When to Charge New Zealand's GST on Digital Products
Whether you’re next door in Australia or across the world in Spain, selling your digital products in New Zealand means following the rules of their Goods and Services Tax. You should be aware of a couple special rules and schemes designed especially overseas suppliers. Actually, the New Zealand GST laws are actually very similar to the EU VAT rules on digital products, but with a couple Tasmanian twists.
What New Zealand considers a digital product
As a foreign business selling to Kiwi customers, the first thing to determine is whether you’re selling digital products. In this context, New Zealand defines digital products as those that are “transmitted by a non-resident to a resident by means of wire, cable, radio, optical or other electromagnetic system or by means of a similar technical system.” Wow. Technical, indeed.
When you look further in New Zealand digital tax law, you find that digital products are actually treated as “services.” And they’re also commonly referred to as “remote services,” which is accurate since you’re providing a service from across the ocean, but…confusing, right? (Why use multiple different terms to refer to the same thing??)
Anyway, never fear. With this article by your side, you don’t need to read their tax law. (We did that for you.) Let’s start with a short glossary to make sure we’re on the same page with New Zealand.
Remote service = digital product
Inland Revenue Department = New Zealand’s tax agency
And their definition of digital product or “remote services” does get more concrete. Here’s a thorough-but-incomplete list, taken directly from the Inland Revenue Department website:
- supplies to digital content such as e-books, movies, TV shows, music and online newspaper subscriptions
- online supplies of games, apps, software and software maintenance
- webinars or distance learning courses
- insurance services
- gambling services
- website design or publishing services
- legal, accounting or consultancy services.
Who needs to charge GST in New Zealand
In New Zealand, you only need to charge digital taxes if you are first registered for GST. So, who needs to register for GST?
Do you pass the sales threshold?
You must register for GST if you exceed an annual sales threshold of NZD $60,000. That means if your sales have passed NZD $60,000 in the last 12 months, or are expected to pass NZD $60,000 in the next 12 months, you register for New Zealand’s taxes. (Detailed instructions on that below.)
If your sales in New Zealand stay below that threshold, then your business has absolutely nothing to do with GST. You don’t need to register, you don’t need to charge GST, nothing. You can carry on blissfully unaware. 🙂
But if you’re one of the businesses who passes the threshold and registers for GST, listen up! There are some conditions around whether you actually add any taxes to your transactions.
Do you sell to GST-registered customers?
Foreign suppliers to New Zealand businesses, and other GST entities, do not need to add digital tax on those sales. Basically, if your customer provides you with a GST registration number, you can leave GST off the transaction entirely, or “charge” it at 0%. (This practice is to “zero-rate” the sale, and is useful if you plan to claim back any business-related GST you spent in New Zealand.)
If not, if your customers are non-registered New Zealand residents, then you must charge 15% GST on those sales.
Recap: You must charge 15% GST only if you sell over NZD $60,000 annually to New Zealand residents who are not themselves registered for GST.
How to register for GST in New Zealand
So, you’re one of the booming businesses who must register for GST in New Zealand. Luckily there’s a special online registration designed for overseas suppliers of digital products — that’s you! This is actually one of the simplest tax registration processes out there.
Complete a form
Yep, just one. Fill out a single, straightforward form with information about your business: Application to register for GST on remote services by a non-resident business (IR994).
Email the form to the people in charge
You can email it to the Inland Revenue Department at firstname.lastname@example.org.
Choose when to convert your currency to NZD
You’ll need to convert your currency to New Zealand dollars before you file your GST return. Whether you record that conversion on the day you sell or the day you file is completely up to you. Since conversion rates can fluctuate a lot, New Zealand asks you to select a consistent milestone that always determines the conversion rate used.
You can choose to convert to NZD at:
- the time you supplied the service
- the last day of the relevant taxable period, or
- the earlier of the:
- date you file your return for the relevant period, or
- due date for filing your return for the relevant period.
But consider your options ahead of time, because whatever day you choose, you’ll have to stick with it! Once you’ve chosen when to convert the currency, you can’t change it for two years unless the Inland Revenue Department agrees.
If, for some reason, none of the above work for you, it’s possible to settle on a custom time with the Inland Revenue Department. You can contact them at the same email as above, email@example.com.
How to comply with GST in New Zealand, after registration
Keep evidence of customer’s location on every sale
You'll need two pieces of evidence to prove that your customer is a resident in New Zealand. Both items must confirm the same location. (That seems obvious, but the Inland Revenue official website makes a point of explaining that these two pieces of evidence should not contradict each other! So we’ll make that point, too.)
The evidence can include:
- The customer's billing address
- The IP address of the customer's device or another geolocation method
- Details of the bank account the customer uses for payment, or the billing address held by the bank
- Mobile country code of the customer’s cell number
- Where the customer's fixed landline is supplied
You do not need to issue tax invoices
Simple as that. Here it is from the horse’s mouth: “When you supply a remote service to a New Zealand customer you don't have to give them a tax invoice.” - Inland Revenue Department
Don’t charge GST to customers who are also registered with GST
First of all, it’s the responsibility of these customers to let you know that they are, in fact, GST registered and that you don’t need to charge taxes. In most cases, they’ll provide you with their New Zealand GST registration number or business number.
But mistakes happen! If you accidentally charge GST (or the customer lets you know too late), one of two things can happen:
- You refund the customer the amount of the GST.
- If the transaction was NZD $1000 or less, you can issue a tax credit to the customer instead of a refund. Then they can claim back the GST the next time they file their taxes.
File a GST return every quarter, even if you don’t make any sales
Overseas suppliers are required to file GST returns quarterly. New Zealand businesses are able to choose between two-month and six-month periods, but foreign businesses just have one option: every three months, on that familiar business cycle.
Also, even if you haven’t made sales that quarter, even if you haven’t collected any GST, you must still file a “nil” return. Otherwise you may face late penalties!
Speaking of late penalties, the GST return deadlines are below. New Zealand gives you 28 days after the end of each quarter to file and pay, with a little extension on the first quarter of the year. Inland Revenue even emails you to let you know that your return is ready to file online!
- 7 May, for first quarter ending 31 March
- 28 July, for second quarter ending 30 June
- 28 October, for third quarter ending 30 September
- 28 January, for fourth quarter ending 31 December
How to File a GST Return in New Zealand
You can file online through Inland Revenue’s secure service, myIR. Most of the tax calculations will be done for you, but unfortunately not all. They’ve provided a comprehensive guide on how to calculate your GST. So when you’re filing, see what myIR covers and then refer to this guide to complete the rest.
New Zealand is so prepared they’ve even provided a nifty suite of video demos of how to use the myIR service. When in doubt, check those out!
Once you know how much GST you owe, you can pay directly through your myIR portal, right when you file.