GST on low-value imported goods: Details of proposed regime released
Tax Alert - November 2018
By Allan Bullot and Robyn Walker
Following consultation earlier in 2018, details were released on 18 October 2018 on the proposed GST regime for non-residents supplying “low-value goods” to New Zealand consumers. While many aspects of the proposals remain the same as originally proposed, a major change is the proposal to apply the rules to all consignments of goods costing NZD 1,000 or less (as compared to the originally proposed threshold of NZD 400).
While legislation will not be introduced into Parliament until November 2018, there is still a commitment to have the regime apply from 1 October 2019. The new rules will apply to offshore suppliers that make supplies (or expect to make supplies) of goods to New Zealand consumers of NZD 60,000 or more in a 12-month period. Electronic marketplaces and "re-deliverers" also will have a requirement to register and comply with the new rules.
Low-value goods will be defined as imports with a consignment value of NZD 1,000 or less. New Zealand tariffs and cost recovery charges will no longer apply to supplies covered by the new rules (alcohol, tobacco and fine metals are excluded from these rules).
Under the current GST rules, all sales by non-residents of goods on which the total amount of GST and duty is less than NZD 60 per shipment are not subject to GST at the border and no GST is due on the sale. Due to varying rates of duty on goods, there is no single value on which GST does not apply, in some cases it is under NZD 400, and in other cases only goods under around NZD 230 are not subject to GST currently. The new rules will do away with this distinction and simply focus on whether the consignment value is NZD 1,000 or less.
How will a supplier know if a customer is a New Zealand consumer?
Suppliers will need to charge GST if the destination of the goods is a delivery address in New Zealand.
Offshore suppliers will not be required to return GST on supplies to New Zealand GST-registered businesses. There will be an optional rule allowing offshore suppliers to zero-rate supplies to New Zealand GST-registered businesses. This approach would allow any GST incurred by the offshore supplier to be claimed back (for example costs of attending trade fairs in New Zealand). If supplies to businesses are zero-rated, these are included when calculating whether the NZD 60,000 registration threshold is exceeded.
Offshore suppliers will be able to presume that a New Zealand resident customer is not a GST-registered business unless the customer has provided its GST registration number, New Zealand Business Number or otherwise notified the supplier of its GST-registered status.
If offshore suppliers are making supplies of types of goods that typically are consumed only by businesses, we expect it will be possible to seek agreement from Inland Revenue that it can be presumed all customers are GST-registered businesses. This rule already exists for the existing remote services rules.
When certain conditions are satisfied, an operator of an online marketplace (whether based in New Zealand or offshore) may be required to register and return GST on supplies made through the marketplace by non-resident suppliers, instead of the underlying supplier.
It is proposed that a marketplace would be liable to account for GST unless it does not authorise payment, authorise the delivery or directly or indirectly set any of the terms or conditions of the supply. These rules are consistent with the approach adopted in Australia.
If a marketplace does not process the payment for a supply of goods, in some instances the marketplace will be able to claim a bad debt deduction if it is unable to collect the GST and any other fees from the supplier.
A marketplace will be subject to the NZD 60,000 registration threshold; however, this will include the total value of both low-value goods and remote services.
Catering to the needs of New Zealand consumers that want to purchase from retailers that will not ship to New Zealand, there are now a range of businesses that create local delivery addresses and then ship the goods to New Zealand. There are also personal shopping services available.
These businesses will be liable to register for GST and will need to collect the 15% GST on the value of the goods (the information released does not specify whether GST also must be charged on the redelivery services that take place outside New Zealand).
A re-deliverer will need to register when the value of the goods it “re-delivers” exceeds NZD 60,000 in a 12-month period.
Supplies above NZD 1,000
Where the value of a consignment of goods exceeds NZD 1,000, the current rules will continue to apply, and rather than the supplier charging GST, GST (and any applicable duty) will be collected at the New Zealand border, with the purchaser unable to collect its goods until the tax is paid.
Suppliers will, in some instances, be able to charge GST on goods costing more than NZD 1,000 (these rules also will apply to marketplaces and re-deliverers).
While not covered in the proposals released on 18 October, we expect that suppliers that are required to register under these rules will be able to apply for a simplified “pay-only” registration basis, or alternatively may undertake a full registration allowing them to claim back any New Zealand GST incurred in making New Zealand sales.
Offshore suppliers that are already GST registered under the remote services rules do not need to separately re-register for these new proposed rules.
GST returns ordinarily will be due in quarterly instalments (March, June, September, and December). There will be an optional one-off six-month filing period from 1 October 2019-31 March 2020 to allow suppliers to adapt to the new filing requirements.
The New Zealand government will be monitoring compliance with the rules, including through sharing of information between New Zealand Customs and Inland Revenue and using powers under double tax agreements to obtain information about foreign taxpayers.
Key issues for suppliers
Suppliers that sell low-value goods to consumers in New Zealand should start thinking about how the new rules could affect their business.
A range of issues will need to be considered and addressed before the rules take effect including:
- Can total sales easily be tracked by jurisdiction?
- Will the level of supplies to New Zealand consumers exceed the registration threshold?
- What type of supplier is the business and what specific rules will apply – actual supplier, online marketplace operator, or re-delivery service?
- What modifications would the business need to make to its website or business processes in order to determine whether New Zealand GST should apply?
- Determining the delivery address of the customer
- Determining whether the customer is an end consumer or a GST-registered business
- Determining the NZD value of the transaction
- Being able to remove any local sales tax and replacing it with 15% GST
- Excluding freight and insurance charges when determining if GST applies,
but including those costs when calculating GST
- How will returned or replaced goods need to be treated for GST purposes?
- Do invoicing processes need to change?
- Does the business wish to continue shipping to New Zealand or effectively outsource the compliance to a marketplace or re-delivery businesses?
Legislation is expected to be introduced into Parliament in November 2018. There will be an opportunity for taxpayers to make submissions on the legislation before it is finalised. We would expect that legislation will not be enacted until close to the 1 October 2019 application date, which may be problematic for systems design.