Digital Goods Tax: How It Works and How Your Earnings Are Calculated

Why your earnings may differ between sales

These taxes are established by national and regional legislation. They are not created by Teleport, and Teleport does not independently choose the applicable tax rate.

This guide explains:

• What Digital Goods Tax is
• Why countries apply different rates
• How the Buyer’s location is determined
• Why equal prices may lead to different earnings
• How Teleport calculates your settlement
• How Consumer and Business Buyer transactions differ

What is Digital Goods Tax?

“Digital Goods Tax” is a general term we use to describe indirect taxes that may apply when a digital product or electronically supplied service is sold to a customer.

Depending on the country, the tax may be called:

• Value Added Tax — VAT;
• Goods and Services Tax — GST;
• Harmonized Sales Tax — HST;
• sales tax;
• consumption tax;
• digital goods tax;
• another equivalent indirect tax.

These taxes are generally taxes on consumption: they apply because a customer purchases and consumes a product or service in a particular country. The European Commission describes VAT as a consumption tax applied to goods and services bought and sold in or into the European Union. The tax is ultimately associated with consumption by the final customer.

Digital products may include

• software;
• downloadable files;
• e-books;
• digital templates;
• online courses;
• memberships and paid communities;
• digital subscriptions;
• licences;
• streaming or downloadable content;
• access to an online service;
• other electronically supplied products or services.

The exact definition depends on the law of the relevant country and the nature of the Product.

Why is this tax applied to online sales?

Digital products can be sold instantly across borders. A seller may be located in one country, Teleport or a payment provider may operate from another country, and the Buyer may be located somewhere else entirely.

Many countries therefore apply a destination-based approach to digital sales. This means that the tax treatment is often determined by the country where the customer is located or where the digital product is consumed.

• Digital services supplied to UK consumers are generally subject to UK VAT.
• Overseas businesses selling digital products to Australian consumers may have Australian GST obligations.
• Canada applies GST/HST rules to certain cross-border digital products and services supplied to Canadian consumers.
• New Zealand applies GST rules to remote services supplied by overseas businesses to New Zealand consumers.
• Singapore applies GST rules to services supplied through electronic commerce, including digital services.

These requirements come from government tax rules. Teleport applies the relevant tax treatment where required by law and by the legal structure of the Transaction.

Teleport does not set the tax rates

Teleport does not decide that a customer in one country should be taxed at 10%, while a customer in another country should be taxed at 20%. Tax rates are established by governments and tax authorities.

Different countries may:

• use different standard tax rates;
• classify the same Product differently;
• apply reduced rates to certain Products;
• exempt particular Products;
• distinguish between individual and business customers;
• change their tax rates over time;
• impose different rules depending on the customer’s state, province or region.

Even within the European Union, individual Member States set their own standard VAT rates within the framework established by EU law. EU rules require a standard VAT rate of at least 15%, but the actual standard rate differs between Member States.

Why does the Buyer’s country matter?

Digital consumption taxes are commonly based on the Buyer’s location rather than the seller’s location.

• a UK Consumer may be subject to UK VAT rules;
• an Australian Consumer may be subject to Australian GST rules;
• a Canadian Consumer may be subject to Canadian GST/HST rules;
• a New Zealand Consumer may be subject to New Zealand GST rules;
• a Singapore Consumer may be subject to Singapore GST rules.

The UK tax authority states that digital services supplied to UK consumers are liable to UK VAT, while services supplied to consumers outside the UK may instead be taxable in the country where that consumer is based. Canada’s digital-economy rules similarly require qualifying non-resident suppliers and digital platform operators to register, charge and collect GST/HST in relevant circumstances.

This is why the seller’s own country does not by itself determine the tax applied to every sale.

How does Teleport determine the Buyer’s location?

Teleport or its tax and Payment Partners may use information associated with the Transaction to determine the Buyer’s country or region.

• billing address;
• country of residence;
• IP address;
• country in which the payment card was issued;
• bank information;
• telephone-country code;
• payment-method information;
• tax number or business-registration information;
• other evidence accepted or required under applicable tax rules.

