GST on Imports and Zero-Rated Sales

For small businesses in New Zealand engaged in international trade, understanding how Goods and Services Tax (GST) applies to imports and zero-rated sales is crucial. Whether you’re buying goods from overseas suppliers or selling to customers outside New Zealand, navigating GST correctly ensures compliance and optimises cash flow.

GST on Imports

When a New Zealand business imports goods, GST is generally payable at the border. Here are the key considerations:

• Import GST at 15%: The New Zealand Customs Service collects GST at a rate of 15% on most imported goods. This is based on the Customs value of the goods, plus duty (if applicable) and international freight and insurance costs. This aligns with section 12 of the Goods and Services Tax Act 1985.

• Claiming GST on Imports: If you are GST-registered, you can claim back the import GST as an input tax credit in your GST return, provided the goods are used for taxable business activities. Ensure you hold supporting documents, such as a Customs import entry form, to substantiate your claim.

• Customs Documentation: It is essential to receive an import entry document (also known as an Electronic Cargo Clearance Document) as proof of GST paid, which is necessary for claiming input tax.

• Low-Value Goods: If you import goods valued at NZD 1,000 or less, overseas suppliers may charge GST at the point of sale under the Offshore Supplier Registration System. In this case, you cannot claim GST on these purchases again in your GST return. The de minimis threshold for GST collection at the border is NZD 60, meaning GST is not collected if the total duty value is below this amount.

Zero-Rated Sales for Exports

When selling goods or services to customers outside New Zealand, GST may be zero-rated, meaning GST is applied at 0%. Key factors include:

• Exporting Goods: Goods physically exported from New Zealand are zero-rated for GST purposes. You must retain documentation proving the goods left the country, such as shipping invoices and export declarations. This is supported by section 11 of the Goods and Services Tax Act 1985.

• Exporting Services: Some services provided to overseas customers may also be zero-rated, such as consultancy services, where the benefit is entirely received outside New Zealand. Services supplied directly in connection with land or buildings located outside New Zealand, or services performed directly in connection with goods situated outside New Zealand, can also be zero-rated.

• Exceptions to Zero-Rating: Some services, including those related to land or property in New Zealand or remote services consumed in New Zealand, may still be subject to 15% GST.

Handling GST Correctly

• Correct Invoicing: Ensure your invoices clearly reflect whether GST was charged, particularly for zero-rated transactions.

• Record-Keeping: Maintain thorough records of import GST payments and export documentation to substantiate your GST filings.

• Periodic GST Returns: Report all taxable and zero-rated sales accurately in your GST return to ensure compliance and avoid penalties.

When using Xero and recording a GST on imports transaction, here’s how you can reconcile it in your account to claim the correct amount of GST:

Create your transaction and enter the description and quantity details, then:

1. In the Unit Price field enter the amount of GST payable.

2. In the Account field, select the GST account. If you're using the default chart of accounts, this is account 820.

3. In the Tax Rate field, select the GST on Imports tax rate (see image example below).

4. Save or approve your transaction.

The purchase of your goods from overseas should be recorded with No GST, and be careful to claim the correct amount of GST on your freight and customs invoices too.

Final Thoughts

Understanding how GST applies to imports and exports is essential for New Zealand small businesses engaged in international trade. By correctly managing GST on imports and applying zero-rating where eligible, businesses can improve cash flow and avoid compliance issues. If you need tailored advice, consult with a tax professional or your accountant to ensure your GST obligations are met efficiently.