Since 1 October 2016, the Goods and Services Tax (GST) has been applicable to non-resident insurers who provide cross-border insurance services to New Zealand-resident consumers. The changes were made to the Goods and Services Tax Act 1985 and enacted in the Taxation Act 2016. The new rules require non-resident insurers to register and return GST on their supplies if the supplies exceed, or are expected to exceed, NZ$60,000 in a 12 month period.
Cross-border insurance policies covering non GST-registered insureds
The tax rate of 15% applies if the insured is a non GST-registered consumer. The non-resident insurer is required to return the amount of tax on premiums charged to the insured. A deduction of the input tax from the output tax is then available to the non-resident insurer when a claim arises and an insurance payment is made to the insured.
Cross-border insurance policies covering GST-registered insureds
In this case, insurance premiums are not subject to GST. Therefore, no deduction is allowed to offset the input tax of the offshore insurer, should there be any input tax in the account of the insurer. Consequently, the non-resident insurer is not required to return GST on premiums charged to GST-registered insured. However, the non-resident insurer can elect to have an agreement with the GST-registered insured where the supply of a contract of insurance will be zero-rated. In another word, GST will apply at 0% on the insurance premiums. This will allow the non-resident insurer to claim back GST costs incurred in New Zealand in making these supplies, which could include claim costs and expenses incurred in repairing or replacing goods.
If the supplied service exceeds the GST threshold of NZ$60,000 in a 12-month period, the non-resident insurer is required to register for GST purposes. Non-resident insurers have been able to apply to be registered from 1 August 2016, and the registration came into force on 1 October 2016.
Filing GST returns
For the period from 1 October 2016 to 31 March 2017, non-resident insurers have a taxable period of six months, which is considered a transitional period. After 31 March 2017, these insurers will have mandatory quarterly taxable periods beginning on 1 April 2017.
A GST return must be filed by the 28th of the month following the end of the taxable period. The quarterly taxable periods end on 30 June, 30 September, 31 December and 31 March.
Exceptions and rules
- Zero-rated insurance policies
Life insurance is subject to GST, but rated nil. Property insurance covering risk outside of New Zealand might be considered zero-rating services if the policy wording indicates that the risk is located outside of New Zealand. In addition, insurance policies covering international transportation are also zero-rated.
- Non-double taxation rule
The non-double taxation rule prevents double taxation from arising on cross-border insurance supplies performed in New Zealand to a non-resident consumer (insured) in situations when the same supply is also subject to a consumption tax in another jurisdiction. The rule allows for a deduction against the non-resident insurer’s liability for New Zealand GST to the extent that the same insurance has been taxed in another jurisdiction.
The effect of the extension of the GST rules to cross-border insurance businesses has been strongly felt by London insurers and brokers, who underwrite or operate direct cross-border insurance business in New Zealand, without involving a local cover holder or issuing office.
From the perspective of creating a tax schedule in IPT Quote – TMF Group’s online tax calculation tool –the changes to the law mean that non-New Zealand insurers populated in the system need to be recognised to be registered to pay GST in the territory of New Zealand. New subclasses will be created to reflect the different scenarios where taxes are settled in different ways. Tax arrangement bespoke to users will be configured into IPTQ to facilitate users in their New Zealand businesses.
- Please note, this new legislation does not only relate to insurance, but also relates to all non-resident businesses that supply remote services – including online services and digital downloads – to customers resident in New Zealand as contained in the Taxation (Residential Land Withholding Tax, GST on Online Services, and Student Loans) Act 2016.