VAT, GST and Sales Tax in New Zealand

Summary

Name of the tax Goods and services tax (GST)
Date introduced 1-Oct-86
Trading bloc membership No
Administered by Inland Revenue (http://www.ird.govt.nz) and New Zealand Customs (www.customs.govt.nz)
GST rates
Standard 15%
Other Zero-rated, exempt and nontaxable
GST return periods
One month Taxable turnover exceeds NZD24 million (optional for other registered persons)
Two months Taxable turnover between NZD500,000 and NZD24 million)
Six months Taxable turnover below NZD500,000
Three months From 1 April 2017, nonresident suppliers of remote services will be required to file quarterly GST returns. Before this date (i.e., from 1 October 2016 to 31 March 2017), the nonresident remote service suppliers can choose to file a six-monthly return or two-monthly return.
GST registration number format Taxable persons use tax registration numbers (IRD number) for GST purposes in the format xx-xxx-xxx; effective from 2008, nine-digit numbers are issued to new GST-registered persons
Thresholds
Registration NZD60,000
Recovery of GST by non-established businesses Yes, since 1 April 2014

Scope of the tax

GST applies to the following transactions:

  • The supply of goods or services made in New Zealand by a registered person
  • The importation of goods into New Zealand, regardless of the status of the importer

Remote services. Effective 1 October 2016, the supply of “remote services” by nonresidents to New Zealand non-registered cus­tomers is subject to GST at the standard rate (see Section D). The definition of “remote services” includes any services supplied digitally or remotely, including electronic services and remotely provided traditional services (e.g., accounting, legal and consul­tancy work).

Remote services supplied to GST-registered New Zealand cus­tomers will be outside the scope of New Zealand GST unless the supplier chooses to treat the supplies as zero-rated (see Section D). Specific rules apply for determining the residence and regis­tration status of the recipient of remote services.

Who is liable

A “registered person” is any business entity or individual that is liable to register for GST in New Zealand.

A person is liable to register if the taxable supplies made exceed the GST registration threshold of NZD60,000. The registration threshold applies in the following ways:

  • Retrospectively to taxable turnover in the current month and the preceding 11 months
  • Prospectively to taxable turnover in the current month and expected turnover in the following 11 months

GST may be recovered before the incorporation of a company if certain criteria are met.

Voluntary registration. A small business with taxable turnover of less than NZD60,000 a year may voluntarily apply to become a registered person.

Group registration. Group registration is allowed for corporations or other taxable persons that are “under common control.” For these purposes, a corporation is “controlled” if one or more persons own at least 66% of either the voting power in the corpo­ration or the corporation’s common market value interests.

Other taxable persons may form a group if any of the following control conditions is satisfied:

  • One group member controls each of the others.
  • One person (outside the group) controls all the members of the group.
  • Two or more persons carrying on a taxable activity as a partner­ship control the members of the group.

Certain investment funds may join a GST group with other com­panies or other investment funds that meet the eligibility criteria. Effective from 1 April 2011, a listed portfolio investment entity can also become part of a group for GST purposes.

Nonresident companies registered under the new “enhanced” registration system for non-established entities cannot group with resident companies.

A group must appoint a representative member. Group members making supplies outside the group must issue tax invoices if requested to do so. The representative group member must account for GST with respect to all group members’ taxable activities and file returns. Group members must adopt the same tax periods and accounting basis for GST purposes (see Section E). Group members are also jointly and severally liable for all GST liabilities.

Transactions between group members are not generally liable to GST. This measure applies on the condition that the supply is made to a group member that would have been entitled to input tax recovery if the supplier had not been a member of the group (see Section F).

Branch or divisional registration. If a taxable person’s business is organized in branches or divisions, it may register the divisions or branches separately for GST purposes. To register separately, a branch or division must maintain its own accounting system and it must either be in a separate location or carry out different activities from the rest of the legal entity. A branch or division that is separately registered must obtain its own GST registration number and complete a separate GST return. GST is charged on supplies made between branches and divisions that are registered separately and the rest of the legal entity.

Non-established businesses. A “non-established business” is a business that has no fixed establishment in New Zealand. A for­eign or non-established business must register for GST if it makes taxable supplies in New Zealand that exceed NZD60,000 in any 12-month period. A non-established business may also register for GST voluntarily if its supplies are below the annual registration threshold.

