The New Zealand Government has recently passed legislation, which will enable non-resident businesses to register for GST and claim input tax deductions, even if they do not make taxable supplies in New Zealand. The changes will come into force on 1 April 2014.
The changes were introduced in the Taxation (Livestock Valuation, Assets Expenditure, and Remedial Matters) Act 2013, which has inserted two new sections, 54B and 54C, into the Goods and Services Tax Act 1985 (the GST Act). Section 54B allows non-residents to register for GST in New Zealand if they satisfy the following criteria.
- They are registered for consumption tax (i.e. GST or VAT) in the jurisdiction in which they are resident. If their jurisdiction does not have a consumption tax, or it does not apply to the entities activities, the entity must carry on a taxable activity overseas with turnover exceeding 60,000 New Zealand dollars (NZD) per annum.
- The GST input tax for the first GST return period after the entity registers for GST in New Zealand is likely to be more than NZD500.
- The non-residents’ taxable activity does not involve a performance of services if it is foreseeable that those services will be received in New Zealand by a party that is not registered for GST in New Zealand (e.g. tourism products such as coach tours and accommodation which are ultimately enjoyed in New Zealand).
Under new section 54C of the GST Act, the tax authority in New Zealand may cancel the non-residents’ GST registration if it believes that the non-resident no longer meets the registration requirements or for three consecutive GST periods, the non-resident has either not filed a GST return or has filed the returns late. If the non-resident’s New Zealand GST registration is cancelled, they may not re-register for GST in New Zealand for a period of 5 years since cancellation.
A non-resident registering under section 54B may not apply to be part of a GST group that includes New Zealand residents.
The changes introduced will improve cross-border neutrality and are welcomed by non-residents, who have been incurring irrecoverable GST in New Zealand. Non-residents should consider the compliance costs of registering and filing GST returns in New Zealand versus the expected input tax deductions. They will also need to closely monitor the due dates of their New Zealand GST returns to ensure that their registration is not cancelled due to non-compliance.