A single indicator may not always be sufficient. Tax rules may require several pieces of evidence to support the Buyer’s location.

If the information is inconsistent, incomplete or cannot be verified, Teleport may request additional information, delay or decline the Transaction, apply the tax treatment supported by the available evidence, or treat the Buyer as a Consumer until valid business information is provided.

Does the Buyer pay tax on top of the Product price?

No. Under Teleport’s current pricing model, the Buyer normally pays the price displayed at checkout. Consumer Tax is not added to that price as an additional charge.

For example, if you set the Product price at USD 100:

• the Buyer pays USD 100;
• Teleport determines whether Consumer Tax applies;
• the applicable tax is calculated as part of the USD 100;
• the tax is deducted before your Net Settlement Amount is calculated.

This means the listed price is treated as tax-inclusive. The Buyer does not pay USD 100 plus tax. The applicable tax is extracted from the USD 100 already paid.

How is tax calculated when it is included in the price?

When tax is included in the price, it is not calculated simply by multiplying the full price by the tax rate. Instead, the tax must be extracted from the tax-inclusive amount.

Example: USD 100 Product and a 20% tax rate

• Buyer pays: USD 100
• Included Consumer Tax: USD 100 × 20 ÷ 120 = USD 16.67
• Amount excluding Consumer Tax: USD 83.33

It would be incorrect to deduct USD 20 from the USD 100 price. A USD 20 tax would apply if USD 100 were the price before tax and the Buyer paid USD 120 in total.

How is the seller’s Net Settlement Amount calculated?

Unless different terms are displayed or agreed, the general calculation is:

Gross Transaction Amount

The total amount paid by the Buyer.

Consumer Tax

The VAT, GST, sales tax or equivalent tax included in the Buyer’s payment and calculated according to the applicable jurisdiction.

Transaction Fee

Teleport generally charges 3% of the Gross Transaction Amount for a successful Transaction, subject to a minimum Transaction Fee of USD 0.30 or its equivalent.

Payment-Processing Charges

Charges connected with processing the Buyer’s payment. These may depend on card type, payment method, Buyer country, Transaction currency, cross-border processing and the relevant Payment Partner.

Other Applicable Deductions

These may include currency-conversion charges, payout charges, refunds, Chargebacks, negative Balance recovery, Reserve deductions and other amounts disclosed in the User’s Account or commercial agreement.

Service Subscription Fees are normally separate from the calculation of each individual Transaction, unless an overdue Service Subscription Fee is deducted from the User’s Balance.

Detailed calculation examples

The following simplified examples assume a USD 100 Product price, a Teleport Transaction Fee of 3%, no currency conversion, refund, Chargeback or Reserve, and a Payment-Processing Charge of USD 3.50.

Comparison of earnings from the same USD 100 Product

Payment-Processing Charges and other applicable deductions must still be subtracted from the amounts in the final column. This table demonstrates why the same USD 100 Product can produce different Net Settlement Amounts depending on the Buyer’s country.

Frequently asked questions

Summary

1. Digital Goods Tax is required by the laws of the relevant country. It is not an additional fee invented by Teleport.
2. The applicable tax is often determined by the Buyer’s location.
3. Different countries apply different rates and rules.
4. The Buyer normally pays the price displayed at checkout. Tax is not added on top.
5. Consumer Tax is extracted from the amount already paid by the Buyer.
6. The tax included in a tax-inclusive price is calculated using: Gross Transaction Amount × Tax Rate ÷ (100% + Tax Rate).
7. Your earnings are generally calculated using: Net Settlement Amount = Gross Transaction Amount − Consumer Tax − Transaction Fee − Payment-Processing Charges − Other Applicable Deductions.
8. Two sales of the same Product at the same price may produce different Net Settlement Amounts because the Buyers are located in different countries.
9. A Business Buyer may receive different tax treatment, but B2B status does not automatically mean that no tax applies.
10. Digital Goods Tax is separate from your own personal or corporate income-tax obligations.