WhatÔÇÖs the Difference Between GST and VAT?

The digital economy has transformed how we do business, and GST rules have evolved to keep pace. If you're running an online business in New Zealand, understanding your GST obligations is essential.

GST Registration Requirements for Online Businesses

The basic GST registration threshold applies to online businesses just as it does to brick-and-mortar operations.

The $60,000 Threshold

You must register for GST if your annual turnover from taxable activities exceeds NZ$60,000 in any 12-month period. For online businesses, this includes:

• Products sold through your own website
• Sales through online marketplaces (like Trade Me, Amazon, or eBay)
• Digital products or services
• Subscription-based online services

All of these sales channels contribute to your total taxable supplies when determining if you've crossed the registration threshold.

Voluntary Registration

Even if your turnover is below $60,000, you may choose to register voluntarily. This could be beneficial if:

• You have significant business expenses with GST that you could claim back
• Your customers are mainly GST-registered businesses
• You want to appear more established to customers and suppliers

For smaller online businesses, the decision to register voluntarily should weigh the administrative requirements against the potential benefits.

Charging GST on Online Sales

Once registered for GST, you need to charge 15% GST on your taxable supplies to New Zealand customers.

Displaying Prices Online

For New Zealand consumer websites, the Fair Trading Act requires that prices displayed to consumers include all compulsory costs, including GST. This means:

• Prices shown to New Zealand consumers should be GST-inclusive
• You can show the GST component separately, but the total price must be clear
• If you sell to both businesses and consumers, you can show prices both including and excluding GST, as long as it's clear which is which

Price Displays on International Platforms

If you sell through international platforms that display prices exclusive of taxes:

• Ensure your pricing strategy accounts for the GST you'll need to pay
• Be clear in your terms and conditions that New Zealand customers will pay GST
• Consider whether the platform adds GST at checkout or if you need to build it into your base price

GST on Different Types of Online Sales

Physical Products

When selling physical goods online to New Zealand customers:

• Charge 15% GST on the sale price
• GST also applies to any shipping or handling charges
• Issue GST-compliant tax invoices for sales over $50 (if requested)

Digital Products and Services

Digital products and online services sold to New Zealand customers are subject to GST. This includes:

• Downloaded software, e-books, or music
• Access to online content or platforms
• Streaming services
• Online consulting or professional services
• Software-as-a-Service (SaaS) subscriptions

The same 15% GST rate applies to these digital supplies.

Subscription Services

For subscription-based services:

• GST applies to each billing cycle
• The time of supply is generally when each payment is due or received
• You must provide customers with tax invoices if requested

International Aspects of E-commerce

Sales to Overseas Customers

One advantage of e-commerce is the ability to easily reach international customers. When selling to customers outside New Zealand:

• These sales are generally zero-rated for GST (taxed at 0%)
• You don't charge GST, but can still claim input tax credits on related expenses
• You must keep evidence that the customer is overseas and that any physical goods were exported

This zero-rating ensures your exports remain competitive in international markets.

Determining Customer Location

For e-commerce businesses, determining whether a customer is in New Zealand or overseas can be challenging, especially for digital products. Common indicators include:

• Customer's billing address
• IP address location
• Payment method details (e.g., country of the credit card)
• Customer's declaration of their location
• Mobile phone country code

It's generally best to use multiple indicators where possible to establish customer location reliably.

Overseas Marketplaces

If you sell through international marketplaces like Amazon, eBay, or Etsy:

• Sales to New Zealand customers are still subject to GST
• You may need to account for GST yourself, even if the platform doesn't collect it
• Some platforms may handle GST collection for you, but you should verify this
• Marketplace fees charged to you by overseas platforms may be subject to the reverse charge mechanism

GST on Imported Goods for Resale

If you import products to sell in your online store:

• You'll pay GST on these imports at the border
• As a GST-registered business, you can claim this back as an input tax credit
• Keep all customs documentation as evidence for your GST claims

This ensures you don't bear the final GST cost on products imported for your business.

GST and Online Marketplaces

Domestic Marketplaces (e.g., Trade Me)

When selling through New Zealand-based online marketplaces:

• You're responsible for your own GST obligations, including registration if you exceed the threshold
• The marketplace will generally charge GST on their fees to you, which you can claim back if registered
• Some marketplaces may display whether a seller is GST-registered, which can be important information for business buyers

International Marketplace Responsibilities

Since 2019, overseas suppliers (including electronic marketplaces) must register for and charge New Zealand GST on low-value goods (under NZ$1,000) sold to New Zealand consumers if their annual sales exceed NZ$60,000.

