Overseas payments & GST

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tchart

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#247877 28-Feb-2019 10:58

Short version, through a contact for an NZ company I've picked up some work from their HQ in the US. They are going to pay me via HQ. I've quoted in USD exclusive of GST.

I am GST registered. Should I be collecting GST on the bill?

Dynamic

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#2188716 28-Feb-2019 11:26

You are selling something offshore (exporting your labour), so no you do not charge GST.

https://www.google.com/search?q=exporting+services+gst

Double check with your accountant.

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tchart

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#2188720 28-Feb-2019 11:28

Yes the "services outside NZ" page on the IRD site suggests even if the work is done in NZ it should be zero rated which was my original understanding.

I'll ring and confirm.

solutionz

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#2188721 28-Feb-2019 11:30

I'm not an accountant however this is fairly straightforward:

Exported services are zero-rated (GST charged at 0%).

See also: "A person who makes zero-rated supplies is always in a favourable GST position. They only charge 0% GST on supplies but can obtain a refund for GST paid on relevant inputs. This is different from GST exempt suppliers. They cannot charge GST, and cannot claim a GST input deduction."

freitasm

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#2188723 28-Feb-2019 11:30

Sorrym I have removed my previous reply as it is likely incorrect - I was in this situation before and zero rated but again, confirm.

tchart

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#2188734 28-Feb-2019 11:45

Thanks all.

irongarment

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#2188758 28-Feb-2019 12:37

Technically you do charge GST, at a rate of 0%. Although the amount is zero you might need a line item to indicate you have done the calculation. I used to generate an invoice for my overseas employer with the amount charged in their local currency and a 0% GST amount. Since I was salaried the amount was always the same in their currency.

For the purposes of conversion to NZD to IRD publishes a monthly exchange rate that you can use for your calculations. You can include these figures on your tax return, based on the date you were paid (or the date you invoiced, whichever way you chose to work) but it doesn't matter when (or if) you actually transfer the money. This depends on you having a foreign currency account they can pay into. If they pay in USD to an NZD account then the money is converted so you should use that actual figure.

IRD were very helpful to me when setting this up. They're not out to get you, and they'll help you to be tax-efficient and in compliance.

surfisup1000

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#2188766 28-Feb-2019 12:43

irongarment: Technically you do charge GST, at a rate of 0%. Although the amount is zero you might need a line item to indicate you have done the calculation. I used to generate an invoice for my overseas employer with the amount charged in their local currency and a 0% GST amount. Since I was salaried the amount was always the same in their currency.

For the purposes of conversion to NZD to IRD publishes a monthly exchange rate that you can use for your calculations. You can include these figures on your tax return, based on the date you were paid (or the date you invoiced, whichever way you chose to work) but it doesn't matter when (or if) you actually transfer the money. This depends on you having a foreign currency account they can pay into. If they pay in USD to an NZD account then the money is converted so you should use that actual figure.

IRD were very helpful to me when setting this up. They're not out to get you, and they'll help you to be tax-efficient and in compliance.

This is exactly the system I used when billing my client. The one thing I wasn't sure about was whether you had to account for capital gains/losses an currency fluctuations. I did talk to IRD and they said that because there is no capital gains tax in new zealand i didn't need to account for it. So , i just went by their advice although it would have been nice as the NZD was rising for so long and i was making a loss on my foreign reserves.

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irongarment

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#2188787 28-Feb-2019 13:21

Sorry, meant to add that my comment above only applies if you are registered for GST, which you can choose to or not to if you are below the GST threshold, and have to if you are above it.

If you are below the threshold and chose not to register then you don't do anything with GST at all. No hassles, but no benefits.

solutionz

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#2188865 28-Feb-2019 14:17

surfisup1000:
This is exactly the system I used when billing my client. The one thing I wasn't sure about was whether you had to account for capital gains/losses an currency fluctuations. I did talk to IRD and they said that because there is no capital gains tax in new zealand i didn't need to account for it. So , i just went by their advice although it would have been nice as the NZD was rising for so long and i was making a loss on my foreign reserves.

You have to be careful as you're now getting into a different area... If you're on credit terms with your overseas clients then that could be considered a "financial arrangement" thus Forex gains/losses would be taxable/deductable income.

surfisup1000

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#2188925 28-Feb-2019 15:41

solutionz:
surfisup1000:

This is exactly the system I used when billing my client. The one thing I wasn't sure about was whether you had to account for capital gains/losses an currency fluctuations. I did talk to IRD and they said that because there is no capital gains tax in new zealand i didn't need to account for it. So , i just went by their advice although it would have been nice as the NZD was rising for so long and i was making a loss on my foreign reserves.

