Tax and International Trade Update – May 2018

GST on low value goods: A foreign seller registration system

What is being proposed?

• The New Zealand Government has released proposals that from 1 October 2019, would require certain foreign sellers, online marketplaces and re-deliverers of goods to register for, collect and return GST on items delivered to a New Zealand address, if the value of the goods is NZ$400 or less.

Who will need to register and return GST?

• Foreign sellers (including online marketplaces and re-deliverers) that supply above NZ$60,000 worth of goods and services to New Zealand customers in a 12-month period will need to register for and return GST. Supplies to New Zealand GST-registered businesses will not count towards the NZ$60,000 threshold unless the foreign seller chooses to zero-rate those supplies (this will allow the foreign seller to claim New Zealand costs associated with business-to-business supplies).
• An online marketplace will only need to register when customers would normally consider the marketplace to be the seller. This is likely to be the case if the marketplace authorises the charge to the customer, authorises delivery of the goods to the customer, or sets any of the terms and conditions of the transaction. Amazon, Asos Marketplace and Alibaba are examples of online marketplaces that could be required to register. The rules will also apply to re-deliverers that facilitate the purchase and delivery of goods into New Zealand.

What supplies of goods will be subject to GST?

• The new rules will not apply to imports of alcohol and tobacco products (and fine metals), on which GST as well as excise-equivalent duty will continue to be collected at the border.
• The new rules will apply equally to supplies of a single low-value good (valued at or below NZ$400) and multiple low-value goods that total NZ$400 or less in one transaction.

What processes apply for registration and filing returns?

• A simplified "pay only" system will apply for foreign sellers who are not claiming any New Zealand-based GST costs on their supplies of low-value goods to New Zealand consumers. Foreign sellers whose only New Zealand supplies consist of low-value goods will need to file quarterly returns (rather than on the one-monthly, two-monthly or six-monthly basis that applies to domestic sellers).

What about tariffs and Customs cost recovery charges?

• All tariffs and cost recovery charges (currently NZ$49.24 per import entry) will be removed from imported goods valued at or below NZ$400 (regardless of whether the foreign seller is GST registered). Currently, these tariffs and charges are generally not collected by Customs, as a result of a de minimis rule.

How will Inland Revenue enforce the proposed rules?

• New Zealand can request other countries with which it has entered into tax treaties (who include major trading partners) to collect and provide information, assist in the service of documents, and collect unpaid GST on New Zealand's behalf. The penalties and interest that can apply to domestic sellers will also apply to foreign sellers.

What does the Government's consultation process look like?

• The Government has issued a consultation document – GST on low-value imported goods: An offshore supplier registration system. Submissions can be made until 29 June 2018. Following consultation, legislation is expected to be tabled in Parliament later this year. If enacted, the new rules would apply from 1 October 2019. Further information, including the consultation document can be found here.

Is the proposal likely to be contentious?

While at a general level the proposals were expected and are consistent with initiatives other countries are taking, aspects of the proposals are contentious and will likely be a focal point in submissions. For example:

• Thresholds – The proposed NZ$400 boundary between low-value goods (on which the foreign seller will be required to pay GST to Inland Revenue) and higher value goods (on which it is intended that GST is paid by the customer to Customs at the border) seems to have been driven by fiscal considerations and assumes that Customs will collect GST on goods with a value exceeding NZ$400. Would a higher threshold (Australia's, for example, will be A$1,000) reduce compliance costs for foreign sellers, consumers and Customs?
• Consolidating consignments – Clearer rules are required to determine when a foreign seller can treat supplies of multiple low-value goods as exceeding the threshold (eg, when can the sale of two pairs of shoes, each with a value of NZ$250, be treated as exceeding the NZ$400 threshold?).
• Delivery costs and the value of goods – In determining if the current NZ$60 de minimis applies, the value of goods for GST purposes includes duty (if applicable), postal/courier and insurance charges. It is unclear whether foreign sellers in determining whether a consignment is under the NZ$400 threshold will need to account for postal/courier and insurance charges.
• GST for marketplaces and re-deliverers – Foreign online marketplaces and re-deliverers who facilitate the cross-border sale of goods on behalf of foreign sellers will likely want further clarity about when they will be required to collect and return GST. 
• Limiting the market – It remains to be seen whether some foreign sellers will choose not to supply to New Zealand customers rather than incur the compliance costs of registering for and collecting New Zealand GST. The Government will hopefully be alive, throughout the consultation process, to compliance cost concerns and the need for certainty.