This means:

• Major platforms like Amazon and eBay generally collect GST on sales to New Zealand
• As a New Zealand seller, you should understand how these platforms handle GST on your behalf
• You may still need to register for GST for your direct sales, even if marketplaces handle GST for platform sales

GST Record-Keeping for Online Businesses

Good record-keeping is particularly important for e-commerce businesses due to the high volume and diverse nature of transactions.

Essential Records

Maintain comprehensive records of:

• All sales, including customer location evidence
• Sales through different channels (own website, various marketplaces)
• Tax invoices issued to customers
• Evidence of export for zero-rated sales
• Invoices for your business expenses
• Import documentation for goods purchased overseas

E-commerce Accounting Software

Consider using accounting software that integrates with your e-commerce platforms. This can:

• Automatically record sales from multiple channels
• Calculate GST correctly based on transaction type
• Generate compliant tax invoices
• Prepare figures for your GST return

Popular options like Xero, Moniaro Books, MYOB, and QuickBooks offer integrations with many e-commerce platforms.

Issuing Tax Invoices

GST-registered businesses must provide tax invoices for taxable supplies over $50 when requested by the recipient.

E-commerce Considerations

For online sales:

• Ensure your e-commerce system can generate compliant tax invoices
• Tax invoices can be sent electronically (e.g., by email)
• Include all required elements, such as your GST number, the words "Tax Invoice," a description of goods or services, and the GST amount

Simplified Tax Invoices

For sales under $1,000, you can issue a simplified tax invoice that includes:

• The words "Tax Invoice"
• Your name and GST number
• The date of issue
• A description of the goods or services
• The total amount payable and a statement that it includes GST

This simplified format can be more practical for e-commerce businesses.

Special E-commerce Scenarios

Dropshipping

If you operate a dropshipping business (where suppliers ship directly to your customers):

• You still charge GST on sales to New Zealand customers
• Your suppliers may charge you GST on their supplies to you
• If using overseas suppliers, consider whether the reverse charge mechanism applies

Digital Product Reselling

If you resell digital products (like software licenses):

• Charge GST on sales to New Zealand customers
• If purchasing from overseas suppliers, you may need to apply the reverse charge
• Maintain clear records of each transaction

Crowdfunding and Pre-orders

For crowdfunding campaigns or pre-orders:

• GST generally applies when there's a direct link between payment and a specific good or service
• Timing of GST liability depends on when the "time of supply" occurs, which is generally when payment is received or an invoice is issued
• Pure donations without an expectation of goods or services in return are not subject to GST

Common GST Challenges for Online Businesses

Multiple Sales Channels

Many e-commerce businesses sell through multiple channels (own website, various marketplaces). This creates challenges in:

• Tracking total sales to determine if you've exceeded the registration threshold
• Ensuring consistent GST treatment across all channels
• Consolidating records for GST reporting

Returns, Refunds, and Chargebacks

E-commerce tends to have higher return rates than traditional retail. For GST purposes:

• When a customer returns a product for a full refund, you can adjust your GST output tax
• For partial refunds, the GST adjustment is proportional to the amount refunded
• Credit card chargebacks can be treated similarly to returns if the sale is effectively cancelled

International Competition

Competing with overseas sellers who may not be charging GST can be challenging. However, with the 2019 rules requiring overseas suppliers to register for GST on low-value goods, this playing field has been somewhat leveled.

Tips for E-commerce GST Compliance

Use Technology to Your Advantage

Leverage technology to simplify GST compliance:

• Use e-commerce platforms with good tax handling capabilities
• Implement accounting software that integrates with your sales channels
• Consider automated solutions for tax invoice generation

Regular GST Reviews

Conduct regular reviews of your GST procedures:

• Verify that all sales channels are correctly accounting for GST
• Check that overseas sales are properly zero-rated
• Ensure marketplace fees and other expenses are correctly treated for GST

Plan for Growth

If your business is growing:

• Monitor your turnover closely as you approach the $60,000 threshold
• Consider registering before you're required to if you're close to the threshold
• Ensure your systems can scale to handle increased GST compliance requirements

Conclusion

GST compliance for e-commerce businesses involves some unique challenges, but with good systems and practices, it can be managed effectively. Understanding your obligations, leveraging appropriate technology, and maintaining thorough records will help ensure you stay compliant while focusing on growing your online business.

Remember that GST rules continue to evolve, particularly in response to the growing digital economy. Staying informed about these changes is essential for e-commerce businesses operating in or selling to New Zealand.