Digital products (also known as "digital goods" or "e-goods") are intangible (or non-physical) goods that exist in electronic or digital format (e.g., digital media, downloadable music, webinars and online courses, fonts and graphics, digital subscriptions, online ads, internet coupons, electronic tickets, downloadable software, mobile applications, and online games, etc.). Digital goods are delivered electronically, such as through email or online download. In X-Cart, digital goods can be configured using the add-ons File Attachments and E-goods.
In many countries, digital goods may be taxed separately from tangible goods and at a different tax rate.
Digital Goods in the EU
In the EU, the List of electronically supplied goods and services is uniform for all EU members.
Suppose a merchant sells digital goods for personal use to the residents of the European countries. In that case, it's necessary to charge VAT (Value Added Tax) on such products regardless of whether the merchant is based in the EU or outside it. The merchant must charge the VAT rate applicable in the country where a buyer is established, has a permanent address, or usually reside. VAT should be configured based on a customer billing address.
Some European tax authorities require that a merchant collects and records two pieces of evidence of a buyer's location. It can be, e.g., a customer's billing address and IP. If an IP address appears to come from a different country, then a merchant should get another piece of evidence, e.g., the address of the customer's credit card provider.
Digital Goods in the US
Though there is no uniform federal list of digital goods and services in the US, the sales tax laws have been updated to include digital goods and services in different ways across the various US states.
Some states tax digital goods according to the Streamlined Sales Tax (SST) Definition of Digital Goods. At the same time, another part of the states enacted state-level laws specifically addressing digital goods definition and taxation. In contrast, the rest do not tax digital goods at all.
Since a US merchant can charge sales tax only in states where the business has Sales Tax Nexus, it's strongly recommended to consult an accountant or a local tax authority on the correct tax rates for digital products.
Digital Goods in Canada
As of January 2019, only the province of Quebec levies tax on digital goods. Any digital service suppliers outside of Quebec (either elsewhere in Canada or abroad) must register, collect, and remit Quebec Sales Tax (QST) if their annual sales exceed the CAD 30,000 threshold. The QST rate is 9.975%.
Digital Goods in Australia
GST may apply to retail sales of digital products sold to Australian consumers since 1 July 2017. Retailers, online marketplaces, and goods re-deliverers may need to register and pay GST to the Australian Taxation Office if they meet the threshold set.
The digital products include:
digital products such as streaming or downloading of movies, music, apps, games, and e-books
services such as architectural or legal services.