Digital Services Fee; starting 1st October 2024, Amazon will implement a new Digital Services Tax fee that will affect sellers in specific countries, particularly those in the UK, France, Italy, Spain, and Canada. This fee will be applied to various per-unit fees such as referral and FBA fees, depending on the seller’s location and the store they sell in. The blog post outlines the specific tax rates, provides examples of how these fees will be applied, and offers guidance on how sellers can manage these changes using Amazon’s tools, including the revenue calculator and billing reports. Preparing for this change is crucial to maintaining profitability on Amazon.

Why Does it Matter to You?

As an Amazon seller, staying ahead of platform changes is key to maintaining profitability and ensuring your business’s growth. Every fee directly impacts your cost structure, and understanding these costs is crucial for calculating your margins accurately. If you overlook these fees, you risk eroding your profits, which can significantly affect your bottom line. By being proactive and aware of all associated costs, you can make informed decisions that keep your business profitable.

To calculate your margins effectively, download my Profitability Calculator. This tool will help you track all relevant costs and ensure you’re maximizing your profits with each sale.

Understanding the Digital Services Tax (DST)

The Digital Services Tax is a government-imposed levy on revenue generated by digital services companies, which include online marketplaces, advertising services, and data sales. The idea behind the DST is to capture revenue that would otherwise be difficult to tax under traditional corporate tax systems, especially as these companies operate globally but often pay taxes primarily in their home countries.

The DST varies by country, with rates set at:

• 2% in the United Kingdom
• 3% in France, Italy, Spain, and Canada

What is Amazon’s Digital Services Fee?

To comply with new tax regulations, Amazon is introducing a Digital Services Fee starting 1st October 2024. This fee will be added as a percentage of certain per-unit fees, depending on where your business is based and the Amazon stores you sell in. Let’s break it down to understand what DST (Digital Services Tax) stands for. It’s not complicated – you just need to focus on it for the next few minutes.

Which Fees Will the Digital Services Fee Apply to?

Amazon will apply the Digital Services Fee to the following:

• Selling on Amazon fees: This includes referral fees and both fixed and variable closing fees
• Fulfillment by Amazon (FBA) fees: In the UK and France, this includes the FBA fulfillment fee and the shipping chargeback fee

Impact on Sellers in Affected Countries

Let’s break down how the DST fee will specifically impact sellers in different countries:

• United Kingdom: Sellers based in the UK or selling in the UK marketplace will see a 2% DST fee added to their selling and FBA fees
• France: Sellers based in France or selling in the French marketplace will see a 3% DST fee added to their selling and FBA fees
• Italy, Spain, Canada: Sellers based in or selling in these countries will see a 3% DST fee added to their selling fees
• Exemptions: Sellers whose businesses are not based in a DST-affected country and who do not sell in these markets will not be subject to this fee

This means that if you’re selling across multiple Amazon marketplaces, the fee will apply based on both your business’s location and the location of the marketplaces where you sell. For instance, a seller based in Italy selling in the UK will incur both the 2% UK DST fee and the 3% Italian DST fee, depending on the specific fees being applied. If you are selling in a country that is not mentioned above, like Germany, there is no Digital Services Fee applied.

Examples of Fee Application

These additional costs may seem small on a per-unit basis but can add up quickly, particularly for sellers with high-volume sales or those operating in multiple affected countries. To better understand how these fees might impact your business, let’s consider some scenarios:

1. UK-based, selling in the UK using FBA
Example: If the seller has £100 in referral fees and £50 in FBA fees, the DST fee would be:

• Referral Fee DST: £100 * 2% = £2
• FBA Fee DST: £50 * 2% = £1
• Total DST Fee: £3

2. France-based, selling in France using FBA
France Store Example: If the seller has €100 in referral fees and €50 in FBA fees, the DST fee would be:

• Referral Fee DST: €100 * 3% = €3
• FBA Fee DST: €50 * 3% = €1.50
• Total DST Fee: €4.50

