Tax Question:
What are the tax implications of website sales and server locations?
Facts:
Canada Revenue Agency has created a new tax return schedule to disclose internet sales. Schedule 88 is required for all corporate returns for years ended after July 1, 2014. On this schedule, you are required to report the number of websites from which you earned income, the website addresses, and the percentage of your sales that were derived from these websites.
Website sales
If your company earns income from websites it may need to file a schedule 88 with your annual corporate tax return if:
The ability to sell products or services over the internet has created wonderful opportunities for expansion and growth in many companies. However, there may be foreign tax implications on expanding your sales beyond Canadian borders. Sales taxes are often calculated based on the end user’s location for example many U.S. states require tax filings to disclose all sales within their borders. Schedule 88 is likely only the beginning of the Canadian government trying to gather information in order to regulate and tax website sales. As the global marketplace becomes more easily accessible, governments are working to gather and share information to ensure each country can collect the applicable taxes.
Server location
The location of your server is also relevant for tax purposes. Many countries including the United States and Canada use the concept of permanent establishment. Once you have a permanent establishment in a country, province or state, you may be subject to that country, province and state’s tax rates. If your server is located in the United States, for example, you run the risk of having all of your website sales be deemed as taxable in the U.S. as your server location may be viewed as a permanent establishment. US corporate tax rates are typically higher than Canadian corporate tax rates, so you would likely want to avoid this situation by ensuring your server is in Canada.
If you would like more information on this topic, please contact a member of the Empire CPA team by filling out the contact form below.
Canadian and foreign tax laws are complex and have a tendency to change on a frequent basis. As such, the content published above is believed to be accurate as of the date of this post. Before implementing any tax planning, please seek professional advice from a qualified tax professional. Empire, Chartered Professional Accountants will not accept any liability for any tax ramifications that may result from acting based on the information contained above.
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