I’m seeing increasing evidence of misunderstanding over how the zero rating rules apply.
From 1 April 2014 non-resident businesses can register for GST in NZ under a new system which allows them to claim GST refunds on business related costs. Historically a business had to supply goods or services in NZ before it could register and claim back GST on its costs here. That is no longer the case.
I’ve been working with a number of overseas businesses wanting to take advantage of the new system.
What’s starting to emerge is surprising. A number of these overseas businesses are looking to reclaim GST they should never have been charged in the first place.
The most common mistake I’ve seen is made by NZ service providers contracting with an overseas business. They’ve charged 15% GST when the transaction should have been zero rated.
To be fair, the zero rating rules are not the easiest in the legislation to follow. There’s quite a lot of case law on them which speaks to some of the complexities.
There seems to be a common misunderstanding that because services are performed in New Zealand (i.e. the work is done here) GST has to apply at 15%. That’s not necessarily the case. Only some services performed here and supplied contractually to a non-resident business are taxed at 15%.
If you’re providing services to overseas businesses I suggest you check how you are dealing with GST. If you’re incorrectly charging it at 15% you may find Inland Revenue comes knocking when your customer tries to register under the new system and claim back GST that should not have been charged.