GST applied to online services: the Netflix tax

New legislation will see GST applied to online services from 1 October this year.

GST will impact consumers who purchase remote services and intangibles supplied by non-resident suppliers. That’s all a bit of a mouthful but in essence it will impact you if you are buying e-books, music, software downloads or videos from companies based overseas. As such, the media have dubbed this the Netflix tax.

However, the legislation is not just aimed at digital services. Even non-digital services such as insurance, consulting, accounting and legal services are potentially included.

The new rules apply when a service is supplied by a non-resident to a New Zealand resident and when that service is not physically performed in New Zealand. If the service was performed in New Zealand, this would be covered by existing tax rules.

Any overseas based company that is likely to turnover $60,000 or more in any given income year (the current threshold for GST) will be required to be registered and collect GST on purchases from New Zealand consumers.

The legislation is intended to impact consumers and not businesses. The rules stipulate that overseas suppliers should presume that a New Zealand resident is not GST-registered unless the customer has provided their GST number. For small businesses that are not GST registered, they are likely to be caught by this tax.

If the payment for the supply (including GST) is NZ$1,000 or less, a non-resident supplier will have the option to provide a tax invoice to the purchaser to allow them to claim a deduction, rather than to refund the GST charged and make the necessary adjustment in their GST return.

When a GST-registered recipient is inadvertently charged GST, they will have to seek a refund from the non-resident supplier, and the non-resident supplier may make a GST adjustment in their GST return when it is apparent that a mistake has been made.

Alternatively the foreign supplier can apply to the Commissioner of Inland Revenue to consider an alternative method when making supplies to a GST registered person. Just what such an alternative method might look like is yet to be determined.

If you’d like to read more, click on the link to read the IRD discussion paper here.

2 thoughts on “GST applied to online services: the Netflix tax”

  1. I purchase CRM (Client Relationship Management) software from the US >$1000 per annum in value payments are made quarterly. The non-resident supplier company would transact >$60k p/a. I am charged in USD and pay via credit card. Currently no GST is applied to the invoice. What will change under this new legislation?

    1. Although the legislation has now passed its third reading, the application of the legislation is still to be determined. We’ll be sure to update you once IRD have considered every circumstance and published in their Tax Information Bulletin later this year.

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