Significant indirect tax developments at a glance
1. Changes in respect of bodies corporate
The Government has announced it will retrospectively change the law to remove GST registered bodies corporates from the GST rules. The law will take effect from 6 June 2014 once enacted and is intended to align the treatment of body corporates with other private homeowners.
The IRD have released an operational statement to set out the position it will take until the law is introduced. In summary, the current law will continue to apply which means:
- A body corporate that makes taxable supplies of more than $60,000 per annum it will be required to register for GST. However, the IRD will continue to apply its previous interim operational advice which does not require GST registration in these cases.
- Bodies corporate that have GST registered voluntarily can be deregistered.
- Bodies corporate that are already GST registered and liable to be registered will need to continue charging GST on supplies and filing returns. This means the bodies corporate will need to return any GST refunds issued by the IRD after 6 June 2014.
2. GST refunds for non-residents
A change has also been made to New Zealand’s legislation that allows non-residents to register for GST in New Zealand and recover GST on costs incurred in New Zealand. An anti-avoidance provision has been introduced where the non-resident is importing goods into New Zealand (and incurring GST on importation) and delivering the goods to another person in New Zealand. In this case the recipient of the goods rather than the non-resident is treated as having paid the import GST and can recover the GST if registered (rather than the non-resident).
As part of the IRD’s programme to address base erosion and profit shifting, the IRD will be consulting with the public regarding the GST issues arising from the increasing use of online shopping from overseas websites.
The IRD are also carrying out work on its policy and legislative framework to improve and streamline the collection of GST information.
Scope and Rates
Goods and services tax (GST) is payable on taxable supplies. Taxable supplies are supplies of goods and services made in New Zealand by a registered person in the course or furtherance of a taxable activity. Supply includes all forms of supply.
The standard rate of GST is 15 percent.
Zero-rated supplies include:
- exported goods and services
- supplies of going concerns
- certain supplies of fine metal
- supplies of financial services to GST-registered persons making predominantly (75 percent) taxable supplies
- supplies of land after 1 April 2011 where both the vendor and purchaser are registered for GST.
Exempt supplies include:
- financial services that are not zero rated
- residential rent
- supplies of donated goods by non-profit bodies
Note: it is not possible to recover GST incurred in making exempt supplies.
A reduced rate of 9 percent applies to the provision of accommodation in hotels, motels, and similar for longer than 4 weeks.
Other indirect taxes include:
- customs duty
- excise duty.
Any person that is carrying on a taxable activity and whose current or projected annual turnover in New Zealand is NZD 60,000 or more is required to register for GST (resident and nonresident persons). If a company trades below the registration threshold, it can voluntarily register for GST.
To register for GST it is necessary to apply for an Inland Revenue Department (“IRD”) number and GST registration.
Businesses can download an IRD Number Application at:
Companies can apply for GST registration online at http://www.ird.govt.nz/online-services/service-name/services-g/online-gst-registration.html or download a GST registration form (IR 360) at http://www.ird.govt.nz/forms-guides/number/forms-300-399/ir360-form-gstregistration.html
Non-resident entities are also able to voluntarily register for GST provided they are not carrying on a taxable activity in New Zealand (e.g. for the purposes of claiming a GST refund). The non-resident entity must provide evidence that it is subject to GST/VAT in its home location and its first refund must be NZD 500 or more.
The application form for non-resident entities (ir564) can be downloaded at http://www.ird.govt.nz/resources/a/4/a47bd22a-3d11-4ca2-92c7-0e59b9618af4/ir564.pdf (PDF 93 KB)
A failure to register for GST when required to do so is an offense and the offender may be liable for a fine. Furthermore, where a person registers late, they will be liable for late payment penalties and interest on any outstanding amounts of GST due.
Please see above.
Non-residents who make supplies of goods and services are not required to register for GST if the supplies are made to GST-registered persons for the purposes of carrying on that person's taxable activity. Such supplies are deemed to be made outside New Zealand and are therefore not taxable supplies.
However, such non-residents can, with the agreement of the recipients, agree that supplies are made in New Zealand and accordingly register for and charge GST. This also enables the non-resident to claim GST input tax.
GST-registration is not required if the NZD 60,000 compulsory GST registration threshold is only met because of:
- any ending of or substantial and permanent reduction in the size or scale of a taxable activity or
- the replacement of any plant or other capital asset.
- reverse charge services: these services are covered in more detail under the International Supplies of Goods and Services section.
