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# Digital Services Tax (DST)
- URL: https://university.heavnn.io/glossary/digital-services-tax/
- Published: 2026-10-11T21:58:00.000Z
- Updated: 2026-10-11T22:49:17.000Z
- Description: A Digital Services Tax (DST) is a tax on large groups' gross revenues from specified digital activities linked to local users, as national law defines.
- Author: Heavnn
- Tags: #glossary, #Import 2026-10-11 07:56

## What Is a Digital Services Tax (DST)?

A Digital Services Tax (DST) is a tax on large groups' gross revenues from specified digital activities linked to local users, as national law defines.

*Also known as: DST, Digital Tax.*

## How Digital Services Tax (DST) works

A Digital Services Tax (DST) applies when a group's revenues from listed digital activities, such as social media, search engines or online marketplaces, exceed national thresholds, and charges a percentage of gross revenues linked to local users rather than a share of taxable profits. In the United Kingdom, DST applies from 1 April 2020 at 2% on UK digital services revenues above an annual allowance, only for groups with more than GBP 500m of worldwide digital services revenues and more than GBP 25m from UK users. The UK government has committed to disapplying DST once an appropriate long-term international solution is in place. Rates, thresholds, covered services and treaty interaction vary between countries.

## Digital Services Tax (DST) vs Value Added Tax (VAT)

Unlike Value Added Tax, which consumers generally bear on each supply, a Digital Services Tax (DST) is a direct charge on large groups' gross revenues from defined digital activities.

## Example

Illustrative example: A multinational group operating an online marketplace earns digital services revenues well above the UK worldwide and UK-user thresholds. Under the UK rules, the group pays 2% on UK marketplace revenues above the allowance, while a freelancer selling through the marketplace is generally not liable for DST but may face VAT and income tax rules.

## Common misconception

**Myth:** Freelancers and small online businesses selling digital services must pay digital services taxes.

**Reality:** Digital Services Tax regimes such as the UK one target only large groups above high revenue thresholds, while smaller sellers are generally affected through VAT and income tax rules instead.

## Frequently asked questions

### Who pays the digital services tax?

A Digital Services Tax (DST) is generally paid by large groups exceeding revenue thresholds, such as the UK tests of GBP 500m worldwide digital services revenues and GBP 25m from UK users.

### Is digital services tax the same as VAT?

A Digital Services Tax (DST) differs from VAT: DST charges large groups on gross revenues from specific digital activities, while VAT is a consumption tax on supplies, generally collected from customers.

## Related terms

- [Digital Permanent Establishment](https://university.heavnn.io/glossary/digital-permanent-establishment/) — Profit-based alternative for taxing digital presence
- [Pillar One](https://university.heavnn.io/glossary/pillar-one/) — OECD solution intended to replace unilateral DSTs
- [Economic Presence](https://university.heavnn.io/glossary/economic-presence/) — Non-physical nexus concept addressing the same digital taxation challenges
- [Base Erosion and Profit Shifting (BEPS)](https://university.heavnn.io/glossary/base-erosion-and-profit-shifting/) — Policy context of digital economy tax challenges

## Related guides

- [VAT on digital services: Ethiopia](https://university.heavnn.io/ethiopia-joins-the-global-vat-crackdown-on-digital-services/) — Indirect tax on digital services for comparison
- [Global tax reform and US digital nomads](https://university.heavnn.io/global-tax-reform-why-u-s-digital-nomads-should-care/) — Global reform context including digital taxes

## Sources

- [HMRC Digital Services Tax Manual DST01200](https://www.gov.uk/hmrc-internal-manuals/digital-services-tax/dst01200?ref=university.heavnn.io)
- [HMRC Digital Services Tax Manual DST01400](https://www.gov.uk/hmrc-internal-manuals/digital-services-tax/dst01400?ref=university.heavnn.io)

*Last verified: 2026-10-08\. This entry is general information, not tax or legal advice; rules vary by country and change over time.*