Taxation (Residential Land Withholding Tax, GST on Online Services, and Student Loans) Bill is enacted, which make a major change in the GST tax rules.

GST on online Services

Up until now GST was not charged by overseas suppliers on supply of services to New Zealand customers. For example, Netflix monthly subscription model or downloading a book or app from a website. Recently some services such as providing IT services, legal and accounting services have also come into this category. This has been a tax revenue leakage for the Government, and unfair for GST registered NZ businesses.

The Act amends the Goods and Services Tax Act 1985 to apply GST to cross border “remote services” provided to New Zealand resident customers.

Remote services mean:

1.       Digital services such as internet download or steaming

2.       Online services, and also includes legal accounting services that are supplied remotely.

3.       It also includes insurance and gambling services that are supplied remotely by offshore suppliers.

Registration

Offshore suppliers would be required to register and return GST if their supplies exceed $60,000 in a 12-month period. Commencement date of new rules is 01 October 2016

Zero rating of business to business supplies

To reduce compliance costs and fiscal risks, the bill proposes that GST would not be charged on remote supplies from offshore suppliers to New Zealand GST-registered businesses. However, an offshore supplier and a GST-registered recipient could agree to treat the supply as being made in New Zealand, in which case it would be zero rated. Amending section 11A(1)(j) and inserting section 11A(1)(x)).

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