Since 1 April 2014, a non-established business that does not make taxable supplies in New Zealand may register for GST in order to recover GST incurred in New Zealand. GST imposed by customs cannot be recovered by a business registered under this regime. However, the recipient should be able to recover the import GST in certain circumstances.

Tax representatives. A foreign business is not required to appoint a New Zealand resident tax representative in order to register for GST.

Agents. When a registered person makes a supply to a customer using an agent, the customer and registered person (or principal) are considered to be dealing directly with each other for GST purposes.

A supplier and its agent may agree in writing to opt out of this rule so that a supply by the principal to the customer using an agent is treated as two supplies: one from the principal to the agent and the other from the agent to the customer. Proposals are being made to allow the same rules to apply to purchases by agents on behalf of principals.

Compulsory reverse charge. A compulsory reverse-charge regime applies if all of the following circumstances exist:

  • A supply of services is made by a nonresident to a resident.
  • The supply would be taxable if made in New Zealand.
  • The recipient of the supply is registered (or required to be reg­istered).
  • The recipient makes taxable supplies that total less than 95% of the recipient’s overall supplies.
  • The recipient of the supply meets one of the following condi­tions:
    • At the time of acquisition, it estimates that the percentage of intended taxable use of the services is less than 95%.
    • It determines that the percentage of actual taxable use is less than 95%.

The reverse charge is 15% of the consideration for the supply. An input tax credit may be claimed with respect to the reverse charge to the extent that the service was used or available for use in mak­ing taxable supplies.

Registration procedures. GST registration can be undertaken by submitting a hard copy form, or by registering online. Registration online is done instantly, whereas registration by way of a hard copy form can take several weeks. The registration can be sub­mitted either by the taxpayer or by an agent of the taxpayer. Online registration can be completed at www.ird.govt.nz.

The registration process for nonresident suppliers who only make supplies of remote services has been simplified, and the registra­tion form can be submitted through email or posted to Inland Revenue.

Late-registration penalties. Penalties are assessed for a range of GST offenses, including the failure to make GST payments by the due date (see Section I).

Digital economy. Effective 1 October 2016, foreign suppliers of “remote services” must register and account for GST in New Zealand if the annual value of their remote services supplied to non-GST-registered New Zealand consumers exceeds NZD60,000 (approximately EUR38,500 or USD43,000).

Electronic and approved marketplaces. Suppliers who only supply remote services to New Zealand customers through an “elec­tronic marketplace” operated by a nonresident person will gener­ally not be required to register for GST in respect of the supplies made through the marketplace. Instead, the nonresident operator of the marketplace is generally liable to register and return GST on behalf of its underlying suppliers, unless the operator and underlying supplier agree otherwise and take various steps to ensure the operator is not seen to be the supplier.

A nonresident operator of a non-electronic marketplace through which remote services are supplied to New Zealand customers can also register and return GST on behalf of its underlying sup­pliers if it obtains approval from Inland Revenue to do so.

Deregistration. A taxable person that ceases to make taxable sup­plies must notify the New Zealand GST authorities within 21 days after ceasing operations. If the GST authorities are satis­fied that the taxable person’s operations are not expected to recommence within 12 months, they may cancel the taxable person’s GST registration.

A taxable person may deregister voluntarily if it can satisfacto­rily prove to the GST authorities that its taxable turnover in the following 12 months is expected to be less than NZD60,000.

GST rates

The term “taxable supplies” refers to supplies of goods and ser­vices that are liable to GST. The GST rates are the standard rate of 15% (effective from 1 October 2010; the prior rate was 12.5%) and the zero rate (0%). Some specific supplies have an effective rate of 9% through the GST valuation rules.

Examples of goods and services with an effective rate of 9%

  • Supplies of accommodation and other domestic goods and ser­vices in a rest home where nursing care and other services are provided
  • Supplies of long-term accommodation in a hotel or motel

Examples of goods and services taxable at 0%

  • Sale of a business as a going concern
  • Exported goods (proposals have been made to zero-rate goods and services supplied in relation to ships and aircraft that are exported under their own power)
  • Exported services (proposals to reduce the scope of zero-rating to exclude exported services that are acquired to enable or assist a change in the physical or legal status of land located in New Zealand are expected to apply from 1 April 2017)
  • Exported goods and services
  • Services performed outside New Zealand
  • First sales of refined precious metals for investment purposes
  • Supplies of financial services to businesses that make taxable supplies in excess of 75% of total supplies where the supplier has elected to do so
  • Certain transactions involving emissions units
  • Exported secondhand goods if the recipient gives the supplier an undertaking in writing that the goods will not be reimported into New Zealand
  • Certain supplies of which land is a component by GST­registered vendors to registered persons
  • Supplies of remote services made by nonresident suppliers to GST-registered New Zealand customers, where the supplier chooses to zero-rate

In addition, some activities are exempt from GST. This means that no GST is charged, but the supplier does not have the right to deduct any related input tax (see Section F).

