Australia has recently made a series of changes to how Goods and Services Tax (“GST”) applies to a range of cross border transactions.
Overseas businesses should be revisiting their Australian GST position if:
- They are importing physical goods into Australia to be supplied to Australian customers and are relying on the low value threshold to not have to charge GST
- They are supplying digital products or services to Australia non-business customers
- They are currently registered for GST but their transactions are limited to the supply of services to Australian business customers.
Importers of low value goods
Currently overseas businesses which sell goods to Australian customers and import goods into Australia, do not need to pay GST where the goods are valued at AUD $1,000 or less.
This ‘low value threshold’ will be abolished from 1 July 2018.
Overseas businesses will now need to determine whether their annual turnover of relevant Australian sales exceeds $75,000. Where this annual turnover is exceeded, the overseas business may be required to register for GST in Australia and remit 10% GST on their sales of ‘low value’ imported goods.
This measure only applies to physical goods, and applies both to businesses that sell direct to Australian customers and to electronic distribution platforms, for example an internet store or marketplace, or to re-deliverers.
Digital products and services to Australian end consumers
For overseas businesses that provide digital products and services to Australian consumers, GST could now apply to the transaction.
The new laws apply from 1 July 2017 and have been dubbed the ‘Netflix Tax’.
They are intended to focus on digital products, however the laws will extend to services and other intangibles.
The emphasis of the new laws is on where the customer is located, and also where the supply is consumed.
Overseas businesses selling intangibles and services to Australian end consumers (i.e. non-business customers) may have GST obligations on these sales. Broadly, an Australian end consumer is an Australian resident that acquires the intangibles or services for a non-business purpose.
The new laws require reasonable steps to be taken to obtain sufficient information to determine whether their customers are an Australian end consumer. This is a twofold requirement – is the customer an Australian resident and are they making the acquisition for a non-business purpose. Where there is a mix of B2B and B2C transactions, obtaining and analysing this data could be challenging.
In many cases digital products are sold by overseas businesses through an electronic distribution platform, for example an internet store or marketplace.
Responsibility for remitting GST on the sales can be shifted to the operator of the electronic distribution platform:
- where the operator of the platform controls any of the key elements of the supply such as product delivery, charging or setting the terms and conditions; or
- by agreement between the overseas business and the operator of the platform.
This could significantly alleviate the compliance costs of overseas businesses under this new measure.
Services to Australian businesses
Overseas businesses providing services which were partly performed in Australia have historically been required to register for GST in Australia where the value of those services exceeded A$75,000 in a 12 month period.
From 1 October 2016, this obligation has been removed for many overseas businesses providing services to Australian businesses.
The key preconditions to ensuring that these services are not subject to GST are:
- the overseas business is a non-resident of Australia and in broad terms, does not have a permanent establishment in Australia (or a fixed place of a business in Australia); and
- the customer is registered for GST in Australia and in broad terms, has a permanent establishment (or a fixed place of business in Australia).
For existing contractual arrangements, the supplier and customer will need to agree to apply the new laws. For new arrangements, the new laws should apply automatically.
The rationale for the laws is to reduce compliance costs for overseas businesses. In this situation the Australian customer is registered for GST and would be able to claim an input tax credit for any GST paid. Removing these transactions from the GST net therefore has no overall revenue effect.
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William Buck has extensive experience in working with overseas businesses to review their GST exposure from Australian transactions. If this would be of assistance to you, please contact Greg Travers.