E-commerce and income tax

31

Jan

In 2015, New Zealanders spent an estimated $3.5 billion in goods and $1.2 billion in services online. With the growth of online shopping, rates having increased considerably year by year. How does tapping into the digital economy affect how you manage your business’ taxes?

Double Taxation:
As a considerable number of online businesses undertake trade overseas, your business’ income may be subject to tax in both New Zealand and abroad. This can occur when areas of your business’ operations are undertaken in both New Zealand and in another country. However, you may be eligible for a tax credit if New Zealand has a double tax agreement with the foreign country of concern.

Distinguishing between business profits and royalty payments for overseas transactions:
The intention behind a customer’s purchase is vital when distinguishing between a business profits payment and royalty payment. The downloading of a digital product from an overseas source for personal use by a New Zealand resident would be considered a business profits payment. A New Zealand resident looking to download and reproduce digital content for their own business (i.e. paying for the rights to use the content or intellectual property) would be a royalty payment. This would be subject to the ‘Non-resident withholding tax’.

Selling goods online:
If you are selling a physical or digital product to a customer in New Zealand, the 15% GST rate is chargeable. If the product is to be exported (and provided the export transaction can be supported by evidence) the sale can be exempt from GST charge (zero-rating).


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