A number of overseas businesses and individuals have asked me (directly and through Indian Newslink) their obligations to remit Goods & Services Tax (GST) for advertisements placed in various segments of the New Zealand media. While the implications of this tax would vary between cases, the following may serve as a broad guideline.
Many overseas businesses target the New Zealand market for their products or services and advertise through newspapers, magazines, radio stations, television channels and the Internet.
Does their expenditure attract GST?
GST came into effect on October 1, 1986, making it obligatory for companies and individuals conducting activities on a continuous or regular basis (with annual turnover of $60,000 or more) to register for GST.
Companies or individuals with lesser turnover may also register for GST. All registered companies must charge GST for supply of goods and services.
The Government raised the GST rate from 12½% to 15% with effect from October 1, 2010. All companies and individuals (registered for GST) supplying goods and services must charge 15% and remit the amount to Inland Revenue Department (IRD).
Service to Non-Residents
But GST would not be applicable for a service supplied under a contract to a non-resident who is outside New Zealand. It is important that the service is not supplied directly in connection with a New Zealand property. This implies that no GST is charged on the goods and services supplied to a non-resident person.
There are businesses in New Zealand who provide advertising space or time in their publication, radio or television station and Internet under a contract to a non-resident company or person who is outside New Zealand. The service rendered will not attract GST, even if a New Zealand resident benefits from such service.
In July 1994, the High Court decided in favour of the IRD Commissioner, in the case Wilson & Horton. This was a case of a newspaper publisher, who was asked to pay GST on advertisements published for non-resident clients.
The High Court ruled that to qualify for zero rating, the services must be provided ‘contractually’ to and ‘beneficially for a non-resident person.’ If a New Zealand resident receives the benefit of the advertising services, the services must be charged at the standard rate.
On appeal, the Court of Appeal decided in favour of Wilson & Horton, saying that the supply of advertising space in New Zealand to non-resident clients would not involve GST, irrespective of whether a New Zealand resident also benefits from the supply of those services.
IRD Commissioner accepted the decision and further clarified that the verdict of the Court of Appeal not only restricted to advertising space in a newspaper but also to other media outlets including the Internet.
There could be companies or individuals acting as agents for non-resident principals. Even in such cases, the GST law considers that the service was made to the non-resident principal and not the agent.
However, if the non-resident person is acting as an agent of the New Zealand principal, then the service will attract GST.
Advertising services provided to non-residents who have no presence in New Zealand are zero rated even if the advertisement relates to goods sold by a New Zealand subsidiary of the non-resident.
Let us assume that an Indian manufacturing company contracts with a New Zealand newspaper and books advertising space for a newly developed product. The Indian company has a GST registered subsidiary in New Zealand that sells the advertised products. The advertisement would not attract GST, because the newspaper has provided advertising space to an Indian manufacturing company. The fact that the New Zealand subsidiary is benefitting from the supply does not exclude the transaction from zero-rating.
The zero-rating extends to creative and placement services (such as concept, design, copy, artwork, photo stills, film shooting and others) required to create an advertisement.
IRD believes that such services would be ‘GST Free.’
GST registered suppliers need not charge GST for services rendered to non-residents and should not try to recover the GST from their overseas customers. Issues with supply of goods and services to non-residents could be tricky and readers are advised to seek suitable professional advice.
Vijay Talekar is Director, Tax Experts Limited (Chartered Accountants), based in Auckland. He can be contacted at his new office (Level 1, 208 Great South Road) in Papatoetoe Phone (09) 2792987 or (09) 2713112.
The above article should be considered only as a guideline and not specific advice. Mr Talekar absolves himself along with the management and staff of Tax Experts Ltd and Indian Newslink of any responsibility or liability that may arise from the above article. Readers should seek professional advice before acting upon any information contained above.