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Inland Revenue

Tax Policy

Chapter 5 - Services included and excluded

5.1 Before considering which offshore suppliers might be required to register and return GST (discussed in the next chapter), it is important to consider what services are included and whether there should be any exceptions to the proposed rules.

5.2 It is proposed that the new rules would cover a broad range of services with the main exceptions being for supplies to New Zealand-registered businesses, as well as for existing exemptions and zero-rated provisions that currently apply to domestic suppliers. To ensure neutrality is maintained, it is critical that supplies by non-residents and resident businesses are placed on an equivalent footing.

Services included

5.3 The definition of “services” in the GST Act includes anything other than physical goods or money. It is proposed that any new place of supply rule would, subject to the stated exceptions, cover services as defined in the Act.

5.4 This is a broad definition, and in the context of supplies of remote services and intangibles, would include digital services that are typically electronically delivered (such as digital downloads, online music and video streaming services, online gaming and other digital services), as well as more traditional cross-border services supplied remotely by a person offshore (such as professional advice like legal and accountancy services).

5.5 While some countries have limited their rules to digital services only, in the New Zealand context we consider a broader definition of services would be more appropriate. If the rule was limited to digital services there is a risk that the rule could:

  • Bias consumer decisions on whether to purchase digital or non-digital services. For example, the rules may create an artificial distinction between a legal opinion produced by a non-resident that is provided via email and one that is sent through the postal service. (Ideally, tax should not influence people’s decisions to purchase a particular type of service or influence the delivery method of a particular service).
  • Make the rules more complex as suppliers would be required to determine whether a supply of services is “digital” and therefore subject to GST.

5.6 As mentioned above, a broad definition of “services” is consistent with New Zealand’s broad-based GST system and is also consistent with the approach recently announced in Australia. (See attached appendix for more information.)

Supplies to GST-registered New Zealand-resident businesses

5.7 An important consideration in looking at the scope of any new rules is whether offshore suppliers should be required to return GST in relation to:

  • both supplies to New Zealand consumers (business-to-consumer supplies) and registered businesses (business-to-business supplies); or
  • to business-to-consumer supplies only.

5.8 In Europe, similar rules are limited to business-to-consumer supplies. This approach is also more consistent with the OECD draft guidelines. However, other countries (such as South Africa) have applied the rules to both business-to-consumer and business-to-business supplies, one reason being to reduce the compliance costs associated with suppliers having to distinguish between individual consumers and businesses.

5.9 There are, however, a number of perceived advantages in applying the rules only to business-to-consumer supplies:

  • From a revenue perspective there is little value in applying GST to business-to-business supplies. This is because New Zealand businesses, if registered, would be able to claim back any GST they were charged by an offshore supplier to the extent the GST costs were incurred in making taxable supplies.
  • Tax invoice requirements could be relaxed because no New Zealand consumers charged with GST would be in a position to claim back the GST. Relaxed invoice requirements would lower compliance costs for offshore suppliers.
  • There are some fiscal risks associated with applying GST to business-to-business supplies as less reputable offshore suppliers may purport to charge GST but not return the GST. Registered New Zealand businesses would then seek to claim the GST back in the normal manner.
  • If the rules applied to business-to-business supplies there could in some cases be timing disadvantages for New Zealand businesses if they charged GST and then had to claim that GST back. This could be particularly problematic in relation to high value business-to-business supplies (for example, a high-value software package purchased by a New Zealand business).
  • The European Union, which has applied an offshore supplier registration system since 2003, only requires offshore suppliers to return GST on business-to-consumer supplies. Considering the size of this market, it is likely that suppliers would have built systems to operate in this environment. Therefore, this option may be more readily accepted by offshore suppliers.
  • The approach proposed in Australia is also limited to business-to-consumer supplies and there will be inherent advantages with adopting similar rules, particularly for offshore suppliers that supply services to Australia and New Zealand.

