After Malaysia, Italy to impose Digital Service Tax soon

Italy has proposed the adoption of Digital Service Tax in late 2017, but it was yet to be implemented. The Italian Budget Law for 2020 confirms to impose DST on “qualifying digital services”.

The revenues of certain digital services will be taxed at 3% under the new bill. The qualifying digital services include:

• Digital advertising
• Social networks and online marketplaces
• Transmission of user data

The Digital Service Tax will apply to the entities- Italian or foreign, standalone or group, meeting both the following criteria:

• Annual worldwide revenue of the taxpayer for the relevant financial year amounts to at least €750 million (the US $829 million)
• Taxable revenue in Italy amounts to €5.5 million (the US $6.1 million)

The new regime is expected to be effective from 1 January 2020. This would raise Italy’s revenue received from corporate taxes by 1.6% compared to the corporate taxes collected in 2017.

The poor design and complexity of the tax regime turn out to be great limitations to implement it. This looks to work as a trade restriction as businesses are mainly headquartered outside of Italy.

Annual DST return for revenue generated in 2020 should be filed by March 31, 2021, and the DST should be paid by February 16, 2021.