In 2018, the Government introduced draft legislation regarding the GST treatment of low-value imported goods, commonly referred to as the “Amazon tax”. The Taxation (Annual Rates for 2019-20, GST Offshore Supplier Registration, and Remedial Matters) Bill was enacted on 26 June 2019. The changes to the taxation of such goods will apply from 1 December 2019.
Although GST has always been payable on purchases from overseas, prior to enactment, GST was not collected by Customs on low-value goods due to the administration costs outweighing actual revenue intake.
The change is set to target the increase in volume of low-value imported goods purchased via online shopping and e-commerce platforms (i.e. Amazon, Alibaba and eBay) on which no GST is collected. It is estimated the tightening of the GST system will collect approximately $126 million in revenue per year by 2022/23.
- The rules will apply to goods valued at NZD 1,000 or less that are outside New Zealand at the time of supply and delivered to a New Zealand address. Customs thresholds will therefore increase for low-value stock imported into New Zealand accordingly and thus tariff and border costs will be removed.
- An offshore supplier is required to register, collect and return GST in New Zealand if the total value of supplies of goods (and services) provided to New Zealand consumers exceeds NZD 60,000 in a 12-month period. At a glance, NZD 60,000 equates to approximately USD 39,000; Euro $35,000; AUD 57,000; GBP 31,000 and RMB 271,000. This threshold is not high considering the extent of on-line shopping undertaken by New Zealand consumers.
- In certain circumstances, the electronic marketplaces or re-deliverers (i.e. businesses that provide a local address for goods not available to be shipped offshore which are then redirected to New Zealand) will be treated as suppliers instead. The will therefore be required to register, charge and collect the GST.
- Supplies made to New Zealand GST-registered businesses are excluded from the rules. However, offshore suppliers may elect to zero-rate such supplies (i.e. GST is charged at 0%). This would allow the supplier to claim back any associated New Zealand GST costs.
- Offshore suppliers, electronic marketplaces and re-deliverers have an option to also charge GST on goods over NZD 1,000 where at least 95% of the total value of goods that they supply in a specified 12-month period to New Zealand consumers are low-value goods (valued at NZD 1,000 or below), or if approved by the Commissioner.
Otherwise such goods will be subject to GST on importation which will continue to be collected by Customs.
- Offshore suppliers are not required to provide tax invoices. However in the event that a GST registered business was inadvertently charged GST, the offshore supplier is able to provide a valid tax invoice which will allow the purchaser to claim a deduction, rather than having to refund the GST charged. This option is only available if the payment for the supply excluding the amount of GST is NZD 1,000 or less.
- A simplified “pay-only” registration system would be available to offshore suppliers who do not have any GST costs to claim back. In addition, the filing period will be quarterly (i.e. March, June, September and December).
- A reverse charge (i.e. when the recipient of the goods account for the GST) would apply to GST registered purchasers that notified the offshore suppliers that it is GST registered but in fact use the goods for non-taxable purposes (i.e. privately).
- In the event that purchasers falsely represent themselves as a business to avoid GST, existing penalties under tax legislation may apply (i.e. maximum fine a court could impose is NZD 25,000 for a first time offender or NZD 50,000 for a repeat offender). Furthermore, the Commissioner would have the discretion to require a person to register for and pay the GST in certain circumstances.
- When shipments include goods over and below the NZD 1,000 threshold, the purchaser will need to provide evidence/documentation to Customs to avoid double taxation of goods valued at NZD 1,000 or below.
- Legislation will clarify that if GST is payable on the redemption of a voucher, the party redeeming the voucher for goods or services is liable for the GST.
- Offshore suppliers, electronic marketplaces and re-deliverers are allowed to choose to express the amount of consideration for their supplies in a foreign currency at the time of supply, with the amounts being converted into NZD at a later date elected. The election is irreversible for two years.
- Exception would be provided to allow offshore suppliers, electronic marketplaces and re-deliverers to hold records outside New Zealand and in a language other than English, as well as to obtain an IRD number without a fully functional New Zealand bank account.
Offshore suppliers, electronic marketplaces and re-deliverers will need to consider whether the rules are applicable for them. If so, a range of issues will need to be considered and addressed before 1 December 2019. For example, can sales to New Zealand be easily tracked? What modifications will be required to the current system to capture the relevant information (i.e. NZD value of the transaction, GST status of customer and etc.)?
As for purchasers, perhaps consider doing your Christmas shopping earlier this year!