Digital services such as apps, music, videos and e-books are now subject to GST.
Digital services such as apps, music, videos and e-books are now subject to GST.
Last week Revenue Minister Michael Woodhouse acknowledged the 30th anniversary of GST in New Zealand. He also noted that GST will now apply to the purchase of cross-border services by New Zealand-based consumers.
From October 1, 2016, GST applies to certain "remote services". These are services where, atthe time of the performance of the service, there is no necessary connection between the place where the service is physically performed and the location of the recipient of the services. This would include, for example, digital services such as apps, music, videos and e-books as well as certain non-digital services such as insurance and accounting and legal services.
Historically GST would not have applied to these services because they are being supplied by a non-New Zealand resident. The starting point under our GST legislation is that, where a non-resident person or entity makes a supply, it is treated as being made outside New Zealand and therefore not subject to GST. The new rules now treat a supply of "remote services" by a non-resident to a New Zealand consumer as having been made in New Zealand. The new rules do not apply to services that are physically performed in New Zealand.
Netflix has already announced that its prices in New Zealand will be increasing with effect from October 31. Other companies such as Adobe, Microsoft and Apple have similarly alerted customers that GST will now apply to the provision of digital services in New Zealand. The Netflix example provides a good illustration as to why the scope of the GST rules has been extended in this manner. It means Netflix subscribers now pay GST in relation to the supply of television streaming services in the same way that subscribers to local competitor services, such as Neon and Lightbox, pay GST.
While consumers are unlikely to notice much of a change, there will be additional compliance costs for those offshore suppliers that are required to register and return GST.
The Minister noted that the new rules provide "an example of the Government working with the private sector to produce sound tax policy which is fair for all".
Greg Neill is Head of Tax Advisory at Crowe Horwath - Hawke's Bay and can be contacted at greg.neill@crowehorwath.co.nz This information is general in nature and readers should seek specialist advice before making financial decisions.