5.10 There are, however, some disadvantages in applying the rules only to business-to-consumer supplies:

  • Excluding business-to-business supplies would mean offshore suppliers would be required to determine whether they were supplying to a business or an individual consumer. This could be difficult and may impose compliance costs on suppliers.
  • Revenue could be foregone if individuals represented themselves as a registered business and were able to avoid the GST.

5.11 There are pros and cons to each approach and submissions are sought on which approach is preferred.

5.12 If business-to-business supplies are included, consideration would need to be given to the invoice requirements that would be placed on offshore suppliers to enable business recipients to claim back the GST. This would involve a trade-off between the need to make requirements simple for offshore suppliers but for sufficient information to be held by domestic businesses to substantiate input tax claims.

5.13 Alternatively, if business-to-business supplies are excluded, these supplies may need to be treated as zero-rated supplies. This would ensure that any New Zealand GST incurred in relation to these supplies could be claimed back by the offshore supplier. In addition, submissions are sought on whether offshore suppliers that solely supply services to New Zealand-registered businesses would be required to register and whether these supplies would be included in calculating the registration threshold (as discussed in the next chapter).


Ad Co is an offshore supplier of online advertising services. Ad Co supplies advertising services to New Zealand businesses all of whom are GST-registered.

If business-to-business supplies are excluded, Ad Co would not be required to register for New Zealand GST as it only makes supplies to GST-registered businesses. If Ad Co decided to voluntarily register, the services it supplies could be zero-rated for GST purposes and Ad Co would be able to claim back any New Zealand GST it incurs on its costs in the course of making those supplies.

5.14 In many instances, offshore suppliers would be able to assume their services were being received by individual consumers given the nature of their supplies. Chapter 7 discusses how offshore suppliers would practically be able to determine whether their customer was a registered business if business-to-business supplies are excluded.

How the rules apply to certain supplies

5.15 As we have noted, the legislation would need to ensure that a non-resident is not materially disadvantaged or advantaged compared with a New Zealand-resident business making comparable supplies. This would ensure that GST remains fair and equitable. In particular there would need to be comparable treatment for:

  • exempt supplies;
  • zero-rated supplies; and
  • specific industries.

Exempt services

5.16 Services that are already exempt from New Zealand GST should retain that character irrespective of the residence of the supplier. New Zealand has a very broad-based GST system, with very few exemptions. The main exemptions are the supply of financial services to final consumers (financial services to businesses would be excluded by the business-to-business exclusion discussed above) and residential accommodation.[11] Having few exemptions should make it easier for offshore suppliers to comply with the New Zealand GST system compared with countries that have many exemptions.

Zero-rated services

5.17 It is proposed that supplies currently zero-rated for domestic suppliers be similarly zero-rated for non-resident suppliers. In these situations, the consumption is generally attributed to a location outside New Zealand and therefore should not be subject to New Zealand GST. An example would be services supplied directly in connection with land or other immoveable property that is located outside New Zealand.[12]

5.18 In saying this, the interaction between a non-resident registration system and the current zero-rating rules would need to be reviewed in detail to ensure that remote services received by New Zealand residents or otherwise consumed in New Zealand are not inappropriately zero-rated.

Specific industries

5.19 The GST Act contains some special rules that allow certain industries to pay GST on the net value of their supplies (payments received less payments made) – principally the gambling and insurance industries. Any new rules would need to ensure that the overall policy objective of putting resident and non-resident suppliers on a relatively even footing is also applied to these industries. This may require special rules such as, in the insurance context, switching off input tax deductions for payments received by an offshore insurance provider if no GST is returned on payments received because the recipient is a New Zealand-registered business (assuming business-to-business supplies are excluded).


Do you consider that a rule that covers a wide range of services is appropriate for New Zealand, and do you foresee any problems with such a broad approach in practice?

Do you prefer an approach that only taxes business-to-consumer supplies or an approach that taxes both business-to-consumer and business-to-business supplies?

Do you consider that the other proposed exclusions for services and intangibles supplied by a non-resident should ensure that non-residents and resident suppliers received comparable treatment?


[11] Section 14 of the GST Act contains the current exemptions from GST.

[12] Section 11A of the GST Act contains services that are zero-rated.