New Zealand to require foreign sellers of low-value goods to register for GST
The New Zealand government has released proposals that would require certain foreign sellers, online marketplaces and re-deliverers of goods to register for, collect and return GST on items delivered to a New Zealand address, if the value of the goods is NZ$400 or less, from October 1 2019, write Brendan Brown and Matt Woolley of Russell McVeagh.
Under existing law, foreign sellers are generally not required to register for, collect or return GST on items delivered from outside New Zealand to a New Zealand address. Rather, the New Zealand Customs Service (Customs) collects GST on imported goods from the New Zealand importer (normally the customer) when the goods arrive in New Zealand. Customs does not charge or collect duty or taxes (including GST) where the amount payable on any one importation is less than NZ$60 ($41). The NZ$60 de minimis generally equates to a parcel value of approximately NZ$400, but can be as low as NZ$226 depending on whether tariffs apply.
The growth of online shopping has resulted in the volume of imported goods on which GST is not collected becoming increasingly significant. For this reason, there has been a concern that the NZ$60 de minimis places New Zealand retailers (who must charge and collect GST on all sales of goods) at a comparative disadvantage. A conservative estimate by the government put the GST foregone due to the NZ$60 de minimis at around NZ$80 million for the 2016 calendar year.
Foreign seller registration considered by the tax working group
The proposal for foreign sellers of goods to register for GST comes following consideration of the issue, on an expedited basis, by the government's tax working group. The tax working group was established by the new government late last year to look at the structure, fairness and balance of New Zealand's tax system. It is chaired by a former minister of finance and its 10 other members include a mix of tax experts and experts from other disciplines.
An interim report by the group is expected in September 2018. Interestingly, the government asked for the group's recommendations about how to collect GST on low-value imported goods ahead of the interim report. The group recommended foreign sellers collect GST at the point of sale due to practical concerns with other options, which involved GST collection between the point of sale and delivery, or from the consumer, after delivery.
Proposed rules would apply to foreign sellers, online marketplaces and re-deliverers
Foreign sellers (including online marketplaces and re-deliverers) that supply goods and services worth NZ$60,000 or more to New Zealand customers in a 12-month period will be required to register for and return GST under the proposed rules. An online marketplace will need to register when customers would normally consider the marketplace to be the seller. This is likely to be the case if the marketplace authorises the charge to the customer, authorises delivery of the goods to the customer, or sets any of the terms and conditions of the transaction. The rules will also apply to re-deliverers that facilitate the purchase and delivery of goods into New Zealand.
The proposed rules would not apply to imports of alcohol and tobacco products, on which GST as well as excise-equivalent duty will continue to be collected at the border.
A consequence of the proposed rules is that any applicable tariffs and cost recovery charges (currently NZ$49.24 per import entry) will be removed for imported goods valued at NZ$400 or less.
Other proposed design features are similar to New Zealand's rules for collecting GST on cross-border services, and to the recently enacted rules for low-value imported goods in Australia. The proposed features include:
· An exclusion for goods supplied to New Zealand GST-registered businesses, unless the foreign seller decides to zero-rate the supply (this would allow the foreign seller to claim any New Zealand GST paid that is associated with business-to-business supplies).
· A simplified "pay only" system for foreign sellers who are not claiming any New Zealand GST paid in relation to their supplies to New Zealand consumers.
· Quarterly GST return filing for foreign sellers whose only New Zealand supplies consist of cross-border goods.
Aspects of the proposed rules are likely to be contentious
While at a general level the proposals were expected and are consistent with initiatives other countries are taking, aspects of the proposals are contentious and will likely be a focal point in submissions. For example:
Thresholds: the proposed NZ$400 boundary between low-value goods (on which the foreign seller will be required to pay GST to Inland Revenue) and higher value goods (on which it is intended that GST is paid by the customer to Customs at the border) seems to have been driven by fiscal considerations and assumes that Customs will collect GST on goods with a value exceeding NZ$400. A higher threshold (Australia's, for example, will be A$1,000 ($751)) may reduce compliance costs for foreign sellers, consumers and Customs.
Consolidating consignments: Clearer rules are required to determine when a foreign seller can treat supplies of multiple low-value goods as exceeding the threshold. For example, when can the sale of two pairs of shoes, each with a value of NZ$250, be treated as exceeding the NZ$400 threshold.
Delivery costs and the value of goods: In determining if the current NZ$60 de minimis applies, the value of goods for GST purposes includes duty (if applicable), and postal/courier and insurance charges. It is unclear whether foreign sellers will need to account for such charges when determining whether a consignment is under the NZ$400 threshold.
GST for marketplaces and re-deliverers: Foreign online marketplaces and re-deliverers who facilitate the cross-border sale of goods on behalf of foreign sellers will likely want further clarity about when they will be required to collect and return GST.
Limiting the market: It remains to be seen whether some foreign sellers will choose not to supply to New Zealand customers rather than incur the compliance costs of registering for and collecting New Zealand GST. The Government will hopefully be alert, throughout the consultation process, to compliance cost concerns and the need for certainty as to how the rules will apply.
Interested parties can make submissions on the Government's consultation document GST on low-value goods: An offshore supplier registration system until June 29 2018. Foreign sellers, online marketplaces and re-deliverers shipping goods to New Zealand customers should consider the proposals set out in the consultation document, and take the opportunity to provide feedback. Following consultation, legislation is expected to be tabled in parliament later this year.
This article was contributed by Brendan Brown and Matt Woolley of Russell McVeagh.