How to Prepare for Your First GST Audit

International transactions have specific GST rules that differ from domestic sales. Understanding how GST applies to imports and exports is essential for New Zealand businesses engaged in international trade.

GST on Exports

When New Zealand businesses export goods or services to overseas customers, these transactions are generally zero-rated for GST purposes.

What Zero-Rating Means

Zero-rating means that GST is charged at a rate of 0%. This is different from being GST-exempt because:

• You don't charge GST on your exported goods or services
• You can still claim GST input credits on the expenses related to making those exports

This zero-rating system ensures that New Zealand exports remain competitive in international markets, as they don't include a GST component in their price.

Qualifying for Zero-Rating on Exported Goods

For goods to qualify for zero-rating as exports, they must be:

• Exported from New Zealand by or on behalf of the supplier
• Physically delivered to a location outside New Zealand
• Not used in New Zealand before export, except for actions necessary for the export

You must maintain evidence that the goods have been exported, such as:

• Customs documentation
• Bills of lading or airway bills
• Commercial invoices showing overseas delivery
• Proof of payment from overseas

If goods aren't exported within 28 days of the time of supply (or another period agreed with Inland Revenue), you may need to charge GST and then make an adjustment once the goods are exported.

Zero-Rating for Exported Services

Services can be zero-rated when they are:

• Supplied to a non-resident who is outside New Zealand at the time the services are performed
• Not directly related to land or moveable personal property in New Zealand (with some exceptions)
• Not supplied directly in connection with goods in New Zealand at the time the services are performed

Examples of services that can often be zero-rated include:

• Consulting services provided remotely to overseas clients
• Digital services delivered online to overseas customers
• Design work for overseas projects
• Training or educational services provided remotely

The rules for services can be complex, particularly for services that relate to land or goods in New Zealand, or where the benefit of the service might be received by someone in New Zealand even if the customer is overseas.

Special Cases for Exports

Tourist Purchases (The Tourist Refund Scheme)

When overseas tourists purchase goods in New Zealand, they generally pay GST. However, for goods over $500 that tourists take out of New Zealand, retailers can zero-rate these sales if:

• The retailer sees the tourist's passport
• The goods are exported within two months of purchase
• The retailer keeps appropriate documentation

Businesses Selling to Tourists

Businesses specifically selling to tourists may be able to zero-rate their sales even when the goods are delivered in New Zealand, provided they:

• Verify the purchaser is a tourist
• Ensure the goods will be exported
• Maintain appropriate records

GST on Imports

When goods are imported into New Zealand, GST is generally payable at the border before the goods are released.

How Import GST Works

GST on imports is collected by New Zealand Customs and is calculated on the:

• Customs value of the goods
• Plus any duty payable
• Plus freight and insurance costs

This combined value is known as the "GST-inclusive value for imported goods."

Claiming Back Import GST

If you're GST-registered and import goods for use in your taxable activity, you can claim the GST paid on imports as an input tax credit on your GST return. To do this, you'll need:

• The Customs import entry form
• Evidence of payment of GST to Customs

This system ensures that businesses don't bear the final GST cost on imported goods used for business purposes, similar to domestic purchases.

Low-Value Imported Goods

Since December 2019, New Zealand has required overseas suppliers to register for and charge GST on low-value goods (under NZ$1,000) sold to New Zealand consumers. This means:

• Overseas retailers selling more than NZ$60,000 of goods to New Zealand customers annually must register for New Zealand GST
• They must charge 15% GST on goods valued at NZ$1,000 or less
• For these goods, GST is not collected at the border by Customs

For goods valued over NZ$1,000, GST continues to be collected by Customs at the border when the goods enter New Zealand.

Temporary Imports

Goods temporarily imported into New Zealand may be eligible for GST relief if they will be exported within 12 months. Examples include:

• Equipment for trade shows or exhibitions
• Professional equipment brought in for specific projects
• Samples for business purposes

To qualify for temporary import relief, you generally need to apply to Customs and may need to provide security for the GST that would otherwise be payable.

