Overseas businesses must be aware of and update their systems to comply with new GST legislation in New Zealand.
Last year, the New Zealand government proposed legislation to close a goods and services tax (GST) loophole that has provided a long-standing competitive advantage for offshore businesses selling goods to New Zealand customers. This competitive advantage has increased markedly with the rapid, recent expansion of online shopping. Initially the new legislation was expected to be enacted in June or July 2019 but is now likely to be in effect by December 2019.
Offshore businesses have long held a competitive advantage over New Zealand domestic businesses because they are not required to charge GST on low-value goods valued at less than NZD $400 including books, clothing, cosmetics, shoes, sporting equipment and small electronics sold to New Zealand retail and business customers. The new legislation will require all offshore suppliers, online marketplaces and re-deliverers to register for GST with the New Zealand Inland Revenue Department (NZ IRD) if their annual sales to New Zealand exceed NZD $60,000. They will be responsible for collecting the GST, at the time of sale, when the value of the goods sold to New Zealand customers is less than NZD $1,000. If the value of the goods is greater than NZD $1,000, New Zealand Customs will be responsible for collecting the GST for the NZ IRD.
Businesses will have to comply with these requirements when the legislation comes into effect. You will need to:
- obtain a New Zealand IRD Number;
- register for GST with the IRD;
- ensure your accounting system can raise invoices with GST of 15%, and show the value of GST charged in NZD;
- file GST Returns (frequency will depend on the value of sales to New Zealand);
- have a process to pay the GST to the IRD depending on your filing frequency;
- ensure your website correctly displays the GST inclusive price when selling to New Zealand customers.
More technical details surrounding the implementation of the new legislation are:
- this legislation does not apply to sales made to GST registered businesses, provided the GST registered business supplies their GST number to the offshore supplier;
- if the GST is incorrectly charged to a GST registered business, the business customer cannot claim the GST back on their GST return. They must approach the offshore supplier and ask them to refund the incorrectly charged amount of GST;
- the offshore supplier can charge GST on goods valued over NZ$1,000 if 75% of their total sales to New Zealand is valued at less than NZ$1,000;
- however, if GST is charged twice by both New Zealand Customs and the offshore supplier, then the refund must be sought from the offshore supplier and not New Zealand Customs or NZ IRD;
- offshore suppliers will be required to issue a receipt (rather than a tax invoice) to customers where GST is charged to ensure New Zealand Customs is notified that GST has already been charged.
As noted above, the burden for refunding incorrectly charged GST sits with the offshore supplier and not the NZ IRD. Therefore, you need to set up good systems to identify:
- New Zealand business and private customers; and
- whether the value of the invoice is greater or less than NZ$1,000
Implementing a monitoring system will help you, as an offshore supplier, to meet your GST obligations, will keep New Zealand customer complaints about GST issues to a minimum and will save you time and money – we can help you with this.
Talk to the experts
TMF New Zealand provides a full range of accounting and tax services to help companies navigate the complexities that come with regulatory changes. Our experts can help both local and foreign businesses operating in New Zealand to comply with these GST rules and any other aspect of doing business in New Zealand, talk to us.
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The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.