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Offshore Suppliers and NZ GST
If you are a supplier of either goods or services to NZ based non-business consumers, then this article may be of interest to you.
Like most taxing jurisdictions around the globe, NZ has a consumption based sales tax, known as GST (VAT equivalent in other countries), which has been in existence since 1986. Up until recently, usually only supplies of goods or services made in NZ, had the potential to be subject to GST, and there were a number of legislative provisions in this regard, which assisted in determining whether a supply was being made inside or outside of NZ.
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As an example, a non-resident who was making supplies to a NZ GST registered business customer, could still be deemed to be making the supply outside of NZ (even when the goods were actually in NZ at the time of supply) and therefore not subject to GST, on the basis that since the NZ business customer would be entitled to claim back any GST charged to them by the non-resident supplier, there was little benefit for Inland Revenue to require the non-resident supplier to register for GST in the first place.
The position is somewhat different however when it comes to supplies of goods and services for home/private consumption. The ever-increasing use of the internet to acquire both digital services and low-value goods from non-resident suppliers, has firstly exposed the NZ Government to a potential material loss of GST revenue (had those same goods and services been acquired from local suppliers), and secondly, created a very uneven playing field for those local suppliers who are trying to price match their non-resident competitors.
In an attempt to address these issues, we have seen the introduction of the so-called “Netflix tax” effective from 1st October 2016, and working its way through the legislative process presently, we are very likely to see the introduction of the so-called “Amazon tax” from 1st October 2019.
The “Netflix tax” was targeted at non-resident suppliers of remote services to NZ based non-business customers – a remote service effectively defined as one where, at the time of the performance of the service, there is no necessary connection between the physical location of the recipient and the place of physical performance – common examples being e-books, music, videos and software downloads, as well as non-digital services, such as general insurance, consulting, accounting and legal services.
Where the non-residents B2C supplies of remote services was expected to exceed $NZD60,000 in a 12 month period, the non-resident has an obligation to register for GST and commence charging 15% GST on the NZ supply. The non-resident would then file a quarterly GST return to Inland Revenue, accounting for the GST collected from NZ customers.
From 1st October 2019, a greater number of non-resident suppliers are potentially going to be faced with NZ GST compliance obligations. At present, low value physical goods (<$NZD400) can be entered into NZ with no GST charged at the border (unlike goods valued >$NZD400). However under the proposed new “Amazon tax” rules, similar to the remote services regime, where a non-resident supplier expects to make B2C supplies to NZ based consumers of more than $NZD60,000 in a 12 month period, they will also be required to register for NZ GST, and commence charging 15% GST to the NZ customer at the time of supply. Once GST registered, quarterly filing and payment obligations are also proposed.
For those non-resident suppliers who continue to fail to meet their NZ GST compliance obligations, Inland Revenue is going to utilise various provisions in NZ tax treaty agreements with other jurisdictions, to undertake enforcement activities.
If you would like further information with respect to either regime, please do not hesitate to contact us.