How Financial Forecasting Can Guide Your Financial Future

New Zealand businesses that import or export goods and services must navigate specific Goods and Services Tax (GST) rules that differ from purely domestic operations. Understanding these rules is essential for compliance and cash flow management in international trade.

GST Fundamentals for International Trade

The Destination Principle

New Zealand's GST system operates on the destination principle, which means:

• Goods and services consumed in New Zealand are subject to GST (generally at 15%)
• Exports (goods and services consumed outside New Zealand) are generally zero-rated for GST
• Imports (goods and services brought into New Zealand) are generally subject to GST

This approach aims to ensure that GST is paid where consumption occurs, regardless of where the supplier is located.

Registration Requirements for International Traders

Like other businesses, importers and exporters must register for GST if their taxable supplies in New Zealand exceed (or are expected to exceed) NZ$60,000 in any 12-month period. For importers and exporters, these considerations apply:

• Zero-rated exports count toward the registration threshold (even though they don't attract GST)
• Overseas businesses making taxable supplies in New Zealand may need to register
• Some international businesses may choose to register voluntarily to claim GST on business expenses
• Specific rules apply to non-resident businesses depending on their circumstances

GST on Exports from New Zealand

Zero-Rating Exports

Goods and services exported from New Zealand are generally zero-rated for GST, which means:

• Exporters charge GST at 0% (not exempt from GST, but rated at zero)
• Zero-rated supplies still count as taxable supplies for GST registration purposes
• Exporters can claim GST credits on expenses related to making these zero-rated supplies
• This ensures exports are not burdened with New Zealand GST when competing in international markets

Requirements for Zero-Rating Goods

To qualify for zero-rating, exported goods must:

• Be entered for export under the Customs and Excise Act
• Be exported within 28 days of the time of supply (or within an extended period approved by Inland Revenue)
• Not be used before export except to prepare them for export
• Be supplied to a recipient who is outside New Zealand at the time of delivery

Documentation proving export (like export declarations, bills of lading, and customs entries) must be kept to support zero-rating.

Temporary Imports and Re-Exports

For goods temporarily imported into New Zealand and later re-exported:

• A temporary import entry can be used, allowing goods to enter without payment of GST
• Security or a temporary import bond may be required
• The goods must be re-exported within the specified timeframe
• If not re-exported on time, GST becomes payable

Zero-Rating Services Exports

Services exported from New Zealand may be zero-rated if they meet specific criteria:

• Services physically performed outside New Zealand
• Services supplied directly in connection with land or movable property outside New Zealand
• Services supplied to a non-resident who is outside New Zealand when the services are performed
• Services that are not directly connected with land or movable property in New Zealand
• Services that are not supplied directly in connection with goods in New Zealand (with some exceptions)

The rules for services are more complex than for goods, and careful analysis is required for each situation.

GST on Imports into New Zealand

GST on Imported Goods

When goods are imported into New Zealand:

• GST is generally charged at 15% on the customs value plus duty (if any) plus transport and insurance costs to New Zealand
• The New Zealand Customs Service collects GST at the border for most commercial imports
• For low-value goods (under NZ$1,000), overseas suppliers may collect and remit GST directly
• GST-registered businesses can claim back the GST paid on imports used in their taxable activity

Timing of GST on Imports

Understanding when GST is paid and claimed is important for cash flow:

• GST is typically paid to Customs when goods are cleared for import
• GST-registered importers can claim this GST as an input tax credit in their next GST return
• This creates a timing difference that can affect cash flow
• The deferred GST scheme allows qualifying importers to defer payment of GST on imports, eliminating this cash flow impact

GST on Imported Services

GST on imported services (including digital services and remote services) operates under these rules:

• Overseas suppliers making supplies to New Zealand consumers must register, collect, and return GST if their supplies exceed NZ$60,000 per year
• For business-to-business supplies, the GST reverse charge mechanism may apply
• The reverse charge requires the New Zealand recipient to self-assess GST on the imported service
• This is declared as both output tax and input tax in the recipient's GST return (often resulting in a neutral GST position for fully taxable businesses)

Special GST Situations in International Trade

GST and Customs Warehouses

Customs-controlled warehouses offer GST advantages for importers:

• Goods can be stored without payment of GST until they're released for domestic consumption
• Goods can be processed, manufactured, or repacked within the warehouse
• If goods are exported directly from the warehouse, no GST is payable
• This arrangement can improve cash flow for businesses that import then re-export goods

GST on International Transportation

Special rules apply to international transport and related services:

• International transportation of goods to or from New Zealand is generally zero-rated
• International transportation of passengers to or from New Zealand is generally zero-rated
• Insurance related to international transport is typically zero-rated
• Services supplied directly in connection with containers used for international transport are zero-rated

These rules ensure transport services aren't burdened with GST in international commerce.

GST and Customs Duties

The interaction between GST and customs duties is important for importers:

• GST is calculated on the customs value plus any duty
• Duty concessions don't automatically provide GST relief (GST still applies to the duty-free value)
• Free Trade Agreements may reduce or eliminate customs duties but don't affect GST
• GST and duty are separate issues, each with its own rules and exemptions

GST Compliance for Importers and Exporters

Record-Keeping Requirements

Robust documentation is essential for GST compliance in international trade:

• Export documentation proving goods left New Zealand (for zero-rating)
• Import entries and evidence of GST payment
• Commercial invoices showing the supply and its nature
• Evidence of recipient location for service exports
• Transportation documents (bills of lading, airway bills)
• Proof of payment and banking records

Records must be kept for at least 7 years from the end of the tax year to which they relate.

