The Offshore Supplier and GST on Digital Services
A New Zealand marketing agency, Brightline Ltd, pays a United States software company USD 20,000 a year for a cloud-based project management platform used by its staff. The US company has no New Zealand presence and no GST registration. Brightline is GST-registered and claims input tax on its other expenses. The agency also earns $80,000 from Australian clients for services performed in New Zealand, and it has a small affiliate in Australia that invoices some clients directly. Brightline is unsure whether it must account for GST on the US software, whether its Australian sales are zero-rated, and what records it needs.
1. Explain the GST treatment of the US software subscription and the reverse-charge rules.
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The supply of remote services by a non-resident supplier to a New Zealand GST-registered recipient is generally subject to the reverse charge. Brightline must account for GST on the consideration, at the standard rate, as if it had made the supply, and may claim an input tax credit if the purchase is for its taxable activity. The effect is often neutral, but the return must show the output and input. The US supplier is not required to register if it meets the offshore supplier rules only for supplies to consumers; business-to-business supplies to registered recipients are excluded from the offshore supplier registration rules and are subject to the reverse charge instead. Brightline should record the invoice, the exchange rate used, and the GST calculation.
2. Assess whether the Australian client sales are zero-rated and the records required.
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Services performed in New Zealand for an Australian client are generally subject to GST at 15% unless they fall within the zero-rating rules for exported services. The rules zero-rate services supplied to a non-resident who is outside New Zealand at the time the services are performed, provided the services are not supplied directly in connection with land or movable property in New Zealand. If the Australian clients are offshore and the services are not connected with New Zealand land, the supplies may be zero-rated, but Brightline must hold evidence that the recipient is non-resident and outside New Zealand. If the Australian affiliate invoices clients directly, that is a separate supply by the affiliate and is outside Brightline's GST return. Brightline should keep contracts, invoices, and evidence of the clients' offshore status.