Digital service taxes are reshaping how governments tax the digital economy, with more than 25 countries implementing these kinds of taxes as of 2025. As more countries introduce digital service tax rules, businesses that earn revenue from online advertising, digital platforms, and data-driven services are facing new tax obligations that sit outside traditional corporate income tax and value-added tax (VAT) systems.

Below, we explain which digital services are covered, which businesses are required to pay it, and how it differs from VAT and corporate income tax.

What's in this article?

• What is a digital service tax, and how does it work?
  
• Which digital services are subject to digital service tax?
  
• Which businesses are required to pay digital service tax?
  
• How is digital service tax calculated?
  
• How does digital service tax differ from VAT and corporate income tax?
  
• Why do governments impose digital service taxes?
  
• Which countries have implemented digital service taxes?
  
• How Stripe Tax can help
  

What is a digital service tax, and how does it work?

A digital service tax (DST) is a tax on revenue earned from certain digital activities in a country, even when the business providing those services has no physical presence there.

Unlike traditional corporate income tax, which is based on where a business is established, DST focuses on where users are located and where digital value is generated. The goal is tax revenue linked to local users, such as advertising views, platform interactions, or data collection, regardless of where the business is headquartered.

Which digital services are subject to digital service tax?

DSTs are deliberately narrow. They focus on digital activities in which user participation, data, or network effects play a central role in creating value.

The following digital services are subject to DST:

• Online advertising services: Revenue from placing targeted digital ads in front of users in a specific country, including search ads, social media ads, and display advertising.

• Digital platforms and online marketplaces: Fees or commissions earned by multisided marketplace platforms that connect users through a digital interface (e.g., buyers and sellers, drivers and riders, hosts and guests).

• Social media and content-sharing platforms: Income from platforms built around user-generated content or social interaction, particularly where monetisation depends on advertising, subscriptions, or engagement.

• Data-driven services: Revenue generated from collecting, analysing, or monetising user data, including insights derived from user behaviour or demographics.

• Streaming and digital media services: In some countries, revenue from online video, music, or other digital content, especially when access or advertising is tied to local users.

Which businesses are required to pay digital service tax?

DSTs are designed to apply only to the largest players in the digital economy. Smaller businesses and startups are typically excluded.

In practice, DSTs generally apply to:

• Large multinational enterprises: Many regimes use a high global revenue threshold to limit the tax to major groups. The European Union, for example, has a €750 million annual global revenue threshold.

• Businesses with significant in-country digital revenue: Businesses must usually exceed a separate local revenue threshold tied to users in the taxing country.

• Groups assessed on a consolidated basis: Thresholds are measured at the group level, which prevents businesses from avoiding DST by splitting operations across subsidiaries.

• Businesses earning revenue from certain digital services: Even large businesses are taxed only on revenue from covered digital activities, not on all of their income.

These categories apply regardless of physical presence. Physical offices, employees, or a legal entity in the country are not required for DST.

How is digital service tax calculated?

Digital service tax is designed to be simple, but it’s important to understand which revenue counts, where users are located, and how each country’s rules draw those lines.

The process typically involves several steps:

• Identify relevant digital revenue: Businesses determine which revenue streams fall within a country’s DST rules. This might include advertising income or platform fees linked to local users.

• Determine user location: Revenue is allocated based on where users are located, with indicators such as IP addresses, account data, or billing information.

• Check revenue thresholds: DST applies only once both the global revenue threshold and the local in-country threshold are exceeded.

• Apply the DST rate: Determine the flat percentage, typically between 2% and 5%, to apply to the relevant revenue.

• Apply for allowances or exclusions: Some countries offer annual allowances or partial exemptions, while others tax the full amount once thresholds are met.

• File and pay locally: Businesses must register, file returns, and remit DST according to each country’s rules, usually on an annual basis.

How does digital service tax differ from VAT and corporate income tax?

Digital service tax is often grouped together with other forms of tax on digital activity. But it works very differently from VAT, sales tax, and corporate income tax.