Common GST Issues for Importers

Importers should be aware of these common GST challenges:

• Cash flow impact of paying GST on imports before claiming it back
• Ensuring correct customs valuation for GST calculation
• Applying GST reverse charge correctly on imported services
• Managing GST on low-value imports (under NZ$1,000)
• Understanding when to use temporary import provisions

Common GST Issues for Exporters

Exporters face these typical GST challenges:

• Proving exports occurred within required timeframes
• Determining whether service exports qualify for zero-rating
• Managing GST when exports are via a third party
• Handling returned goods that were previously exported
• Ensuring export documentation meets Inland Revenue requirements

Managing GST Cash Flow in International Trade

Strategies for Importers

Importers can optimize their GST cash flow with these approaches:

• Consider the deferred GST scheme to eliminate the timing difference between payment and claiming
• Choose the most favorable GST filing frequency (monthly for regular importers)
• Use customs warehousing to delay GST payment until goods are needed
• Explore duty concession schemes that reduce the GST-inclusive value
• Consider the cash flow impact when negotiating payment terms with overseas suppliers

Strategies for Exporters

Exporters can optimize their GST position with these approaches:

• Ensure all qualifying exports are correctly zero-rated
• Choose the most favorable GST filing frequency (monthly for businesses regularly receiving GST refunds)
• Maintain robust documentation to support zero-rating
• Consider the GST implications when structuring contracts and pricing
• Understand the GST rules in destination countries (especially important for service providers)

GST for Specific International Business Models

Drop Shipping and GST

Drop shipping (where a New Zealand business sells goods that are shipped directly from an overseas supplier to the customer) has specific GST considerations:

• Sales to New Zealand customers are subject to GST at 15%
• Sales to overseas customers may qualify for zero-rating
• The GST treatment doesn't change simply because the goods don't physically enter New Zealand
• Drop shippers need to understand both New Zealand GST rules and the tax implications in source and destination countries

E-commerce and Digital Services

Online retailers and digital service providers face specific GST challenges:

• Overseas suppliers must register and charge GST on digital services provided to New Zealand consumers
• New Zealand e-commerce businesses selling overseas can generally zero-rate these supplies
• Systems must identify customer location to apply the correct GST treatment
• Marketplaces and platforms may have GST obligations for sales made through their services

Agents and Intermediaries

When agents are involved in international trade:

• The GST treatment depends on whether the agent acts as principal or agent
• Agents acting in their own name may have different GST obligations than those acting on behalf of disclosed principals
• Commission and fee structures should clearly address GST
• Documentation should clearly establish the role of each party for GST purposes

GST Refunds for Overseas Businesses

Non-Resident GST Registration

Overseas businesses may register for New Zealand GST if they:

• Make taxable supplies in New Zealand exceeding the registration threshold
• Incur significant New Zealand GST on business expenses
• Want to simplify GST compliance for their New Zealand operations
• Need to claim GST refunds on business expenses in New Zealand

The non-resident registration process has specific requirements and considerations.

Recovering GST as a Foreign Business

Overseas businesses can recover New Zealand GST in several ways:

• Register for GST if making taxable supplies in New Zealand
• Use the special registration option for non-resident businesses
• Appoint a New Zealand agent who can claim the GST
• Structure arrangements to minimize irrecoverable GST

Not all GST incurred by overseas businesses can be recovered, so careful planning is important.

Recent GST Changes Affecting International Trade

GST on Low-Value Imported Goods

Since December 2019, New Zealand has required:

• Overseas suppliers to register for, collect, and return GST on low-value goods (under NZ$1,000) supplied to New Zealand consumers
• Electronic marketplaces and re-deliverers may be responsible for GST in certain circumstances
• GST-registered businesses can provide their GST number to suppliers to avoid this GST charge
• This system replaces the previous collection at the border for low-value goods

Digital Services GST

Since October 2016:

• Overseas suppliers must register for, collect, and return GST on remote services (including digital services) supplied to New Zealand consumers
• A simplified registration system is available for these suppliers
• Business recipients use the reverse charge mechanism instead
• This "Netflix tax" ensures offshore digital services face the same GST treatment as domestic providers

Planning for International GST Compliance

GST Risk Management

Businesses can manage GST risks in international trade by:

• Developing clear policies for determining the GST treatment of different international supplies
• Implementing robust documentation systems
• Training staff on GST requirements for international transactions
• Conducting periodic reviews of GST compliance
• Seeking professional advice for complex situations

Working with Customs Brokers and Freight Forwarders

Professional service providers can assist with GST compliance:

• Customs brokers can manage import entries and GST payment at the border
• Freight forwarders can help ensure export documentation supports zero-rating
• These professionals understand the interaction between customs and GST requirements
• Their expertise can prevent delays and compliance issues

Professional Advice

Given the complexity of international GST:

• Consider engaging a tax advisor with international GST expertise
• Seek advice when entering new markets or changing business models
• Professional guidance is valuable for complex transactions or arrangements
• The cost of advice is generally GST-deductible and can prevent costly errors

Conclusion

GST for importing and exporting businesses introduces additional complexity compared to purely domestic operations. The zero-rating of exports, GST on imports, and special rules for international services all require careful attention to ensure compliance while optimizing cash flow.

The key to successful GST management in international trade is understanding which supplies are taxable in New Zealand, maintaining robust documentation, and implementing systems that correctly identify and apply the appropriate GST treatment to each transaction.

With proper planning and compliance systems, businesses can navigate these complex rules successfully, ensuring they meet their GST obligations while taking advantage of available concessions and optimizing their cash flow position.