Examples of exempt supplies of goods and services

  • Financial services (although some qualify for the zero rate)
  • Sales of donated goods by nonprofit organizations
  • Certain real estate transactions
  • Supply of precious metals

Option to tax for exempt supplies. In some cases, suppliers of financial leases can elect to treat their interest income as taxable supplies instead of exempt supplies.

Time of supply

The time when GST becomes due is called the “time of supply” or “tax point.” Under the general rule, a supply takes place when an invoice is issued or when payment is received by the supplier, whichever is earlier.

Taxable persons may opt to account for GST using the invoice basis, the payments basis or the hybrid basis. These methods are described below:

  • Under the invoice basis of accounting, a taxable person must account for GST when an invoice is issued or when payment is received, whichever is earlier. Input tax is recoverable on the basis of tax invoices received (see Section F).
  • A taxable person may use the payments basis of accounting if the total value of its taxable supplies in the preceding 12 months did not exceed NZD2 million or if its turnover is not expected to exceed this figure in the following 12 months. Under the payments basis of accounting, a taxable person must account for GST on the basis of payments received (except for a supply for which the consideration is more than NZD225,000 and a supply that is not a short-term agreement for the sale and purchase of property or services). Input tax is recoverable on the basis of invoices paid (see Section F). Nonresidents regis­tered under the “enhanced” GST registration system must account for GST on a payments basis. Under the hybrid basis of accounting, a taxable person accounts for GST when an invoice is issued or when a payment is received, whichever is earlier. Input tax is recoverable on the basis of invoices paid (see Section F).
  • Where the supplier and recipient are associated entities, the time of supply is the earliest of the issuing of an invoice, the receipt of payment by the supplier, or the making available of the goods, removal of movable goods, or performance of the services.

Imported goods. Not applicable, no separate time of supply treat­ment for imported goods.

Recovery of GST by taxable persons

A taxable person may recover input tax, which is GST charged on goods and services supplied to it for business purposes. A taxable person generally recovers input tax by deducting it from output tax, which is GST charged on supplies made. Input tax includes GST charged on goods and services supplied in New Zealand and GST paid on imports.

Nonresidents may recover GST costs without making taxable supplies in New Zealand under the “enhanced” GST registration system.

A valid tax invoice or customs document must generally accom­pany a claim for input tax for a supply greater than NZD50 (including GST).

A taxable person is effectively restricted from claiming input tax credits with respect to supplies that are greater than two years old except in certain circumstances.

Nondeductible input tax. Input tax may not be recovered on pur­chases of goods and services that are not used for business purposes (for example, goods acquired for private use by an entrepreneur).

Examples of items for which input tax is nondeductible

  • Nonbusiness expenditure
  • 50% of business entertainment expenses

Examples of items for which input tax is deductible (if related to a taxable business use)

  • Purchase, lease, hire, maintenance and fuel for cars, vans and trucks
  • Conferences and seminars
  • Advertising
  • Accommodation
  • Mobile phones
  • Business gifts
  • Travel expenses
  • Proposals are being made to allow businesses to recover GST on goods and services purchased to raise capital, to the extent that the capital is used in their taxable activity (expected to apply from 1 April 2017).

Partial exemption (adjustments). Effective from 1 April 2011, a registered person may recover GST, to the extent that the acquired goods or services are used for making taxable supplies. This input tax regime replaces the “principal purpose” test described below with an apportionment test. Under the new regime, a taxpayer apportions GST incurred on the acquisition of goods and services and claims an input tax deduction for goods or services that are used for making taxable supplies.

To determine the extent that goods or services are used for mak­ing taxable supplies, a taxpayer must estimate how it intends to use the goods or services, and choose a determination method that provides a fair and reasonable result. The taxpayer then uses the estimated intended taxable use of the goods and services to determine the proportion of the input tax that corresponds to the estimated intended taxable use.

A taxpayer is not required to apportion input tax if it makes both taxable and exempt supplies and has reasonable grounds to believe that the total value of its exempt supplies is no more than the lesser of NZD90,000 or 5% of the revenue from all taxable and exempt supplies for the period beginning at least 12 months from acquisition of the goods and services and ending on the person’s balance date.

