Further to our previous post the New Zealand Government submitted its legislative proposal in relation to the GST law reform on offshore online purchases of services.
The Government has followed the modern VAT/GST practices and OECD recommendations and has decided to reform the GST system. The reforms focus on two main areas:
- Digital products and cross border services, in respect of which draft legislation proposes imposing GST on digital products and other services purchased by New Zealand private consumers from offshore sellers. The new rules will apply from 1 October 2016.
- Low value imported goods, where a consultation paper is being worked on regarding the options to impose of GST and duties on low value imported goods. PwC New Zealand expects the document to be released in April 2016.
What you need to know about the B2C GST changes
- Services and intangibles supplied remotely by an offshore supplier to NZ-resident consumers will be treated as performed in New Zealand and therefore subject to GST.
- The new rules will only apply to B2C transactions and not to B2B transactions.
- From 1 October 2016, offshore sellers will be required to register and return GST if their supplies of services to NZ resident consumers exceed NZ$60,000 in a 12-month period.
- The offshore sellers will be required to pay GST on a quarterly basis from 1 April 2017. The first return will be for a special 6-month period from 1 October 2016 to 31 March 2017 (with an option to file 2-monthly returns during this period).
- The GST registration will be a “pay only” system as most offshore sellers will not have any NZ costs. However, if the offshore seller is already GST-registered they should be able to use their current GST registration and filing procedures.
- The tax invoice rules will be relaxed for offshore sellers impacted by the rules. There will be an exception for small supplies (i.e. less than $1,000) if the offshore seller incorrectly charged the NZ business GST in the first place and did not issue a tax invoice.
- A wide definition of “services” is proposed, which includes both digital services and more traditional services.
- In some situations, an “electronic marketplace” or intermediary will be required to register instead of the principal offshore seller.
- The identification of NZ customers will rely on proxy information already available in relation to customers (billing address, SIM card details, IP address etc).
The expected timeline based on the currently available information is summarized below (cilck on the picture for bigger view).
What does it mean for you?
You need to plan well in advance to address all potential issues the changes will trigger. Based on feedback received by PwC NZ businesses estimate a 9 months planning period for the implementation of the requisite changes, which may involve, but not limited to the following:
- ERP system changes
- Review of contracts and general terms of business
- Pricing issues and margin impact (will the currently applicable price to your NZ customers will be treated as GST inclusive, or net of GST. In the first case your profit margin will drop, while in the latter your customers will need to pay more for the same services.
- Assessment of your GST position if you are operating an on-line marketplace / app store.