Here are the main differences:

• Based on revenue, not profit: DST is often charged on gross revenue, with no deductions for costs or losses, unlike corporate income tax.

• Paid by the business, not passed onto the customer: Customers pay VAT and sales tax at the point of sale, while the business pays DST directly.

• Linked to user location, not physical presence: Corporate income tax generally depends on a permanent establishment, while DST depends on where users are located.

• Limited to specific digital activities: VAT is applied broadly across goods and services, while DST targets a narrow set of digital business models.

• Outside most tax treaties: Because DST is not classified as an income tax, it usually falls outside international tax treaties and standard foreign tax credit mechanisms.

• Low rates on a broad base: DST rates are relatively low, but applying them to gross revenue can have a big impact on businesses with high volume and low margins.

Why do governments impose digital service taxes?

Governments use DSTs to address perceived gaps in traditional tax systems as economic activity shifts online. They’re for digital activity that generates economic value locally but falls outside traditional tax frameworks.

Here’s the reasoning behind DSTs:

• It closes gaps in existing tax rules: Digital businesses can generate substantial local revenue without triggering corporate income tax under traditional rules.

• It aligns taxation with where value is created: User participation and data contribute directly to value creation and should give rise to taxing rights in the user’s country.

• It improves tax fairness: DSTs are intended to ensure large digital businesses contribute to public finances in the markets they serve.

• It protects domestic tax bases: As commerce moves online, DSTs help countries safeguard revenue that might otherwise be lost to taxation.

• It provides an interim solution to global coordination challenges: Many DSTs were introduced while international negotiations on digital taxation were unresolved.

• It responds to political and public pressure: High-profile concerns about taxing large technology businesses have pushed governments to take action.

Which countries have implemented digital service taxes?

Countries have adopted DSTs with varying scopes, rates, and enforcement rules. If your business operates in one or more foreign jurisdictions, it’s worth knowing which digital services taxes apply in each jurisdiction.

• France: Introduced a 3% tax in 2019, which covers digital advertising, platform services, and the sale of user data linked to French users.

• United Kingdom: Applies a 2% DST to revenue from social media platforms, search engines, and online marketplaces, with a large revenue allowance.

• Italy and Spain: Both impose a 3% DST on certain digital services, including online advertising and platform intermediation.

• Austria: Applies a narrower 5% DST focused primarily on digital advertising.

• Turkey: Uses one of the highest DST rates globally (7.5%) and applies it broadly across multiple categories of digital services.

• Canada: Introduced its DST in June 2024, but rescinded the tax a year later.

• African and other emerging markets: Countries such as Kenya and Nigeria have introduced or expanded digital taxes to capture revenue from cross-border digital services.

How Stripe Tax can help

Stripe Tax reduces the complexity of tax compliance so you can focus on growing your business. Stripe Tax helps you monitor your obligations and alerts you when you exceed a sales tax registration threshold based on your Stripe transactions. In addition, it automatically calculates and collects sales tax, VAT and GST on both physical and digital goods and services – in all US states and in more than 100 countries.

Start collecting taxes globally by adding a single line of code to your existing integration, clicking a button in the Dashboard or using our powerful API.

Stripe Tax can help you:

• Understand where to register and collect taxes: See where you need to collect taxes based on your Stripe transactions. After you register, switch on tax collection in a new state or country in seconds. You can start collecting taxes by adding one line of code to your existing Stripe integration or add tax collection with the click of a button in the Stripe Dashboard.

• Register to pay tax: Let Stripe manage your global tax registrations and benefit from a simplified process that prefills application details – saving you time and simplifying compliance with local regulations.

• Automatically collect tax: Stripe Tax calculates and collects the right amount of tax owed, no matter what or where you sell. It supports hundreds of products and services and is up-to-date on tax rules and rate changes.

• Simplify filing: Stripe Tax seamlessly integrates with filing partners, so your global filings are accurate and timely. Let our partners manage your filings so you can focus on growing your business.

Learn more about Stripe Tax or get started today.