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GST law reform on offshore online purchases for B2C transactions

[16 november 2015]

The November Taxation Bill tabled into Parliament draft law will impose GST on digital products and other services (such as music, movie and game downloads) purchased online by New Zealand consumers. The new law will require offshore sellers to register and pay GST from 1 October 2016 and follows on from the August 2015 discussion document dealing with this same topic.

PwC Partner and GST specialist Eugen Trombitas says the release of the draft law to impose GST on cross-border intangibles and services will bring New Zealand into line with other OECD nations. 

“It demonstrates that our Government and policy makers have a desire to keep our GST model current for the digital economy and is also in line with recent OECD guidelines and developments in Australia, Europe, Japan, South Korea and South Africa. The law reform will address matters of sound tax policy, tax leakage (estimated to be at least $40 million per annum and growing) and fairness.

“Officials have put in significant effort to ensure a ‘best fit’ solution for New Zealand’s GST system in accordance with international best practice and it’s pleasing to see New Zealand ultimately decided to apply the new GST rules to business-to-consumer (B2C) transactions and not to business-to-business (B2B) transactions.

“The new GST rules are a significant change and will affect many businesses and consumers. Businesses impacted by the new rules will need to start their planning now.” 

Rules in relation to remote services

Key points:

  1. Services and intangibles supplied remotely by an offshore supplier to New Zealand-resident consumers will be treated as performed in New Zealand and therefore subject to GST.
     
  2. The new rules will only apply to B2C transactions and not to B2B transactions (but offshore sellers of services to businesses will be able to zero-rate these which will allow offshore sellers to recover any New Zealand GST).
     
  3. From 1 October 2016, offshore sellers will be required to register and return GST if their supplies of services to New Zealand-resident consumers exceed NZ$60,000 in a 12-month period.
     
  4. The offshore sellers will be required to pay GST on a quarterly basis and the first return will be a transitional return covering the period of 6 months from 1 October 2016 to 31 March 2017.
     
  5. A wide definition of ‘services’ is proposed, which includes both digital services and more traditional services such as legal and accounting services.
     
  6. In some situations, an ‘electronic marketplace’ or intermediary will be required to register instead of the principal offshore supplier.

– ends –

Please Contact
Vasantha Naidoo

Vasantha Naidoo

Director of Corporate Affairs

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