3. Spain-based, selling in Spain using FBA
Example: If the seller has €100 in referral fees and €50 in FBA fees, the DST fee would be:

• Referral Fee DST: €100 * 3% = €3
• No FBA Fee DST is applied
• Total DST Fee: €3

4. Italy-based, selling in Italy and France using FBA
Italy Store Example: If the seller has €100 in referral fees and €50 in FBA fees, the DST fee would be:

• Referral Fee DST: €100 * 3% = €3
• No FBA Fee DST is applied
• Total DST Fee: €3

France Store Example: If the seller has €100 in referral fees and €50 in FBA fees, the DST fee would be:

• Referral Fee DST: €100 * 3% = €3
• FBA Fee DST: €50 * 3% = €1.50
• Total DST Fee: €4.50

Managing the Digital Services Fee

Navigating the impact of the new Digital Services Fee is crucial for maintaining your profitability on Amazon. To help you stay on top of these changes, we recommend using our Profitability Calculator. This tool allows you to input your product information and get a detailed breakdown of all associated costs, including the new DST fees.

Download our Profitability Calculator to optimize your margins today.

Additionally, regularly review your Amazon billing reports, which will include the Digital Services Fee. This ensures you know exactly how much you’re being charged and for which transactions.

Strategies to Reduce the Impact of the DST Fee

While the DST fee is unavoidable for sellers in affected countries, there are several strategies you can implement to minimize its impact on your profitability:

1. Review and Adjust Your Pricing Strategy: One of the first steps to mitigating the impact of the DST fee is to review your pricing strategy. If necessary, adjust your prices to ensure that you can maintain your profit margins while remaining competitive. However, be careful not to price yourself out of the market.
2. Don´t Cut Back on FBA: If you’re selling in the UK or France and using FBA, it might be tempting to reduce your reliance on FBA to save on the new DST. However, I would strongly advise against it. Cutting back on FBA could mean losing the Prime badge and reducing stock availability in these countries, which are crucial for customer satisfaction and sales. This would likely have a more significant negative impact on your sales than the additional cost of the DST.
3. Focus on High-Margin Products: Prioritizing the sale of high-margin products can help you better absorb the impact of the DST fees. By focusing on products with higher profit margins, you can ensure that your business remains profitable despite the additional costs.
4. Expand to New Markets: If feasible, consider expanding into markets that are not affected by DSTs. This can help diversify your revenue streams and reduce your dependence on higher-tax markets.

Preparing for the Change

With the deadline of 1st October 2024 approaching rapidly, it’s essential to start preparing your business now. Here are some steps you can take to ensure you’re ready:

• Update Your Financial Projections: Incorporate the new DST fees into your financial projections to get a clear picture of how they will impact your bottom line. This will allow you to make informed decisions about pricing, product selection, and other key aspects of your business
• Communicate with Your Team: Ensure that everyone involved in your Amazon operations is aware of the upcoming changes and understands how they might impact the business. This includes your financial team, operations team, and any external partners or suppliers
• Stay Informed: Amazon’s policies and fees are constantly evolving, so it’s crucial to stay informed about any further changes that may occur. Subscribe to my Boom Commerce newsletter to stay up-to-date on the latest developments

Conclusion

The introduction of the Digital Services Fee, marks a significant change for Amazon sellers in the UK, France, Italy, Spain, and Canada. While these fees are a new cost to bear, understanding how they work and taking proactive steps to manage their impact can help you maintain your profitability. By reviewing your pricing strategy, optimizing your fulfillment options, and closely monitoring your metrics, you can ensure that your business continues to thrive despite these new fees.

Don’t let the DST fees catch you off guard. Start preparing today by reviewing your financials, adjusting your strategies, and ensuring your team is informed and ready. For more detailed guidance and support, consider reaching out to the Boom Commerce Team and me. We’re here to help you navigate these changes and keep your Amazon business on track.

For ongoing updates and insights, subscribe to my Boom Commerce newsletter and stay ahead of the curve.