Fittingly, on the 30th anniversary of its goods and services tax (GST) system introduction, New Zealand continues its taxation evolution by extending GST to remote digital service supplies. Taxamo, of course, will support this extension when introduced on October 1, 2016.
In October 1986, when New Zealand introduced GST, there was no digital economy. Now, 30 years on, New Zealand will become one of the first tax jurisdictions to implement a ground-breaking Organisation for Economic Co-operation and Development (OECD) recommendation on how to tax the digital economy.
In October 2015 the OECD released its long-awaited Base Erosion and Profit Shifting (BEPS) final report and in it, in Action 1, the international fiscal advisory group stated that “because the digital economy is increasingly becoming the economy itself, it would not be feasible to ring-fence the digital economy from the rest of the economy for tax purposes.”
The OECD has recommended that the place of consumption should determine what tax rate to apply to a supply from overseas, not the place of supply as has been the case. It is this realignment of taxation that is about to occur in New Zealand.
New Zealand GST: why change the system?
While many tax jurisdictions worldwide have implemented measures to tax the digital economy, New Zealand is the first to do so post-BEPS and the final report. This is significant as it validates the OECD’s approach, and points to the future of digital taxation. Russia and Belarus will follow suit in January with Australia due to implement similar legislation in July 2017. In doing so these jurisdictions will join the EU, Japan, Norway, South Africa, South Korea, and Switzerland in taxing cross-border business-to-consumer (B2C) digital service supplies.
Jurisdictions are taking their lead from the OECD, and are designing tax systems around the specific recommendations as outlined in Action 1 of the BEPS report. It is why there are similarities between existing rules. New Zealand, for example, follows the path of the EU in determining the location of a consumer in requiring two pieces of evidence to determine the place of consumption. The quest for a standardised international approach continues.
This recalibration of taxation is critical as tax rates are no longer determined based on the place of supply but on the place of consumption. The previous approach led to a competitive imbalance in the marketplace with domestic suppliers charging and collecting tax while non-resident suppliers made sales tax-free. This is the nub of the digital taxation issue: creating a level playing field for all digital service suppliers.
Threshold and registration information
Let’s take a look at the specific architecture of the New Zealand legislation.
First off, non-resident suppliers of digital services must register for New Zealand GST purposes if they have sales to New Zealand consumers of NZD$60,000 or greater in the last 12 months, or if sales are expected to exceed this amount in the next year.
Non-resident suppliers exceeding this threshold will need to register for GST purposes in New Zealand. To register, non-resident suppliers need to complete the Application to register for GST on remote services by a non-resident business (IR994) form and email it to the New Zealand Inland Revenue Department at email@example.com.
Affected non-resident suppliers can also post a completed registration form to:
New Zealand Inland Revenue,
Private Bag 1932,
Remember GST is not charged on supplies sold to customers that are registered for GST in New Zealand (i.e. businesses). GST is charged to every customer unless they have:
- Indicated they’re GST-registered, or
- Provided you with their New Zealand GST registration number or business number.
You can choose to treat the supply as zero-rated (taxed at a rate of zero percent). This may let you claim back New Zealand GST costs incurred in making zero-rated supplies to GST-registered businesses.
Non-resident suppliers that need to return GST will be required to file a return for any services supplied from October 1, 2016. First filing is due on March 31, 2017. All returns from April 1, 2017, must be filed quarterly, similar to existing requirements in the EU.
Non-resident suppliers have until the 28th of the month following the end of a quarter to file and pay any GST owing, e.g. for the June 2017 quarter the GST payment and return will be due by July 28. If no supplies have been recorded but you want to remain GST-registered in New Zealand then you must file a ‘nil’ return.
New Zealand’s legislation provides a list of proxies that can be used to identify the location of the end consumer. These proxies (which must not conflict) include:
- The consumer’s billing address
- The bank identification number (BIN) on the consumer’s credit card used to purchase the digital service
- The internet protocol (IP) address of the device used by the consumer or another geolocation method
- The consumer’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 consumer
- The location of the consumer’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 customer’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.
What are deemed to be ‘remote services’?
A “remote service” is defined by New Zealand’s legislation as a service that “at 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.”
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;
- Insurance services;
- Gambling services;
- Website design or publishing services; and
- Legal, accounting or consultancy services.
Examples of services that would not be remote services include:
- Accommodation services;
- Hairdressing, beauty therapy and physiotherapy;
- Car rental services;
- Entry to cinema, theatre performances, sports events and museums;
- Gym memberships;
- Passenger transport services; and
- Restaurant and catering services
How do I enable Taxamo support for New Zealand GST?
Assuming your product/services qualify as digital goods/services in New Zealand and you are above the threshold to pay GST in New Zealand, then complete the following steps:
- Log into the Taxamo Merchant Portal and go to: My account > Tax regions.
- Enable in test mode or live mode for the relevant dates.
- Enter your New Zealand Business Number (BN). Here you also have the option of proceeding without entering your NZBN. You can add the number once you have finalised your registration with New Zealand’s Inland Revenue Department.
A. If you are below the New Zealand threshold of NZD$60,000 you can continue sending all of your transactions to Taxamo. We will send an alert when the value of sales to your New Zealand consumers approaches the threshold limit. At which time you should turn this region on in your Taxamo account settings.
B. If you are using an integration other than the Taxamo API or the Taxamo checkout form, please confirm that your integration type has been upgraded to support New Zealand.
Data storage timeline
For GST purposes tax records are normally required to be retained for 7 years and supplied to the IRD in a timely manner if requested for audit purposes. Under the new Section 75 (3F) of the GST Act non-resident suppliers of remote services may choose to keep records outside New Zealand and in a language other than English without having to first obtain the consent of the Commissioner.
How can I contact the New Zealand Inland Revenue Department?
The general enquiries number for New Zealand Inland Revenue Department is: +64 3 951 2020. The local calling times are Monday to Friday, from 8am to 8pm; Saturday, 9am to 1pm (note: New Zealand’s timezone is UTC +12:00). More information here.
Note: Taxamo content is created for guidance only, please consult your local tax advisor for professional advice.