Taxpayers may be required to make further adjustments if the actual taxable use of an asset is different from its intended tax­able use. Proposals are being made to allow large, partially exempt businesses to agree an alternative method of apportion­ment or adjustment with Inland Revenue.

A special rule has been introduced for situations in which land is used concurrently for a taxable purpose and a nontaxable pur­pose, such as when land is simultaneously advertised for sale (taxable use) and rented out as a dwelling (nontaxable use). The new rule requires a registered person to calculate the percentage that the land is used for making taxable supplies by using the following formula:

(Consideration for taxable supply / Total consideration for supply) x 100

In the above formula, “consideration for taxable supply” is the amount paid on a disposal of land in the adjustment period or the market value of the land at the time of making the adjustment. “Total consideration for supply” is the consideration for taxable supply, as described in the preceding sentence, plus the total exempt rental income payable since the acquisition of the land.

Special apportionment rules apply where certain assets (land, boats and planes) are used for both income-earning and private activities. If an asset is not used for at least 62 days per income year, expenditure relating to such assets is to be apportioned according to the following formula:

GST amount * (income days / (income days + private days))

In the formula, days can be substituted for a comparable unit, such as flying hours for planes or nights for accommodation. Some expenditure is fully deductible, such as costs incurred to repair damage caused when the asset is used to earn income, expenditure solely relating to the use of the asset for deriving income that derives no personal benefit (such as advertising), and expenditure incurred to meet regulatory requirements. Before 1 April 2011, a registered person could recover GST if it acquired goods and services principally for business purposes. GST was not recoverable for goods and services that are acquired princi­pally for nonbusiness purposes or principally for making exempt supplies.

If goods and services were acquired principally for making tax­able supplies but were also used for making exempt supplies, an output tax adjustment was required to the extent that the goods and services were used for making exempt supplies.

If goods and services were acquired principally for making exempt supplies or for nonbusiness purposes, an input tax adjust­ment was required to the extent that the goods and services were used for making taxable supplies. Some transitional rules relate to specific aspects of the changes discussed above.

Capital goods. Capital goods are items of capital expenditure that are used in a business over several years. Input GST is not recov­erable to the extent that the capital goods are purchased by a business for private use. Similarly input GST is not recoverable to the extent that capital goods are used to make exempt supplies (assuming the value of the exempt supplies is more than NZD90,000 or 5% of the total supplies made by the registered person).

For capital goods acquired before 1 April 2011, an entitlement to input tax arises if the good was principally used for making tax­able supplies. Ongoing GST adjustments were required to reflect the extent of nontaxable use. The calculation of the ongoing adjustments was based on the straight-line depreciation of the goods. For capital goods (other than land), GST adjustments can be made under the old rules until 1 April 2016 if the market value or book value of the good exceeds $10,000. For other goods, no more adjustment is required. For land, adjustments must be made until the date of disposal. For capital goods acquired on or after 1 April 2011, the actual taxable use must be determined by refer­ence to the percentage taxable use of the asset over the entire period from the purchase date to the end of the adjustment peri­od. The resulting taxable use percentage is effectively the weight­ed average of the annual taxable use percentages calculated over the ownership period. Capital goods are subject to annual wash-up adjustments as stated above. The number of GST adjustments required is determined by reference to the value of the capital goods.

Refunds. If the amount of input GST recoverable in a period exceeds the amount of output GST payable, a refund may be claimed. GST refunds are generally made within 15 working days after the Inland Revenue receives a correct return unless the Inland Revenue investigates the return and determines that the registered person has not complied with its GST obligations.

However, a refund can be withheld for up to 90 days for nonresi­dents registered under the new “enhanced” GST registration system.

Preregistration costs. Costs incurred prior to registration can be claimed provided they were legally incurred by the company or person seeking to recover them, and they relate to the taxable activity of that company or person. This includes goods or ser­vices acquired prior to the incorporation of a company, where the costs were incurred by a person who became a member, officer or employee of the company and was fully reimbursed for the costs, and where the goods and services were acquired for the purpose of a taxable activity to be carried out by the company and have only been used for that purpose.

