E-commerce and tax: E-commerce and GST

E-commerce and GST

• Services
  • When are services zero-rated?
  • Who is a non-resident supplier?
  • When is GST charged on services?
  • When is evidence required for zero-rating?
• Goods
  • Sale of physical goods
  • Sale of digital products
  • Purchasing goods from overseas
  • Selling secondhands goods
• Computer software and intellectual property

Services

Services provided by a New Zealand resident GST-registered person to a customer in New Zealand have GST charged on them.

For GST purposes, services are defined as "anything that is not goods or money".

When are services zero-rated?

Services are zero-rated when they are supplied by a GST-registered:

• person and physically performed outside New Zealand, or relate to property outside New Zealand
• person or business to a non-resident who is outside New Zealand at the time the services are performed.

Who is a non-resident supplier?

When ...	then ...
an overseas supplier with a fixed or permanent place of business in New Zealand, such as a New Zealand branch, has an annual turnover of supplies made in New Zealand greater than $60,000	they are a New Zealand resident for GST purposes, and they must register for GST and pay GST on all services supplied.
services are supplied by a supplier who isn't resident in New Zealand for GST purposes, to a person in New Zealand	these services are generally not subject to GST.
the non-resident supplier performs the services in New Zealand	the services are treated as being supplied in New Zealand and are liable for GST.
a non-resident provides online services	this doesn't fall within the definition of a fixed or permanent place of business in New Zealand, so GST is not payable.

When is GST charged on services?

If the ...	then the New Zealand supplier ...	and the overseas supplier ...
service is performed in New Zealand	charges GST	charges GST unless: the service is supplied to a GST-registered person, and the parties have agreed not to charge GST.
service is performed outside New Zealand	zero-rates the GST	is not subject to GST.

When is evidence required for zero-rating?

There are a number of scenarios which may require different evidence for zero-rating.

No	Scenario	Evidence
1	Physical goods are exported overseas by the supplier when the customer is overseas	Delivery evidence, eg, bill of lading showing export by sea, or air waybill for export by air Packing list or delivery note showing overseas delivery address Insurance documents Purchase order showing overseas delivery address.
2	Physical goods are exported overseas by the supplier and the customer is in New Zealand at the time of purchase	Delivery evidence, eg, bill of lading showing export by sea, or air waybill for export by air Packing list or delivery note showing overseas delivery address Insurance documents Purchase order showing overseas delivery address.
3	Digital products are downloaded by a customer overseas	A declaration by the customer at the time of the transaction that they are located overseas and that the products will be used outside New Zealand. Eg, "I declare that I am not in New Zealand at this time and will not be making use of this supply in New Zealand" with their name and full address. Evidence of payment received from overseas customer. Credit card information may be a guide as certain credit card number series may only be issued in New Zealand. However, this process is changing and isn't entirely reliable. Email address may suggest that the customer is overseas but is not final proof as a New Zealand resident can obtain an overseas email address. Internet protocol (IP) address of the customer - although this is not final proof that the customer is overseas.

 

Goods

Sale of physical goods

If ...	then ...
a GST-registered person sells goods over the internet and the goods are physically supplied to a customer in New Zealand	GST is chargeable at 12.5%.
goods are sold over the internet and physically supplied to customers overseas	the sales can be zero-rated for GST purposes.

 

Sale of digital products

If ...	then ...
a GST-registered person sells digital products over the internet which are downloaded, such as music, software or digital books, to a New Zealand customer	GST is chargeable at 12.5%. These products are treated as services for GST purposes.
digital products are sold over the internet and downloaded by an overseas customer	they can be zero-rated.

 

Purchasing goods from overseas

GST is leviable on the value of the goods (the total of the declared purchase price inclusive of transport or freight and insurance plus any duty payable) when the goods arrive in New Zealand. It is collected by Customs from the purchaser before the goods are released.

To minimise compliance costs, Customs GST is not imposed on imports of less than NZ$400 - a $50 GST threshold.

Selling secondhand goods

The simple definition of secondhand goods is "goods previously used".

An input tax credit can be claimed for the purchase of secondhand goods from an unregistered person when completing the GST return - 1/9th of the purchase price paid.

There must be a record of the name and address of the supplier, the date of purchase, a description of the goods, the quantity of the goods and the price paid.

When secondhand goods are purchased from an unregistered person and subsequently sold on the internet to ...	then ...
a New Zealand customer	the price paid by the New Zealand customer will: include GST, and be accounted for as output tax on the GST return.
an overseas customer and exported by the supplier	the sale can be zero-rated if certain conditions are met - see Note below, and the seller does not need to account for the GST amount of the input tax previously claimed.

Computer software and intellectual property

This includes copyright, licences to use and licences to sell or royalties.

For GST purposes, where the intellectual property is purchased from a New Zealand resident by a New Zealand customer, GST is paid on the supply, as all goods and services supplied in New Zealand are subject to GST.

The supply of software downloaded directly from an overseas supplier on the internet is a supply of services only, and GST is not payable on imported services.

For GST purposes, copies of software programmes are "goods" while the copyright in relation to software programmes is "services". The supply of copyright in relation to a software programme and the supply of a copy of a software programme are distinguishable. In the latter, there is no transfer of copyright rights.

For local purchases of software, there is generally no need to distinguish between the supply of goods and the supply of services because all goods and services supplied in New Zealand are subject to GST. However, the distinction is relevant in cross-border situations as no GST is payable on imported services.

We follow the OECD decision of treating products digitally supplied as services.

If software is downloaded directly from an overseas supplier on the internet, it may be noted that the customer acquires data in the form of a digital signal and doesn't obtain the copyright. None the less, that data constitutes services for GST purposes. This is treated as an imported service not subject to GST. However, if the software was from a New Zealand supplier, GST would be charged.

For more general GST information:

Visit our GST section.
Read or download our GST guide IR375.
Read our newsletter GST News issued each March and September.

 

Date published: 06 Oct 2009

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