GST on Imported Services (Remote Services)

New Zealand has extended GST to cover "remote services" supplied by non-resident businesses to New Zealand consumers. This includes:

• Digital products and services (streaming services, downloaded software, etc.)
• Online subscriptions
• Consulting or professional services delivered remotely
• Online gaming, gambling, or betting services

How It Works

Overseas suppliers must register for New Zealand GST if they supply more than NZ$60,000 of remote services to New Zealand consumers in a 12-month period. They must then:

• Determine if their customer is a New Zealand resident
• Charge 15% GST on services supplied to New Zealand consumers
• File GST returns and pay the collected GST to Inland Revenue

Business-to-Business Supplies

For remote services supplied to GST-registered New Zealand businesses (rather than consumers), special rules may apply:

• If the supply is for use in making taxable supplies, the New Zealand business recipient may account for GST under the "reverse charge" mechanism
• The business both pays and claims the GST in their GST return, resulting in a net-zero effect (provided the services are used 100% for making taxable supplies)

This prevents competitive disadvantages between domestic and overseas service providers.

Special Considerations for International Transactions

Currency Conversion

For GST purposes, foreign currency transactions must be converted to New Zealand dollars. You can use:

• The Customs exchange rate for imported goods
• The IRD approved exchange rates
• Actual rates used in your business, if they're based on a reputable source

Time of Supply Rules

Determining when GST becomes payable on international transactions can be complex. Generally:

• For imported goods, GST is payable when the goods are entered for home consumption
• For exported goods, normal time of supply rules apply (generally when an invoice is issued or payment is received, whichever comes first)

Commercial Arrangements

When engaging in international trade, it's important to be clear about who is responsible for various taxes and duties. Common international trade terms (Incoterms) specify responsibilities, but may not explicitly address GST obligations.

Compliance for International Transactions

Record-Keeping Requirements

Maintaining thorough records is essential for GST compliance on international transactions. Key records include:

• Commercial invoices showing overseas customer details for exports
• Proof of export (shipping documents, Customs entries, etc.)
• Import documentation and evidence of GST payment
• Evidence of customer location for remote services

Records should be kept for at least 7 years.

Common Pitfalls to Avoid

For Exports:

• Failing to obtain and retain adequate proof of export
• Incorrectly zero-rating services that don't qualify
• Not accounting for GST when export timeframes are exceeded

For Imports:

• Not including all costs (like freight and insurance) in the GST calculation
• Missing input tax credit claims for GST paid on imports
• Failing to account for GST on imported services under the reverse charge mechanism

GST Audits and International Transactions

International transactions often receive extra scrutiny during GST audits. Having clear, well-organized documentation is your best protection. Areas commonly examined include:

• Validation of zero-rated exports
• Correct application of the reverse charge on imported services
• Proper treatment of transactions with related overseas entities

Planning for International Transactions

Cash Flow Considerations

International transactions can create cash flow challenges for GST. For example:

• On imports, you pay GST at the border but may not claim it back until your next GST return
• For exports, you may accumulate input tax credits, potentially putting you in a regular refund position

Consider these factors when planning your cash flow and GST filing frequency.

GST Registration Strategy

If you're primarily an exporter, being GST-registered is usually beneficial because you can claim input tax credits while zero-rating your sales. For importers, GST registration allows you to recover the GST paid on imports.

Working with Customs Brokers and Freight Forwarders

Professional customs brokers and freight forwarders can help navigate the GST implications of international trade. They can:

• Ensure correct documentation for zero-rating exports
• Manage GST payment on imports
• Advise on temporary import provisions

Conclusion

GST on international transactions involves specific rules that differ from domestic transactions. Understanding these rules is essential for New Zealand businesses engaged in importing or exporting goods and services.

The zero-rating of exports and the imposition of GST on imports creates a level playing field for domestic and international commerce, ensuring that GST is ultimately paid by the end consumer in the country where consumption occurs.

Given the complexity and potential financial impact of GST on international transactions, seeking professional advice for your specific situation is often a wise investment, particularly when entering new markets or establishing new international business relationships.