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GST Reverse Charge Rules

Q: What is the GST reverse charge in New Zealand?

The reverse charge is a compliance mechanism where a New Zealand business buying services from overseas must self-assess and account for the GST itself, rather than the supplier charging it on the invoice.

Q: Does every NZ business have to pay reverse charge GST on Google Ads?

No. If your business uses the imported services (like Google Ads or software) for 95% or more taxable activity, the IRD exempts you from needing to apply the reverse charge rules. It becomes a neutral entry.

Buying software, digital services, or consulting from overseas? You might need to pay NZ GST on it even if the seller didn't charge you.

When you buy business services from overseas (such as a Zoom subscription, Google Ads, or consulting from an offshore developer), the foreign seller usually doesn't charge you New Zealand GST. However, to ensure a level playing field for NZ-based companies, the IRD introduced the "Reverse Charge" mechanism.

What is a Reverse Charge?

It is a compliance mechanism where the buyer self-assesses and accounts for both the output tax and the input tax on a foreign purchase. For most standard business-to-business (B2B) transactions, the net financial effect is nil, but it must be reported correctly to satisfy audit requirements.

When Does the Reverse Charge Apply?

The reverse charge only activates if you meet specific criteria. You must be GST-registered, and you must be buying services from a non-resident supplier that would have been taxable if supplied locally in NZ.

✓
The service is "imported" (provided remotely by a non-resident).
✓
The buyer is a GST-registered business in NZ.
⚠️
The service is used for more than 5% non-taxable purposes (e.g., used for making exempt supplies like financial services or residential rent).

The Golden "95% Exemption"

This is the rule that saves most small businesses from complex accounting.

Standard Businesses Are Exempt

If 95% or more of your overall business activity is "taxable" (meaning your standard sales have GST on them), you usually do not need to apply the reverse charge. The IRD allows you to ignore the calculation because the output and input would completely cancel each other out anyway.

How it Works (The Math)

If you are subject to the reverse charge (for example, you are a bank, an insurance company, or a residential landlord making exempt supplies), you must follow this calculation:

Treat the foreign purchase price as if it already included GST.
Add the 15% GST amount to your "Output Tax" (Box 9) as if you made the sale.
Claim the "Input Tax" (Box 13) ONLY for the specific percentage portion that the service is used in your taxable activity. You will end up paying a net positive amount to the IRD for the exempt portion.

Exempt Business Impact

If you are 100% exempt (like a residential landlord) and you buy $1,000 of offshore accounting software, you must pay $150 Output Tax, but you can claim $0 Input Tax. You owe the IRD $150.

Frequently Asked Questions

What is the GST reverse charge in New Zealand?

The reverse charge is a rule where a New Zealand business buying services from overseas must self-assess and account for the GST itself, rather than the supplier charging it.

Does every NZ business have to pay reverse charge GST on Google Ads?

No. If your business uses the imported services (like ads) for 95% or more taxable activity, you do not need to apply the reverse charge rules.

Who is most affected by the reverse charge rules?

Businesses that make 'exempt' supplies, such as residential landlords, banks, and life insurers, are most affected because they cannot claim 100% of the input tax back.

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