GST in New Zealand- when does the Reverse Charge rule apply?
Thread poster: Damian Harrison

Damian Harrison
Germany
Local time: 13:12
German to English
Feb 28, 2011

After speaking with my tax accountant and wading through piles of IRD documentation, I am still not entirely sure whether I should be applying the Reverse Charge rule when outsourcing work to fellow translators based in the EU. When I spoke to IRD, I was told that it was "my call"; alternatively, I could apply for an official ruling (which would take at least half a year). Can anyone make any recommendations as to how I should be handling this?

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RobinB  Identity Verified
Germany
Local time: 13:12
German to English
Third countries Feb 28, 2011

Hi Damian,

As NZ isn't part of the EU (and, conversely, the EU isn't part of NZ), the two tax regimes are entirely separate. I can't say anything about the NZ GST regime (except that it's basically very similar to the EU VAT regime), so I can only give you an idea of what the picture is from an EU perspective.

If a VAT-registered EU translator outsources work to a translator in NZ, the translator in NZ doesn't charge GST on the invoice, which is paid on a gross=net basis by the EU translator. The VAT-registered EU translator calculates VAT at his/her applicable national VAT rate on the invoice total and adds this amount to the VAT payable in the next VAT return (basically, this is "import VAT" on the service). At the same time, though, the EU translator records exactly the same amount as recoverable input tax in the same VAT return, thereby cancelling out the (output) VAT amount. This is the standard VAT treatment for services provided from third countries.

I can't say how the NZ translator accounts for this transaction, but if it was the other way round (NZ principal, EU supplier), the VAT-registered EU translator would invoice the translation to NZ without any VAT because the customer is in a third (non-EU) country (it doesn't matter whether that third country has its own VAT regime or not, what matters is whether the country of the customer's domicile is in the EU or not). The VAT-registered EU translator then adds the notional VAT receivable on the invoice amount to his or her next VAT return (as output tax).

As far as I can see, the NZ domestic reverse charge mechanism applies purely to transactions within the scope of the NZ GST regime.

HTH,
Robin

[Edited at 2011-02-28 09:11 GMT]


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Jande  Identity Verified
Australia
Local time: 21:12
Danish to English
+ ...
Importing and exporting translation services Mar 1, 2011

According to the ATD (and I assume NZ is the same as AUS) some goods and services are taxed if they are imported / exported. Translations, manuscripts, audio and for example a book translated are not subject to import/export tax and no need for GST if the service is not intended for use in country (e.g. in NZ or in my case AUS). No need for adding VAT, GST or import / export tax to invoices. So if you import or export a translation from a service provider, you just charge the going rate.

You will get taxed at the end on the financial year on your income and freelancing is considered as a small business. Make sure you have a business no. In Australia it is called an ABN.

Consider your transactions as services from one business to another, even if you directly hire that person.

Call someone or ask to be transferred to someone (in the IRD) who knows about importing and exporting goods and services rather than someone who knows about GST, because GST applies in country only.


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Damian Harrison
Germany
Local time: 13:12
German to English
TOPIC STARTER
Thanks! Mar 2, 2011

Thank you both for your input on this. I really appreciate your efforts! This pretty much confirms my understanding of the law; now I just need to find somebody at the IRD willing to make a definitive statement.

I suspect that NZ law reflects Australian practice, but there is always room for trans-Tasman oddities in these matters so any advice from translators based in NZ would still be much appreciated.


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