INSIGHT: “Amazon Value-Added Tax” in New Zealand—What Offshore Suppliers Need to Know

From December 1, 2019, New Zealand will be getting its own version of the so-called Amazon value-added tax. Offshore suppliers will be required to register and return goods and services tax (GST) on goods valued at or below NZ$1,000 ($640) supplied to New Zealand consumers.

This article summarizes the new rules, and the steps offshore suppliers should take to prepare themselves for this regime.

What is Changing?

Under current law, offshore suppliers do not generally register or return GST in New Zealand in respect of goods supplied to New Zealand consumers.

Instead, if GST applies on imported goods, the liability sits with the “importer of record,” who is typically the consumer. An exemption exists for goods with a value of approximately NZ$400 or less (being goods where the duty and GST payable totals less than NZ$60).

This is all set to change. From December 1, 2019, a new GST regime will apply to certain offshore suppliers in respect of supplies of “distantly taxable” goods, being goods (other than alcoholic beverages, tobacco or tobacco products) that:

• individually have a value of NZ$1,000 or less;
• are outside New Zealand at the “time of supply”;
• are supplied by a nonresident; and
• are delivered to a New Zealand address.

As a result, certain suppliers of distantly taxable goods will now be involved in the collection of New Zealand GST.

Who is Affected?

The new rules apply to:

• merchants (or retailers) who sell goods directly to New Zealand consumers online, by phone or by mail order;
• online marketplaces (including those resident in New Zealand) through which nonresident merchants sell goods; and
• redeliverers that offer mailbox redelivery and personal shopping services from other countries.

These “offshore suppliers” will be required to register for GST in New Zealand if they exceed the registration threshold—that is, if the combined total value of all GST-chargeable supplies they make to New Zealand consumers exceeds (or is expected to exceed) NZ$60,000 in a 12-month period.

In applying this threshold, a supplier will need to total up:

• the value of all distantly taxable goods supplied to New Zealand consumers, including amounts charged for services such as delivery and insurance;
• the value of goods supplied to New Zealand consumers where the goods are located in New Zealand at the time of supply (not including distantly taxable goods);
• the value of services provided to New Zealand consumers where those services are physically performed in New Zealand; and
• the value of online services and digital products (for example, e-books, software downloads and music streaming) supplied to New Zealand consumers.

An offshore supplier of distantly taxable goods to consumers may choose to voluntarily register for GST even if they do not meet the NZ$60,000 GST registration threshold.

Collecting GST

After registering for GST (or after crossing the GST registration threshold), an offshore supplier will need to return GST to the New Zealand tax office on all supplies of distantly taxable goods delivered to a New Zealand address. The exception to this is where the New Zealand recipient is itself registered for GST.

For example, after December 1, 2019, if a New Zealand consumer purchases a book online for NZ$20 from a retailer based in Australia, the retailer will need to charge GST at the point of sale (assuming that they meet the GST registration threshold). Similarly, if the book is purchased from the Australian retailer via an electronic marketplace, the operator of the marketplace will need to collect GST at the point of sale (assuming that the operator meets the GST registration threshold).

The GST consequences of supplies made to New Zealanders are summarized in the table.

Importantly, the NZ$1,000 threshold is based on the value of each good supplied, rather than the overall value of the supply. For example, where a single transaction involves one or more items with an estimated customs value of NZ$1,000 or less and, at the same time, one or more items with an estimated customs value exceeding NZ$1,000, the transaction will be split into:

• a supply of distantly taxable goods (being the goods that individually have an estimated customs value of NZ$1,000 or less), in respect of which the offshore supplier will need to collect GST at the point of sale; and
• a second supply consisting of the remaining goods supplied in the transaction, in respect of which Customs will collect GST at the border.

Such an approach may create a unique compliance headache for some suppliers. Some relief may be found by the supplier electing to treat supplies of high-value goods as “distantly taxable” (with the result that the entire supply is subject to GST at the point of sale). The availability of this option is discussed further below.

Getting Ready to Comply

Offshore suppliers caught by the new rules should be readying themselves for December 1, 2019. The New Zealand tax office has already delayed the commencement date for the new regime (originally set for October 1, 2019) in recognition of the time required by offshore suppliers to make the necessary preparations.

