Will Foreign Software Need to Pay for Tariffs?

Foreign software plays a major role in business and daily life. With global trade tensions and new tariffs in 2025, many are asking: will foreign software be subject to tariffs? The answer is more complex than it first appears. This article explains how tariffs work, why software is treated differently from physical goods, and what recent changes mean for companies and consumers.

What Are Tariffs and How Do They Work?

Tariffs are taxes that governments place on imported goods and services. The main goal is to protect local industries by making foreign products more expensive. Tariffs are easy to apply to physical items, like cars or electronics, because they cross borders and can be tracked by customs officials. When tariffs are imposed, the cost of these goods often rises for consumers and businesses.

How Is Software Imported?

Software is unique compared to most products. In the past, software was sold on physical media-CDs, DVDs, or USB drives. Today, most software is delivered digitally, downloaded directly from the internet. This shift has changed how governments treat software imports.

• Physical software: If software arrives on a disk or USB, it is treated as a physical good. Tariffs or import taxes may apply, but usually only to the value of the physical medium, not the software code itself.
• Digital software: When software is downloaded, there is no physical item to inspect at the border. This makes it nearly impossible for customs to track or tax these imports.

Are There Tariffs on Foreign Software?

In most countries, tariffs are not applied to software that is downloaded digitally. The main reasons are:

• Intangible nature: Software delivered online is considered an intangible good. Most tariff systems are designed for tangible goods.
• Trade agreements: Many trade deals, such as the United States-Mexico-Canada Agreement (USMCA), specifically allow digital products like software to move freely between countries without tariffs.
• Enforcement challenges: Tracking digital downloads and applying tariffs is extremely difficult, as these transactions do not pass through customs.

For example, Americans buying software from Canadian resellers do not pay tariffs because the software is delivered digitally. Only physical copies shipped across the border could face duties, and even then, only the disk or USB stick is taxed, not the software itself.

Recent Changes: 2025 Tariffs and Their Effects

In 2025, new tariffs targeted technology products, especially between the US and China. These tariffs mostly affect hardware-laptops, servers, networking devices-not software. While some executive orders mention tariffs on “articles that are products of Canada,” it is not clear if downloadable software will be included. If the US Customs and Border Protection decides to include software in the list of taxable items, and if it is shipped on physical media, tariffs could apply. For now, digital software remains untaxed by tariffs in most cases.

Indirect Effects on Software Costs

Even if software itself is not directly taxed, tariffs on hardware can raise the cost of using foreign software. Here’s how:

• Higher hardware prices: Tariffs on servers, laptops, and networking equipment increase the cost of running software, especially cloud-based solutions.
• Operational expenses: Businesses may face higher costs for IT services, installation, and upgrades due to more expensive hardware.
• Vendor choices: Companies might switch to local suppliers or cloud services to avoid hardware tariffs, which can affect which software they use.

Taxes to Watch For

While tariffs usually do not apply to digital software, other taxes might. Countries like Canada have introduced digital services taxes (DST), which apply to revenue from foreign digital services, including software. These taxes are separate from tariffs and are collected based on the location of the buyer or seller.

Will This Change in the Future?

Governments are always looking for new ways to regulate and tax cross-border digital trade. If trade tensions rise or if countries want to protect their local software industries, new rules could be introduced. For now, most digital software remains free from tariffs, but businesses should watch for changes in trade agreements and tax laws.