Historically, GST and VAT were only imposed on transactions with a close connection to each country. Leaving aside import duties, the supply of goods or services by a non-resident to a New Zealand customer would not usually have attracted GST unless there were special circumstances.
Now many countries have expanded or are expanding the scope of their GST or VAT regimes to capture transactions by offshore suppliers that were not previously caught – New Zealand is one of these countries.
New Zealand widens the GST net
In response to a perceived loss of revenue, in 2016 New Zealand widened the scope of its GST regime to encompass “remote services" provided by offshore suppliers to New Zealand customers. This expansion of the GST regime was often referred to as the “Netflix tax" on the basis that the primary intent was to capture digital content supplied to New Zealand consumers. However, the concept of “remote services" is very broad and covers any transaction which can be carried out remotely – for example, insurance, professional services and intellectual property licenses would all be treated as remote services.
The scope of the regime was expanded again in 2019, this time by way of targeting the sale of “low value" physical goods (i.e. those having a Customs value of NZ $1,000 or less) to customers in New Zealand.
In both cases an exemption applies where the customer can show they are GST-registered and that registration relates to the transaction. However, the onus is still on the supplier to have obtained sufficient information to identify the location and GST status of each customer.
Special rules apply where the offshore supplier operates an “electronic marketplace" – essentially an online store that facilitates sales by underlying vendors to each customer. In such cases the operator may be liable to return GST on all sales made via that marketplace as if the operator was legally the seller of the goods or services.
When is GST registration compulsory?
GST registration is mandatory where the value of annual sales to New Zealand customers is expected to exceed NZ$60,000 in a 12-month period (GST-registered customers are excluded from this calculation). Where registration is required, returns must be filed and GST collected (at the rate of 15%) and paid to Inland Revenue.
While there has been fairly strong compliance by larger suppliers, we are becoming increasingly aware that some offshore suppliers may not be aware of these rules. Those suppliers may need to register for GST and if so should ensure that their contractual terms allow GST to be added to charges.
In some cases system changes may need to be put in place - in particular, to identify the location of the customer and to confirm whether they are GST-registered in New Zealand.
Other GST issues for offshore suppliers:
Another potential issue for offshore suppliers arises when they are acting as importer of record for the import of goods into New Zealand. This involves two possible challenges:
- That supplier would need to register and obtain a Customs client code – this can be difficult and direct coordination with New Zealand Customs is required,
- GST will be imposed on the import of those goods. The offshore supplier would need to be GST-registered to recover that GST as a tax credit so the GST charge is not a final cost. Here the eligibility to register for GST is critical and this will depend on whether the supplier's own sales in New Zealand are subject to GST – this may not be straightforward. There are also timing issues to consider in terms of whether GST needs to be paid upfront or whether a credit arrangement with New Zealand Customs is possible.
In some cases, an offshore supplier may be able to recover tax credits for GST included in New Zealand expenses. A special rule applies where an offshore enterprise incurs costs in New Zealand without having any local sales or customers (for example, attendance at a conference). In that case, a special GST registration may be available to allow recovery of that GST as a tax refund.
If you think any of these issues may be relevant to you, please get in touch with the contacts listed or our tax team.
Disclaimer
This publication is necessarily brief and general in nature. You should seek professional advice before taking any action in relation to the matters dealt with in this publication.