Prior to December 1, 2019, offshore suppliers making supplies of distantly taxable goods should assess whether they are likely to meet the GST registration threshold as at December 1, 2019. If a supplier determines that they will not need to be registered for GST, they should implement systems to ensure that they are able to identify if and when this registration requirement is met at a later date.

Where an affected supplier determines that they will meet the GST registration threshold, they will need to:

• register for GST online (registrations open from early September);
• ensure that their business systems are capable of identifying when a good is:
  • valued at NZ$1,000 or less;
  • being sold to a consumer (rather than a GST registered person); and
  • being sent to a New Zealand delivery address;
• prepare to provide receipts to New Zealand consumers showing the amount of GST charged;
• become familiar with the documentation that will need to be submitted to Customs;
• prepare to file GST returns and pay the relevant GST amount to the New Zealand tax office; and
• review any relevant contracts or terms of sale to ensure that these remain fit for purpose following December 1, 2019 (and, in particular, confirm that these contracts permit the supplier to charge New Zealand customers a gross up on account of New Zealand GST).

The New Zealand government has included some optionality in the new rules, as a means of alleviating some of the complexity and compliance costs faced by offshore suppliers.

In particular, offshore suppliers will be able to elect:

• to charge GST on goods valued at more than NZ$1,000 (high-value goods)—this option will be available if 75% or more of the total value of the goods supplied to New Zealand customers consists of goods individually valued at NZ$1,000 or less (or if permission has otherwise been granted by the New Zealand tax office); and/or
• to charge GST on low-value supplies to GST-registered businesses, avoiding the need to identify whether the New Zealand recipient of distantly taxable goods is an end consumer or GST registered—this option will be available where, at the time of election, the nonresident supplier reasonably expects that more than 50% of the value of the supplies they make to New Zealand customers during the 12-month period from the election will be made to persons who are not GST registered.

Offshore suppliers should consider these options and whether they may be useful in the context of their business.

What’s the Point of it All?

The new rules have been drafted with both fairness and cost efficiency in mind.

New Zealand’s current approach to import GST was conceived of in a time when online shopping did not exist. At that time, it was thought that the costs involved in collecting GST and duties on parcels with a value of approximately NZ$400 or less outweighed any prospective benefit.

With online shopping now being common place, the amount of GST being forgone on goods below the current collection threshold is increasingly significant. For example, in 2017–18, the estimated GST revenue gap was NZ$130 million.

The GST exemption provided to certain imports has also placed New Zealand onshore suppliers at a competitive disadvantage, and is contrary to the overarching principle that GST should apply to all consumption that occurs in New Zealand.

Winners and Losers

While some stand to benefit under the new rules, others will face increased costs.

Key impacts of the new rules include:

• increased revenue collection for the New Zealand government (forecast to be NZ$74.4 million in the 2020–21 fiscal year);
• consumers purchasing goods valued between the current collection threshold (approximately NZ$400) and NZ$1,000, will no longer incur the cost of Customs handling fees, duties and tariffs;
• consumers purchasing goods valued below the current collection threshold will now be charged GST on these supplies;
• suppliers meeting the GST registration threshold will face new compliance costs;
• consumers may face increased costs on distantly taxable goods as offshore suppliers look to recoup some of the costs associated with complying with the new regime;
• consumers may encounter reduced choice in the electronic marketplace as offshore suppliers change or adapt their New Zealand business models (for example by ceasing to offer shipping to New Zealand delivery addresses).

In light of these impacts, and with December 1, 2019 drawing ever closer, offshore suppliers should be preparing to be compliant with the new regime and seeking professional advice where necessary. New Zealanders, on the other hand, may wish to consider getting a jump start on their Christmas shopping with the days of GST-free imports now being numbered.

Simon Akozu is a Senior Associate and Zoe Barnes is a Senior Solicitor at MinterEllisonRuddWatts, New Zealand.

This column does not necessarily reflect the opinion of The Bureau of National Affairs, Inc. or its owners.