With technology moving forward so quickly, it’s my experience that many businesses are now paying a significant amount in expenses to monthly subscriptions and digital products. Many of these digital software providers are based overseas and therefore do not supply you with a ‘tax invoice’ including an ABN. However, overseas subscription providers have a complex relationship with the ATO. Since 2017, international corporations, such as Google, Adobe and Netflix, as well as smaller software and digital product suppliers, have been required to collect and pay 10% (GST) to the Australian Tax Office for their sales to ‘end consumers’ in Australia.
As a registered business, you can stop international companies from charging your business GST
To do this, you must supply them with your ABN and state that you are registered for GST. The purchase invoice must also be in your business name. Many of these companies will send business owners an email when first setting up a business account with their company, requesting you lodge your details as stated.
Remember – these companies do not have an ABN, so even if they state a tax component on their invoices, you can not claim it back as an input tax credit on your BAS statement.
So, let’s summarise what you need to know about the “Netflix Tax”?
The law for overseas corporations to collect GST for Australian consumers was passed in 2017.
It applies to imported subscription services and digital products sold to Australian consumers. This would account for most of the international subscriptions you hold plus downloaded movies, music apps and e-books etc.
If you have a GST registered business, you are not deemed the end user for GST purposes and should not be charged GST on these purchases. Again, as long as you supply them with an ABN and statement of GST registration.
If your business is GST registered, add your ABN and GST registration status ASAP to ensure you are not charged GST in the future.
Bookkeeping for the Netflix Tax
The most important thing to remember, is that an overseas company can not register for an ABN. If a supplier of any kind, no matter where they are located, can not supply you with an ABN, then the transaction must be coded GST-Free.
In our practice, we advise businesses to ensure they have registered their ABN and provided their GST status so that they are no longer charged the 10% collected by these companies.
To make it even more complicated, although some of the bigger companies like Google and Adobe are registered in Australia, and therefore do provide an ABN, sometimes businesses purchase software and digital products from their ‘head office’ or overseas base. This means you could still be receiving invoices from these big companies without an ABN and therefore, you need to be very careful how you enter these transactions.
It also highlights the need to have a bookkeeper who fully understands how to handle GST-Free transactions. If you were to be audited (eek!) – a collection of incorrectly entered transactions, monthly over an extended period, could add up to a significant amount.
As a small business, it is in your best interests to understand the complexity of overseas purchases. You can find more information from the ATO here:
When it comes to physical product and labour from overseas companies, or if you are selling to overseas, we could write a whole other blog (and maybe will), but for now here’s a few pointers:
If you are importing physical products which you collect from customs, there will be GST added and you may also pay duty for purchases. This is a complex area, which you may need to discuss with your bookkeeper or accountant, but if the goods are for your business, or for resale, you are likely to be able to claim back an input tax credit.
When purchasing labour or services from a VA, for example, they will not be providing an ABN and their invoices will be GST-Free
On the flip-side - when invoicing a foreign company for services provided outside of Australia or products you provide, you do not charge GST. However, it’s also important to be aware of the rules of the country you are exporting to. Depending on the volume sold, you may need to adhere to that country’s overseas tax policy.
Of course, if you want to know more about the complexities of overseas GST, we are here to help. Reach out to [email protected] if you need to know more.