New Zealand GST is pretty unique in the world as it has very little exemptions. Almost all countries have similar kind of tax in their jurisdiction called VAT or GST. New Zealand’s goods and services tax (GST) system is based on the “destination principle”. This principle ensures that tax is charged by the provider of goods and services to the consumer based on their destination.

In cross border business to business transaction sometimes it is hard to determine the destination of a recipient. In determining the location of the recipient, New Zealand has, since relied on Wilson & Horton decision [Wilson & Horton v Commissioner of Inland Revenue [1996] 1 NZLR 26], which provides direction in determining the location of the recipient.

The GST Act requires services supplied to non-residents who are outside New Zealand at the time the services are performed to be zero-rated. This rule ensures that GST does not form part of the costs to overseas consumers. 
The problem starts when the contractual recipient is a non-resident, but the physical receipt of the services takes place in New Zealand. According to the GST Act if services are performed in New Zealand the GST must be charged at 15% notwithstanding the recipient is a non-resident.

GST paid in New Zealand by non-resident businesses has been dead money for them as there is no way they could seek reimbursement of the tax paid. This also put off some businesses to do business with New Zealand. 
In order to make New Zealand more desired place for non-resident businesses. A New Registration process Section 54(B) is inserted in GST Act 1985, which will allow non-resident business to register for GST and seek refund of the tax paid.

The example of situations where non-resident can lose money can be:
1. Aviation industry where training courses taken by employees of overseas business in New Zealand
2. Costs of running management conferences in New Zealand by overseas business.
3. Advertising and marketing activities, feasibility study, set up costs, and training courses etc.

The new regime requirements are as follows, 
1. The GST refund claimed in first GST period is likely to be more than $500.
2. The non-resident business, 
a. Is registered for the consumption tax in the country of residence,
b. If there is no consumption, the non-resident is carrying on a business with a turnover of more than $60,000 in a 12-month period.

3. The non-resident is not carrying on a taxable activity in New Zealand and it is not a member of a group of companies that is carrying on a taxable activity in New Zealand.
4. If the non-resident start making taxable supplies in New Zealand, it cannot be a non-resident GST business claimant. The business is deemed to become a regular GST customer, which means it operates the same as the other New Zealand business in terms of GST.

Example: Company A operates in Malaysia. It sends its staff to receive technical training from the University of Auckland. The staff returns back to Malaysia after completing the training course. Company A can claim back all paid GST during the study period. 
Reference:- Goods and Services Act 1985, and taxpolicy.govt.nz

About the author:
Saurav Wadhwa is an Auckland based chartered accountant and a director of IBBZ Accounting Limited. Saurav is a tax specialist with Masters in Tax with Distinction (Auckland) and have 10 years of experience in the industry. He is very passionate about helping small business owners. His easy going personality and a friendly nature makes him easily approachable. For all your tax problems, small business accounting, overdue tax returns, tax debt, tax consultancy, and IRD audits & disputes you can contact him at This email address is being protected from spambots. You need JavaScript enabled to view it. or 027 5555 458.

Disclaimer:
Information above is provided for general use only, if you are intending to rely on any of the information above please consult with us or seek a professional advice. We accept no responsibility of what so ever if above information result in any kind of loss to you, tax laws differs and varies for individual circumstances.

Date: 04 April 2014