Reverse charge services: these services are covered in more detail under the International Supplies of Goods and Services section.
Yes, provided certain criteria are met. The main criteria are:
- there must be 66 percent common ownership among the members of the GST group
- group members must account for GST on the same basis (payments or invoice) and
- group members must have the same taxable periods.
Individuals, partnerships, trusts, and companies can all join GST groups.
Yes, provided the company meets the criteria for group registration. Companies can download the GST Group Registration form (IR 374) at http://www.ird.govt.nz/forms-guides/number/forms-300-399/ir374-form-gst-groupregistration.html
Returns are lodged:
- six monthly, if the value of total taxable supplies is less than NZD 500,000 in a twelve month period or IRD approval has been granted
- two monthly, if annual turnover is less than NZD 24 million or
- monthly, if annual turnover (including group turnover) is greater than NZD 24 million
Businesses can elect a monthly taxable period if their turnover is less than NZD 24 million.
Exchange rates are published on the Inland Revenue Department (IRD) website, or a business can use the exchange rates of an IRD approved bank.
Local/established businesses which incur VAT
Overseas businesses with no local presence and no local VAT/GST registration
In order to claim a deduction of input GST taxpayers must have a proper tax invoice to support the claim. The input tax credit should be claimed in the GST period in which the expense was incurred. However, taxpayers are able to late claim input GST on expenses incurred in the prior two years.
Businesses are not entitled to input tax credits on:
- acquisitions that relate to making exempt supplies: where GST relates to both taxable and exempt supplies, an apportionment is needed
- acquisitions of a private nature: where GST relates to both business and private activities, an apportionment is needed
GST input tax can be claimed in respect of entertainment expenditure and fringe benefits provided to employees. However, GST must be returned on the GST fraction of the entertainment expenditure that is non-deductible for income tax purposes.
International Supplies of Goods and Services
Exports - Goods
A supply of goods is zero-rated if the goods are exported by the supplier or in limited situations by the purchaser. Other supplies that are zero-rated include:
- goods supplied to repair temporary imports or goods in transit,
- ship and aircraft stores for use on international voyages or flights, and
- tools used solely for the manufacture of exported goods that are supplied to a non GST registered nonresident.
Exports - Services
Examples of services that are zero-rated include:
- supplies where the recipient is not a New Zealand resident and is outside New Zealand, unless the services are directly in connection with land or moveable personal property in New Zealand
- services physically performed outside New Zealand
- services supplied directly in connection with land or moveable personal property outside New Zealand and
- intellectual property rights for use outside New Zealand or to a recipient who is not a New Zealand resident and is outside New Zealand.
Imports - Goods
Imported goods are subject to GST when they are entered for home consumption. Generally the GST is payable upon importation, unless the Deferred Payment Scheme has been entered into. This scheme enables businesses to defer the payment until the 20th day of the month following the month of importation. The payment is made by direct debit from the company’s bank account and covers all importations in the particular month.
A fact sheet on the Deferred Payment Scheme (Fact Sheet 17) can be downloaded from www.customs.govt.nz.
New Zealand GST is payable on the importation of goods. GST is levied at the border as part of the customs procedure. The GST on importation is paid to the New Zealand Customs Service.
GST is charged at the same rate as if the goods had been supplied in New Zealand. GST is calculated on the total of the value of the goods, the amount of duty and tax (other than GST) payable and the insurance and freight costs incurred in bringing the goods to New Zealand. GST will not be levied where the goods are valued at NZD 400 or less (that is, NZD 60 of duty and GST combined).
Imports - Services
If a business acquiring the services intend to use the services to make less than 95 percent taxable supplies or its actual use of the services was less than 95 percent taxable it will be required to apply the reverse charge. This is intended to take away any GST advantage of buying those services from outside New Zealand.
Under the reverse charge companies are required, as the recipient, to account for GST as output tax in their GST return, and are able to recover the GST as input tax to the extent of their input tax recovery ratio.
The importer of the services is responsible for paying any GST due on imported services.
Amount subject to VAT/GST
GST is calculated on the consideration paid by the customer to the supplier.
The consideration for the supply is its market value if the supplier and the customer are related parties.
GST is calculated on the total of the value of the goods, the amount of duty and tax (other than GST) payable and the insurance and freight costs incurred in bringing the goods to New Zealand.
GST is due in New Zealand on the earlier of the issuance of an invoice or the receipt of payment (or part payment).
