Digital Services Tax (DST): What Amazon sellers in Canada need to know
Starting October 1, 2024, Amazon has implemented a digital services fee in response to the digital services taxes (DST) introduced by the governments of Canada, the UK, France, Italy, and Spain.
While the standard DST rates are 2% in the UK and 3% in Canada, France, Italy, and Spain, these charges can be unpredictable due to variations based on your business location, the buyer’s location, and other factors. Instead of calculating the digital services fee based on these location-based variables, Amazon has opted for a fixed digital services fee determined solely by your location and the specific store where you sell.
Read on to learn more.
What is the Digital Services Tax (DST)?
The Digital Services Tax (DST) is a levy imposed on revenue generated from providing digital services within a specific country, targeting large multinational companies that profit from digital markets. These taxes are part of a broader global movement to ensure that digital giants contribute fairly to the tax revenues of countries where their services are consumed.
In Canada, the DST was proposed to address the growing concern that multinational tech companies, including Amazon, Google, and Facebook, are not paying their fair share of taxes. The DST applies a 3% tax on revenue from digital services offered to Canadian users, including online marketplaces, social media platforms, and advertising services.
Amazon’s response to the DST
Amazon has adjusted its fee structure in response to the DST, which means that sellers who operate on Amazon in Canada may experience increased costs. These additional charges are often presented as “digital services fees” and are intended to offset the tax imposed by the Canadian government. As a result, many sellers will see a rise in referral fees, fulfillment charges, and other costs associated with selling on Amazon.
According to Amazon’s Digital Services Tax Breakdown, the tax is automatically applied to various services, including FBA (Fulfillment by Amazon), referral fees, and advertising. While Amazon is obligated to pay the tax on its own digital services, the company has taken the approach of sharing this cost with sellers by passing the additional expenses onto them.
This fee adjustment has been implemented to comply with similar taxes in other regions, such as the UK and the EU, making it a global issue that Amazon sellers must adapt to.
Understanding how DST works in practice
To understand how DST affects Amazon sellers, let’s break down a typical transaction.
If a Canadian seller lists a product for CAD 100 and the referral fee is 15%, they would typically pay CAD 15 in referral fees. However, under the DST, an additional 3% would be applied to this fee, meaning the seller would pay an extra CAD 0.45, totaling CAD 15.45 in fees. While this may not seem significant in isolation, these small increases can add up across hundreds or thousands of transactions, ultimately eating into profits.
It’s also important to note that this tax is not isolated to referral fees. DST may be applied to advertising fees, subscription fees for Amazon Professional accounts, and even fulfillment fees for those using FBA. Sellers must carefully analyze all aspects of their Amazon expenses to understand the full financial impact.
How this fee is applied
If your business operates in a country that has implemented a Digital Services Tax (DST) or if you sell products on Amazon in those countries, a digital services fee will be added as a percentage increase to various per-unit fees, including:
- Selling on Amazon fees: This encompasses referral fees, fixed closing fees, variable closing fees, and the get-paid-faster fee.
- Fulfilment by Amazon fees (applicable only in the UK and France): This includes fulfilment fees and shipping chargeback fees.
Here’s how the digital services fee is structured based on your location:
- UK: A 2% digital services fee will apply to Selling on Amazon and Fulfilment by Amazon fees for sales in the following markets: UK, France, Italy, Spain, Canada, United States, Germany, Belgium, Sweden, Netherlands, Poland, and Mexico.
- France: A 3% digital services fee will be imposed on Selling on Amazon and Fulfilment by Amazon fees for sales in the same markets listed above.
- Italy, Spain, or Canada: A 3% digital services fee will apply to Selling on Amazon fees for sales in those same markets.
- Other countries: A 2% digital services fee will be applied to Selling on Amazon and Fulfilment by Amazon fees for sales in the UK and France stores, as well as a 2% fee on Selling on Amazon for sales in Italy, Spain, and Canada.
Digital services fee applied by seller business establishment and the store in which the sale is made
If you’re established in the US (“Any other country” in the table above) and you sell in the CA store (amazon.ca), a digital services fee of 2% will apply on Selling on Amazon.
If you’re established in Canada and you sell in the US store (amazon.com), a digital services fee of 3% will apply on Selling on Amazon.
Where to see the fee applied to your orders
Starting October 1, you can track your digital services fees via the Transaction View in your Payments reports. For a detailed explanation on how your digital services fees were calculated, click on the fee amount to access the fee explainer.
The SKU Economics report will provide historical aggregated proceeds from sales, returns, fees, ad spend and net proceeds by SKU for each store in which you sell. To crate the report, you just need to complete the marketplace, data aggregation level and data range. Then report configurations, choosing between sales data, fee data, advertising spend data, etc… Fees data will show the full list for you to check.
The future of DST and what to expect
The DST is not expected to be a permanent fixture. Canada’s government has indicated that the tax will be replaced once a global consensus is reached on how to tax digital services fairly. The OECD is currently working on a global tax reform that would ensure large multinational companies pay taxes where their customers are located. However, until such a framework is in place, sellers must contend with the DST and its associated costs.
Conclusion
In conclusion, the Digital Services Tax (DST) poses significant implications for Amazon sellers in Canada, driving up operational costs and altering the e-commerce landscape. While this change may seem daunting, it is part of a broader global movement toward fair taxation of multinational corporations. Sellers must adapt by monitoring international tax developments and considering adjustments to their competitive pricing strategies to offset these new expenses.
Looking ahead, the potential establishment of a unified global tax framework by the OECD could help standardize these taxes and reduce inconsistencies. Additionally, as consumer awareness of corporate taxation grows, sellers who prioritize transparency and fairness may gain a competitive edge. By proactively managing their financial strategies, Amazon sellers can not only mitigate the impact of the DST but also position themselves for long-term success in an evolving marketplace.