The Taxation (Residential Land Withholding Tax, GST on Online Services, and Student Loans) Bill imposing GST on digital products and other remote services sold online by offshore sellers to New Zealand consumers has passed its final reading in Parliament, and is expected to receive Royal Assent shortly. The new law will require offshore sellers of remote services to New Zealand customers to register and pay GST from 1 October 2016.
With less than five months before the new rules start, businesses should already have undertaken an assessment to determine whether they will need to comply with the new rules and register. Separate Special Report is expected to be released by Inland Revenue later this month. This report will outline how Inland Revenue expect the new rules to operate in practice.
Key features of the new rules
- “Digital services” such as music, movie and game downloads, as well as other services such as insurance, software, gambling, webinars, e-learning, publishing services and consultancy services will be captured. The same applies to “digital products” such as e-books, e-magazines etc.
- As a general rule, financial services, telecommunication services, and the sale of vouchers by overseas sellers and will be excluded from the new rules.
- The main focus of the rules is on business-to-consumer (B2C) supplies. However, offshore sellers of services to business-to-business (B2B) customers will be allowed to unilaterally zero-rate their supplies to enable GST recovery.
- The registration threshold will be NZ $60,000 of taxable supplies in any given 12 month period.
- Similar to the EU rules, where the services are sold through a “marketplace” the obligation to account for the GST will shift to the marketplace operator.
- Offshore sellers should determine the place of residence of the customers by having at least two items of non-contradictory evidence which support the conclusion that the customer is a New Zealand resident. Examples of accepted evidence include the IP address of the recipient, the billing address, and the bank details of the recipient.
- If you are selling to business customers, please note that supplies will be presumed to be B2C unless the offshore seller obtains information about the GST registration status of the customer or their New Zealand business number. Inland Revenue may prescribe the use of another method or agree with the supplier on the use of another method.
- There are transitional rules which will apply to certain periodic supplies which span across 1 October 2016:
– Paying GST at 15% will be optional for fixed term contracts which commence before 1 October 2016 and have a price set or reviewed for a period of 13 months or less.
– This rule applies for a period from 1 October 2016 to the earlier of the end of the contract term or 396 days after the contract start date.
– Any supplies made on or after 1 October 2016 not covered by the transitional will be subject to GST (assuming the other criteria have been met).
Other practical matters
In order to facilitate the new rules, the following aspects of the GST rules have also been amended:
- There are no limitations on GST grouping.
- The agent/principal rules have been amended to also allow agents for offshore suppliers to register and return GST instead of the offshore seller.
- Where GST is charged on a remote service, there will be no requirement for the supplier (or marketplace operator) to issue GST tax invoices with respect to the supply.
- A “fair and reasonable” currency conversion method may be used to determine whether the registration threshold has been met.
- There will be no requirement to have a New Zealand bank account for offshore sellers registering under these rules.
- The first transitional return period will be from 1 October 2016 to 31 March 2017. From 1 April 2017, registered offshore suppliers will be required to file returns on a quarterly basis.
If you have already taken steps to prepare for the changes, you should review the final version of the rules to determine whether there have been any material changes which may impact the implementation work completed so far. Now is the time to revisit your implementation plan to consider what immediate actions should be taken in light of the law being finalised, including communications and negotiations with clients and suppliers.
If you require assistance, or would like to discuss how these rules may impact your business, please contact
Eugen Trombitas, firstname.lastname@example.org
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