You have to be careful as you're now getting into a different area... If you're on credit terms with your overseas clients then that could be considered a "financial arrangement" thus Forex gains/losses would be taxable/deductable income.

I wanted to claim losses, as the pound was falling against the new zealand dollar over a long period of time... i could potentially have claimed a large loss over that period .... but IRD said I could not. I was hoping the GBP would recover but it never did.

irongarment

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#2188939 28-Feb-2019 15:55

surfisup1000:
solutionz:
surfisup1000:

This is exactly the system I used when billing my client. The one thing I wasn't sure about was whether you had to account for capital gains/losses an currency fluctuations. I did talk to IRD and they said that because there is no capital gains tax in new zealand i didn't need to account for it. So , i just went by their advice although it would have been nice as the NZD was rising for so long and i was making a loss on my foreign reserves.

You have to be careful as you're now getting into a different area... If you're on credit terms with your overseas clients then that could be considered a "financial arrangement" thus Forex gains/losses would be taxable/deductable income.

I wanted to claim losses, as the pound was falling against the new zealand dollar over a long period of time... i could potentially have claimed a large loss over that period .... but IRD said I could not. I was hoping the GBP would recover but it never did.

But you didn't have a loss. You were paid a certain amount in pounds, which is what you agreed. That converts to a certain number of dollars. If the pound is weak then actually you did well, because a weak pound converts to a low dollar amount. The low dollar amount then leads to a lower tax amount.

If the pound had been high you would have converted it to more dollars, leading to a higher amount of tax.

The key is to hope that the foreign currency is weak when you are are paid, therefore giving rise to a lower taxable amount (which you declare and pay tax on) then hope that the foreign currency gets stronger. At that point you do the transfer. You get more dollars, because the foreign currency got stronger, but you already paid the tax on it so there's no more to pay.

Unfortunately, we don't really get to choose the rate that we transfer the funds, since it moves all the time, so in general, it's a wash.

surfisup1000

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#2188993 28-Feb-2019 17:12

irongarment: But you didn't have a loss. You were paid a certain amount in pounds, which is what you agreed. That converts to a certain number of dollars. If the pound is weak then actually you did well, because a weak pound converts to a low dollar amount. The low dollar amount then leads to a lower tax amount.

Yes i did have a loss. I had a GBP business account... so, if i was paid 10k GBP fx rate @.33 that was worth 30k NZD which is declared for tax. Then, the pound drops to 0.50, but my business account is still in pounds so it is now only worth 20k NZD. So, I paid tax on 30kNZD, but the account is only worth 20k NZD. That is a 10k fx loss, plus i paid too much tax.

On your second point, it is not good having a weak pound just so you don't pay as much tax. The reason you don't pay as much tax is because you earned less, and that is not a good thing.

irongarment

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#2189022 28-Feb-2019 18:14

surfisup1000:
irongarment: But you didn't have a loss. You were paid a certain amount in pounds, which is what you agreed. That converts to a certain number of dollars. If the pound is weak then actually you did well, because a weak pound converts to a low dollar amount. The low dollar amount then leads to a lower tax amount.

Yes i did have a loss. I had a GBP business account... so, if i was paid 10k GBP fx rate @.33 that was worth 30k NZD which is declared for tax. Then, the pound drops to 0.50, but my business account is still in pounds so it is now only worth 20k NZD. So, I paid tax on 30kNZD, but the account is only worth 20k NZD. That is a 10k fx loss, plus i paid too much tax.

On your second point, it is not good having a weak pound just so you don't pay as much tax. The reason you don't pay as much tax is because you earned less, and that is not a good thing.

You're right about paying more tax essentially meaning that you are earning more money. GBP is bound to go up once the farce of Brexit has played out. Markets hate uncertainty.

If you are worried about making a loss on your GBP then transfer them immediately. Naturally no-one complains if they make a profit. I'm happy with the system as it is.

jarledb

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#2189025 28-Feb-2019 18:20

irongarment:

You're right about paying more tax essentially meaning that you are earning more money. GBP is bound to go up once the farce of Brexit has played out.

I wouldn't bet on that. There is a good chance there will be no deal and that the chaos that is Brexit affects the world economy.

After that you can just sit back and wait for the recession that will inevitably happen in the US.

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