Offshore sellers will need to return GST on sale of digital products and services

As expected, the New Zealand Government recently introduced draft legislation that will require offshore sellers to return GST at 15% on sales of digital products and services sold to New Zealand private consumers (ie. B2C supplies). Thanks to the support of NZTech member PWC, NZTech’s submission contributed to the discussion and the Government has decided to not apply the rules to B2B transactions.

A wide definition of “services” is proposed, which includes both digital services (eg. movie and music downloads) and other services purchased online (eg. web design, software, publishing, consultancy services).

Offshore sellers of services

Offshore sellers will need to determine if the services sold are captured by the rules.   The new rules will apply from 1 October 2016.  This is a relatively short period and businesses affected will need to start planning for the application of the new rules now. The key issues are:

• Can I easily identify my NZ consumers?
• Will I be liable as contractual principal or an electronic marketplace/intermediary (special rules will apply here)?
• Systems issues.
• Pricing and contract review.
• GST registration and getting ready for ongoing compliance.

There will be practical concessions for tax invoices and expressing amounts in a foreign currency.

NZ GST-registered buyers of services

Offshore sellers will be able to zero-rate remote services sold to NZ GST-registered businesses if they enter into a special agreement with the NZ business buyer.  It’s expected this will be utilised if the offshore seller incurs costs with NZ GST that it wishes to recover. Therefore, some NZ buyers of remote services may be approached to sign these zero-rating agreements.

The new remote services rules are a timely reminder for NZ business buyers of services (from offshore sellers) to check if they make any GST-exempt supplies (eg. financial services).  If NZ buyers of services make exempt supplies to their customers they may have GST obligations under the GST reverse charge rules.

For more information read PWC’s latest GST Direct update.