Recovery of GST by non-established businesses

From 1 April 2014, a non-established business that does not make taxable supplies in New Zealand may register for GST to recover GST incurred in New Zealand. The following rules will govern the scheme:

  • The non-established business must be registered for GST or VAT in its own country.
  • The GST refund resulting from the first GST return must be more than NZD500.
  • The GST input tax credits only arise when the nonresident has paid for the expenditure.
  • The nonresident cannot form a New Zealand GST group with New Zealand resident entities unless the nonresident is register­ing for GST under the ordinary rules.
  • The nonresident must not be making supplies of services that are likely to be received by a person in New Zealand who is not registered for GST.
  • The tax authority will not be legally obliged to refund the GST until 90 days after the GST return has been lodged.

Invoicing

Tax invoices and credit notes. A New Zealand-registered person must generally provide a tax invoice for all taxable supplies made to other taxable persons within 28 days after a request for the invoice. A tax invoice is generally required to support a claim for deduction of input tax for items that cost more than NZD50 (including GST).

A credit note may be used to reduce the GST charged and reclaimed on a supply if the value originally charged was incor­rect. A credit note must indicate the reason why it was issued and must refer to both the GST originally charged and the corrected amount.

Remote services. Nonresident suppliers of only remote services are not required to issue tax invoices to New Zealand customers. However, they can choose to issue an invoice where GST was incorrectly charged on a supply made to a GST-registered person and both of the following conditions are met:

  • The consideration for the supply was less than NZD1,000 (by reference to the foreign currency amount converted into NZD at the time of supply).
  • The customer has informed the supplier that it is GST-registered or has provided its GST/IRD registration number or New Zealand business number.

Foreign-currency invoices. Invoices must be issued in New Zealand dollars. If a tax invoice is issued in foreign currency, the values used for GST purposes may be converted to New Zealand dollars based on the exchange rate in effect at the time of supply.

GST returns and payment

GST returns are generally submitted monthly or bimonthly. Two cycles of bimonthly returns are provided to stagger submission dates. A taxable person may request a change in its GST return cycle to ease administration.

A registered person whose taxable turnover exceeds NZD24 mil­lion in a 12-month period must submit GST returns monthly. Other taxable persons may opt to submit GST returns monthly if they receive regular repayments of GST or if they find it easier to account for GST on a monthly basis.

A registered person whose annual taxable turnover does not exceed NZD500,000 may submit GST returns on a six-months’ basis.

From 1 April 2017, a nonresident supplier who only makes sup­plies of remote services in New Zealand (and whose taxable supplies exceed the registration threshold of NZD60,000) must submit GST returns on a quarterly basis. During the transitional period from 1 October 2016 to 31 March 2017, nonresident remote service suppliers can choose to file a six-monthly return or two-monthly return.

GST return periods generally end on the last day of the month. However, taxable persons may request different periods to align with their accounting records. GST return and payment due dates fall on the 28th day of the month following the end of the return period, except for the periods ending 30 November and 31 March. The due dates for these periods are 15 January and 7 May, respec­tively. The GST return form indicates the due date for each return.

For registered persons that are provisional taxpayers, provisional tax installment dates should coincide with the GST return due dates. A provisional taxpayer is a person that pays its anticipated yearly income tax liability in installments during the income year.

Penalties

A penalty is assessed for the late payment of GST. A penalty of 1% of the tax due is assessed on the day after the due date. If the tax remains outstanding, the following additional penalties apply:

  • 4% of the tax that is due seven days after the due date
  • 1% of the tax due each month that the tax remains unpaid

A late filing penalty may be imposed, effective from 1 April 2008. The amount of the late filing penalty is NZD250 if the registered person accounts for GST payable on an invoice basis or NZD50 if the registered person is using the payments basis.

Penalties are also assessed for underpayments of GST. This “shortfall penalty” is assessed as a fixed percentage of the tax due, depending on the nature of the error, in the following amounts:

  • Lack of reasonable care: 20% of the tax due
  • Gross carelessness: 40% of the tax due
  • Tax evasion: 150% of the tax due
  • Adopting an abusive tax position: 100% of the tax due

Penalties may be reduced in certain circumstances by up to 75%.

A reduction of the shortfall penalty to zero may apply if the pen­alty is imposed for not taking reasonable care and if the regis­tered person makes a voluntary disclosure before notification of an Inland Revenue audit or investigation.

In addition, interest is calculated for underpayments and over­payments of GST. Effective from 8 May 2016, the rate of interest is 8.27% for underpayments and 1.62% for overpayments. Interest rates are subject to change.

A range of GST offenses are subject to fines and imprisonment, depending on the offense committed. The maximum fine is NZD50,000.