GST cross-border transactions between businesses
Recent changes to Australia’s GST law mean that from 1 October 2016, certain transactions between overseas businesses and Australian businesses will no longer be subject to GST.
The changes also reduce compliance costs for GST registered importers in calculating the value of taxable importations.
Reduced interaction with Australian GST system
Non-resident businesses will no longer be drawn unnecessarily into Australia’s GST system, reducing their overall compliance costs. This has been achieved by:
- amending the test for ‘carrying on an enterprise in Australia’
- limiting the cases where a non-resident entity must pay GST on supplies of things done in Australia
- ensuring there is no GST liability for certain supplies made between non-residents
- extending the GST-free (zero rate) rules for certain supplies made to non-residents
- shifting the liability in some circumstances from overseas businesses to the Australian based business recipients that are already registered for GST.
The specific changes for non-residents are detailed below.
The test for carrying on an enterprise in Australia
Generally, a non-resident's enterprise will need to be based in Australia for more than 183 days in a 12-month period, and have a GST turnover of A$75,000 or more, to be required to register for GST.
Affected non-resident entities will need to review their enterprise arrangements in Australia and determine to what extent they are required to be involved in Australia’s GST system.
This could result in some entities registering for GST and others cancelling their GST registration.
The law companion guide LCG 2016/1 GST and carrying on an enterprise in the indirect tax zone (Australia) explains the application of this change.
The ATO would like to work closely with affected taxpayers to support them in meeting their GST obligations. Any questions on this matter should be referred to AustraliaGST@ato.gov.auThis link opens in a new window
Supplies ‘not connected to Australia’
As a general rule, the following transactions are no longer connected with Australia for non-residents suppliers, and therefore the non-resident supplier will not be subject to GST on these transactions:
- supplies of intangibles (such as services and digital products) which are done in Australia are not connected if the recipient is an Australian-based business recipient or a non-resident acquiring the intangibles for their overseas enterprise
- a transfer of ownership of leased goods which are located in Australia, where the transfer takes places between non-residents that do not have an enterprise in Australia
- a supply of goods where the supplier installs or assembles the goods in Australia, but does not import the goods into Australia.
Non-resident business turnover for GST
GST-free supplies made by a non-resident business is not counted as part of their turnover for GST when the supply is not made through an enterprise they carry on in Australia.
GST-free supplies are only included in a non-resident’s GST turnover if the supply is made through an enterprise they carry on in Australia.
Non-residents businesses with an Australian resident agent
Non-residents and their resident agents can agree the resident agent is liable for GST in relation to supplies made through the agent. Both the non-resident supplier and the agent must specifically agree to this in writing.
Where there is no agreement in writing between the non-resident supplier and the resident agent, in certain circumstances, the recipient of the supply would be required to reverse charge the supply and account for any GST.
Reverse charge for supplies
Generally, for business to business transactions performed in Australia by non-residents, the recipient of the supply will be liable to pay the GST if the recipient is an Australian based, GST registered business and acquires it not wholly for a creditable purpose. You acquire for a creditable purpose if you acquire for the purpose of your enterprise and the acquisition does not relate to making input-taxed sales. This is known as reverse charging.
More supplies of services by Australian businesses to non-resident businesses will now be GST-free. This reduces the need for a non-resident business to interact with the Australian GST system to claim input tax credits.
Examples of supplies that may now be GST-free include:
- when an Australian business makes a supply of training services to an overseas company, but provides those services to one of the company’s employees in Australia
- when an Australian business supplies repair services to an overseas company, but the supply is provided to an entity in Australia in order to fulfil the overseas company’s obligations under a warranty.
If you are a GST-registered importer, to calculate the value of the taxable importation for GST purposes, you are no longer required to identify the exact amount paid for:
- international transport
- loading or handling
- service costs for the transport.
You may opt to use an uplift factor, which is currently 10% of the customs value of the imported goods.
Legislation and supporting material
Information clarifying recent changes to Australia’s GST law, which mean from 1 October 2016, certain transactions between overseas businesses and Australian businesses will no longer be subject to GST.