Yesterday, 18th August 2015 the New Zealand Government announced proposed changes to the GST tax system to collect GST on imported services and digital content (such things as software licenses, music, movies, and streaming). Unlike new technology, the Government does not act quickly and they have been pondering this change for a very long time.
The law change is probably going to require any overseas supplier to register for GST in New Zealand and charge all New Zealand resident customers the 15% GST that is currently being lost to our economy. This proposed change is not before its time, and in fact New Zealand is lagging behind other countries in this regard.
The proposals in a nutshell are:
- Services and intangibles supplied remotely by an offshore supplier to New Zealand-resident consumers will be treated as performed in New Zealand and therefore subject to GST
- Offshore suppliers will be required to register and return GST if their supplies of services to New Zealand-resident consumers exceed a given threshold in a 12-month period
- A wide definition of “services” is proposed, which includes both digital services and more traditional services
- In some situations, an electronic marketplace or intermediary may be required to register instead of the principal offshore supplier
- The existing business-to-business reverse charge GST rules may continue to apply, but the sales amounts could count towards the overseas suppliers threshold for registration requirements.
The Government is looking at three possible registration systems:
- The domestic registration system (supplier registers as being a supplier in New Zealand)
- A “pay only” registration system (the supplier only pays GST, and has no ability to claim New Zealand GST included costs), or
- A regional “one-stop-shop” registration system (difficult because New Zealand does not have a common market such as the EU).This proposed tax change is long overdue, but will be very difficult to manage and to monitor. The Government and Inland Revenue have raised some interesting points, which we will not repeat here, but it is going to be tricky. Our first thoughts are these:
This is going to be a significant body of work for the Inland Revenue and the Government to get their head around.
- How will the overseas supplier know that the buyer is in New Zealand?
- Why is it proposed that only New Zealand “tax residents” are to be charged GST, when we host thousands of short and long terms visitors who may use these imported services in New Zealand?
- Is it practical to have a New Zealand GST registered buyer apply for a refund from the overseas supplier (if exempted) – why would this not be done by claiming the cost in their GST return (so much simpler). [FYI on a personal note, I’m still waiting for a refund from a well known overseas software virus protector when they incorrectly charged me 4 years ago, and I’m still waiting on my “cash back” from purchase of electronic equipment from 4 months ago applied for on an international registration page.]
- How will the Inland Revenue know if an overseas supplier is declaring the correct amount, needs to comply?
- Enforcement will be a nightmare from the Revenue’s point of view
- Will the compliance costs for the overseas supplier be so high that they refuse to sell to New Zealand residents?
- What will be the compliance costs to the intermediary or electronic marketplace (e.g. the entity that enables the overseas product to be sold in New Zealand) with the duty of collecting the tax?
Still, all up, this proposed change has got to be a good thing for the New Zealand economy, and bringing a level playing field back to New Zealand businesses completing in New Zealand and on the world stage.
If you wish to know more about how these changes could affect you, please contact us at [email protected]
The comments in this paper are the personal opinion of the writer and are of a general nature only. The Government discussion document can be found at IRD Policy paper