Generally a business is required to issue tax invoices if requested to do so by the recipient of the taxable supply and the value of the supply is NZD 50 or more.
A tax invoice it should contain the following information:
- the words “tax invoice” in a prominent place
- the name and GST-registration number of the supplier
- the name and address of the recipient
- the date of issue of the tax invoice
- a description of the goods and services supplied
- the quantity or volume of the goods and services supplied
- The GST-exclusive amount, the GST and the GST-inclusive amount; or
- The GST-inclusive amount, and a statement that it includes GST, provided the GST is three - twenty thirds of the total amount (i.e. applied at 15 percent).
Simplified tax invoices can be issued where the consideration for the supply does not exceed NZD 1,000 and the supply is not a zero rated supply (i.e. GST imposed at 0%). The simplified tax invoice only needs to include the following information:
- The words “tax invoice” in a prominent place:
- The name and registration number of the supplier:
- The date upon which the tax invoice is issued:
- A description of the goods and services supplied:
- The consideration for the supply and a statement that it includes a charge in respect of tax.
No tax invoice is required where the consideration does not exceed NZD 50.
Yes, provided Inland Revenue Department approval is obtained.
The supplier must agree that the recipient of the supply can issue a Buyer Created Tax Invoice and certain other requirements must be met.
No, all amounts must be expressed in New Zealand dollars.
Transfers of Business
Yes. In certain circumstances the supply of a taxable activity as a going concern is zero-rated. Among other things, the recipient must be GST-registered, and the supplier must supply all of the goods and services necessary for the continued operation of the taxable activity. Also, the parties must agree in writing that the supply is of a going concern.
Options to Tax
Head Office and Branch transactions
Transactions between a head office and its branch office are generally not supplies and therefore there is no GST payable. An exception is where the branch chooses to register separately so that it can account for GST separately from head office. In this case the branch is treated as if it were a separate entity, so that transactions between head office and the branch are treated as though they were supplies.
A branch is also treated as a separate person from head office for the purposes of the reverse charge. In other words, supplies of services between an overseas head office and a New Zealand branch are generally subject to the reverse charge where the New Zealand branch is making less than 90 percent taxable supplies (as noted above, the threshold is expected to change to 95 percent with effect from 1 April 2011).
Yes, if the debt is written off as a bad debt. If the company subsequently receives payment for the supply then it will have to pay back the GST component.
Yes. It applies in any case where there has been a tax avoidance arrangement entered into by the taxpayer, and the arrangement has as one of its purposes tax avoidance (so long as that purpose is more than incidental). Any arrangements caught by this provision will be void for tax purposes.
Civil penalties are payable when GST is paid late or underpaid.
Late payment penalties are levied initially at a rate of 1 percent on the day after the due date for payment of the GST, a further 4 percent is then levied if the outstanding amount remains unpaid 7 days after the due date. A 1 percent incremental penalty applies for every month thereafter.
Shortfall penalties range from 20 percent of the shortfall amount for not taking reasonable care, to 40 percent for gross carelessness, to 100 percent for taking an abusive tax position, to 150 percent for evasion. These percentages can be reduced for previous good behavior, or if the company makes a voluntary disclosure to the Inland Revenue Department.
How often do tax audits take place?
Tax audits are undertaken at the discretion of the IRD. The frequency varies. The IRD can check all business records required to be kept under the GST Act 1985 and the systems in place by the business to ensure compliance.
Are there audits done electronically in your country (e-audit)? If so, what system is in use?
Yes, but they are conducted infrequently.
Is it possible to apply for formal or informal advance rulings from the (indirect) tax authority?
Yes, it is possible to apply for a public, private or product ruling. Additionally, indicative opinions on the GST consequences of a transaction can be obtained by writing to the IRD. Note that indicative opinions are not binding.
Are rulings and decisions issued by the tax authorities publicly available in your country?
Public and product rulings are publically available.
Yes, the New Zealand GST law allows the zero-rating of financial services under the Business to Business (“B2B”) regime and/or the Financier to Financier (“F2F”) regimes. Financial services are generally exempt, however, if the recipient of the services is registered for GST and makes more than 75 percent taxable supplies, the supplier can elect to participate in the B2B and/or F2F regimes and zero-rate the supply. A zero-rated supply is a taxable supply for New Zealand GST purposes and enables the supplier to recover input GST incurred (which is not possible for input GST incurred in regard to exempted financial services).