GST ON IMPORTS
Disclaimer: This paper is intended as an introduction to the operation of the New Zealand GST system for exporters
from other countries. It is not intended to be tax advice. Exporters should consult their qualified tax advisors before making decisions.
What is GST?
Goods and services tax (GST) is a broad-based consumption tax. There is only one rate, which is currently 15%.
GST is not the same as a sales tax or other indirect taxes, such as VAT. Although GST is collected at many stages throughout production and distribution, final consumers are the only group to really pay it. This is because all intermediate parties can reclaim the tax through the credit offset mechanism.
The credit offset mechanism
A manufacturer sells goods to a retailer for $100. The manufacturer must add $15 GST to that sale, so the total invoice is for $115. The manufacturer then pays the $15 tax collected to the Inland Revenue at the end of an accounting period – usually every two months, but the manufacturer can elect to do so monthly.
The retailer puts a 50% mark-up on the goods and prices them at $150. With 15% GST added to this amount, the final selling price is 150 + 15% = $172.50. The retailer must, of course, remit the tax of $22.50 to the Inland Revenue. However, after deducting the $15 of tax previously paid to the manufacturer, the retailer remits a net $7.50 in tax.
At this stage, the Inland Revenue would have received $15 from the manufacturer plus $7.50 from the retailer. Neither party has actually paid any tax, since they recovered those amounts in their selling price. The only person who paid the tax was the final consumer, as the goods cost $22.50 more than they would have cost without the tax.
To be able to offset the "input" tax ($15) against the "output" tax ($22.50), retailers need to be "registered taxpayers", i.e. they need to register as a trader with the Inland Revenue and provide periodic returns.
Traders make their claims in the aggregate, and do not have to match individual transactions. They typically add all the GST from their sales and offset this against
the GST included in all their qualifying purchases for the period in question.
GST and imports
The same system also applies to imports. GST is applied to an amount equal to the cost of the goods plus freight and insurance (CIF) plus duty, if any.
New Zealand Customs collects the GST when the goods are imported, and runs a credit system, so approved importers can pay their duty and GST on a monthly account. Non-resident importers normally have to provide Customs with a bank guarantee.
If the importers are also taxpayers registered with the Inland Revenue, they can claim back the total amount of GST they pay to Customs. These payments are effectively treated as "input tax". However, importers not registered as New Zealand taxpayers will not be able to recover that payment, and so end up paying the tax. A subsequent re-seller would then add GST again, raising the price of the goods to the final consumer.
Options available to exporters to New Zealand
Exporters to New Zealand have four options for dealing with GST: they can register a local subsidiary company; become a registered taxpayer for GST only; or export to individual New Zealand retailers. The fourth option is to take advantage of a unique service from DSL, and let us take care of GST for you.
Option 1. Register a local company
This option is suitable for companies with a relatively high volume of transactions in New Zealand. The local subsidiary becomes the importer, pays GST to Customs on importation and claims it back from the Inland Revenue. Of course, the subsidiary needs to cover the tax between the time it is paid the time it is refunded.
If you are considering this option, you must bear in mind that NZ Customs will regard the importer as being "related" to the parent company and will expect the values of the imports to reflect an "arms-length" price. The New Zealand subsidiary is liable for New Zealand income tax and must comply with all the local regulatory requirements.
Option 2. Become a registered taxpayer for GST only.
You may be able to register a subsidiary for GST purposes only, and contract the work of preparing GST returns to a local chartered accountant. You should discuss this option with qualified tax advisers.
Exporters who choose this option do not have a tax presence in this country, except for GST. The value for duty should be that which you charge the retailers, less GST, duty and post-importation costs, rather than some notional inter-company price.
Option 3. Export to individual retailers in New Zealand.
In this scenario, the Australian company merely acts as an exporter and consigns the goods individually to each retailer. The retailers then become the importers, responsible for paying GST and claiming the subsequent refunds.
If you choose this option, you need to do a separate Customs clearance in the name of each importer. You can still consolidate the consignments for freight purposes - but with goods packed into separate cartons. DSL will collect the GST from each importer that does not have an account with Customs and debit the accounts of those that do. We will then charge the clearance and distribution costs to the importers or to the exporter, depending on whether the terms are CIF or FIS (free into store).
This option is the simplest from the exporter's viewpoint, but the multiple individual clearances means it involves significant costs. Also, some smaller retailers are not experienced importers and may want to avoid the importing paperwork, in which case they would prefer to buy their goods from local importers or wholesalers.
Option 4. Appoint a local agent to handle GST and collections.
Exporters can take advantage of a service from DSL that enables them to consolidate all their consignments into a single shipment. They raise one invoice for the whole shipment and debit the total amount to DSL.
The shipment is cleared and DSL pays the GST, and then raises individual invoices for each retailer. Those invoices are in New Zealand dollars and include GST. DSL remits the GST component of those invoices to Inland Revenue and claims back the GST paid earlier to Customs.
DSL then provides the exporter with monthly debtors' reports and offsets the amount
it receives from debtors against amount owed to the exporter. DSL charges a percentage of the value of the goods, to be negotiated with the exporter, as a fee for this service.
Please contact us for details.