In 100 days time New Zealand will become the latest global tax jurisdiction to harness the power of the rapidly-expanding digital economy.
On October 1, 2016, a goods and services tax (GST) at a rate of 15% will be added to the supply of online services (such as software and music downloads) to New Zealand residents from an offshore supplier. Image: Pixabay.com
On October 1, 2016, the New Zealand Taxation (Residential Land Withholding Tax, GST on Online Services and Student Loans) Act 2015 becomes law.
On this date a goods and services tax (GST) at a rate of 15% will be added to the supply of online services (such as software and music downloads) to New Zealand residents from an offshore supplier. The move is expected to raise NZD$40 million per year for the Wellington government. It is the most radical shake-up of the New Zealand GST system since it was introduced in 1986.
New Zealand are mirroring the destination-based taxation approach already taken in the European Union (EU), Norway, and Switzerland with value-added tax (VAT) by adding GST to online services purchased by a New Zealand resident from an offshore supplier.
In May New Zealandâ€™s Minister of Revenue, Michael Woodhouse, explained how important the new piece of legislation was for domestic New Zealand online businesses.
â€œCollecting GST from the growing volume of online sales across borders has been an issue of growing concern for some time, so the passing of this legislation marks a very important first step. Currently New Zealand providers are at an unfair disadvantage because they must apply GST to their services, whereas overseas providers do not. This creates an unfair playing field which this legislation will eliminate.â€
So, how will the end consumer be identified?
The mechanics of this legislation is based on identifying the end consumer. If the end consumer is a New Zealand resident then the new GST rate will apply. But, how will the end consumer be identified?
The supplier will identify the consumerâ€™s location based on two non-conflicting pieces of evidence. Section 8B(2) of the new legislation provides a list of proxies that can be used to identify the location of the end consumer. These proxies include:
The personâ€™s billing address
The internet protocol (IP) address of the device used by the person or another geolocation method
The personâ€™s bank details, including the account the person uses for payment or the billing address held by the bank
The mobile country code of the international mobile subscriber identity stored on the SIM card in the phone used by the person
The location of the personâ€™s fixed landline through which the service is supplied to them
Other commercially relevant information. According to the New Zealand legislation examples of such commercially relevant information are the customerâ€™s trading history (such as the previous billing address of the customer) or the product purchased if it is linked to a geographic location (for example, some gift cards may only be used in a particular country). Information provided by a third party, such as by a payment service provider, can also be used if it is commercially relevant.
This list of proxies mirrors the application of cross-border digital service rules in operation in the European Union (EU) since January 1, 2015. If two, or more, of the above proxies point to New Zealand as the end consumerâ€™s location then the supply comes within scope of the new GST rules.
What supplies will be affected?
The New Zealand legislation makes a particular point that â€œremote servicesâ€ supplied to New Zealand residents by an offshore supplier be subject to the new GST rate of 15%.
A â€œremote serviceâ€ is defined as a service that â€œat the time of the performance of the service, has no necessary connection between the physical location of the recipient and the place where the services are performed.â€
Examples of services that could be supplied as remote services include:
Supplies of digital content such as e-books, movies, TV shows, music and online newspaper subscriptions;
Online supplies of games, apps, software and software maintenance;
Webinars or distance learning courses;
Website design or publishing services; and
Legal, accounting or consultancy services.
Examples of services that would not be remote services include:
Hairdressing, beauty therapy and physiotherapy;
Car rental services;
Entry to cinema, theatre performances, sports events and museums;
Passenger transport services; and
Restaurant and catering services.
Registering for New Zealand online GST
Non-resident suppliers with sales exceeding the New Zealand threshold of NZD$60,000 (circa EURâ‚¬38,000, USD$43,000, GBPÂ£29,000) over a 12-month period will have to register for GST collection and remittance. This threshold applies to previous supplies in a 12-month period or expected supplies in the coming 12-month period.
The New Zealand government intends to allow non-resident suppliers to register for GST from August 1, 2016. Non-resident suppliers that need to return GST will be required to file a return for any services supplied from October 1, 2016. Between October 1, 2016, and March 31, 2017, affected suppliers will be able to either file one six monthly return or three two-monthly returns. All returns from April 1, 2017, must be filed quarterly.
Note: Taxamo content is created for guidance only, please consult your local tax advisor.