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Edited version of your written advice
Authorisation Number: 1012668306121
Ruling
Subject: GST and supplies to non-residents
Question
Is GST payable on the supply of the subscription-based software application that is hosted on servers located in Australia to an overseas client?
Answer
No. GST is not payable on the supply of the subscription-based software application that is hosted on servers located in Australia to an overseas client. The supply in the circumstances you described is GST-free under item 2 in the table in subsection 38-190(1) of the A New Tax System (Goods and Services Tax) Act 1999 (GST Act) (item 2). This is because:
• the supply is made to an overseas client who is not a resident of Australia for income tax purposes
• the overseas client is either not physically in Australia or does not have any business of its own in Australia nor carry on business through an agent in Australia
• the supply of the software application is neither a supply of work physically performed on goods situated in Australia nor a supply directly connected with real property situated in Australia
• the overseas client is neither registered nor required to be registered for GST in Australia and
• the supply of the software application does not involve a supply of a right or option to acquire another thing; does not relate to making input taxed supplies of real property; and there is no agreement with your overseas client to provide the supply to another entity in Australia.
Additional information
If you made a GST error on an earlier activity statement, you can choose to correct that error on a later activity statement if you meet the conditions set out in the guide Correcting GST errors.
The publication Electronic Commerce Industry Partnership - issues register summarises GST issues specific to the electronic commerce industry on which the ATO has reached a considered position. Chapter 1 includes information that you can obtain at the time the thing is supplied to help you work out whether the supplies provided are for consumption outside of Australia and therefore GST-free. Chapter 9 considers the issue of how pricing for Australian and non-resident customers is to be addressed on the internet.
These publications are available at www.ato.gov.au
Relevant facts and circumstances
You are an Australian resident company registered for GST.
You supply subscription based software. As part of the signup process, the user accepts terms and conditions to install the software on their personal computer and they are granted access to use the service.
All the development, data supply and program support is completed in Australia.
Your client base consists of residents and non-residents of Australia for income tax purposes (overseas client).
Generally your overseas clients are individuals who are not residents of Australia and who are not physically in Australia when they download the software and access the service. You also have overseas clients who are operating their business as a company. The company does not carry on business in Australia either through a place of business of its own or through an agent acting on its behalf. The software is for use by the company's employees who are not in Australia when they download the software and access the service. Your overseas clients are neither registered nor required to be registered for GST in Australia.
You provided a copy of the terms and conditions relevant to the software application which provides that:
• The client subscribes for access to the software application.
• The client subscribes and is granted a non-exclusive licence to access and use the software and any documentation that accompanies the software starting from the time the client activates it on a computer until the agreement is terminated.
• The license granted does not include a right to any portion of the software or other information.
• For accessing and using the software, the client must pay the relevant charges.
• The client acknowledges and agrees that, except for any rights expressly granted to use or access the software or other information, the intellectual property belongs to and remains your property. The client does not have any licence or right to use any trademark displayed by or on the software or in other information without your express permission or if the owner of the trademark is another entity, by their express permission.
Relevant legislative provisions
A New Tax System (Goods and Services Tax) Act 1999 section 9-5.
A New Tax System (Goods and Services Tax) Act 1999 subsection 38-190(1).
A New Tax System (Goods and Services Tax) Act 1999 subsection 38-190(2).
A New Tax System (Goods and Services Tax) Act 1999 subsection 38-190(3).