GST on foreign creditors

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GST on foreign creditors

Postby pricerc » Thu Feb 27, 2020 2:19 pm

since some tax offices (AU and NZ) are now accepting GST from foreign companies, possibly in foreign currencies, we need to be able to record tax against purchases made from those suppliers, but the 'GST' option is disabled when creating a creditor purchase for a 'foreign currency' creditor.

what's the workaround?
/Ryan

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Re: GST on foreign creditors

Postby Mike.Sheen » Thu Feb 27, 2020 8:28 pm

pricerc wrote:since some tax offices (AU and NZ) are now accepting GST from foreign companies, possibly in foreign currencies, we need to be able to record tax against purchases made from those suppliers, but the 'GST' option is disabled when creating a creditor purchase for a 'foreign currency' creditor.

what's the workaround?


The workaround I've looked into is a pain, and we should really make this easier - so I've added DEV-8116 to do this.

In the case of the Creditor Purchases form in Jiwa, the journal emitted when activating for a foreign currency creditor is simply a credit to the creditor control account, and a debit to the offset account (the column on the creditor purchases form is captioned "Ledger Number"). Both journal transactions have the BAS Code "No Code".

What you want is the transactions to have the code "Purchases G11", and amount to the offset account to be the transaction amount minus the value of GST, and then another additional transaction for the GST amount, to the GST Acquisitions account and also with BAS Code "Purchases G11".

This is the journal you get:
Journal_Emitted.png
Journal_Emitted.png (10.83 KiB) Viewed 98 times


This is what you want:
Journal_Wanted.png
Journal_Wanted.png (14.73 KiB) Viewed 98 times


So a manual journal entry can be made to do exactly that - but it requires a little effort to work out the GST amount manually and then do the adjustment journal.

Journal_Adjustment.png


I'm not an accountant, so you might want to check with our support department if this is right.
Mike Sheen
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Re: GST on foreign creditors

Postby pricerc » Mon Mar 02, 2020 12:07 pm

Actually,

I don't know how it is in AU, but I misunderstood the situation in NZ.

While foreign companies are now expected to charge consumers GST - note that it's *consumers*. Businesses continue to operate (largely) as they have before, and if needs be, customs collects any relevant taxes from them.

Additionally, the NZ tax office (IRD) doesn't allow GST credits unless the invoice is in NZD; so for NZ at least, it makes sense to continue to not allow GST on foreign currencies.

The guidance on the changes from NZ's IRD: https://www.classic.ird.govt.nz/campaigns/2018/gst-policy-update.html
And for NZ businesses specifically: https://www.classic.ird.govt.nz/campaigns/2018/gst-policy-update-nz-businesses.html
/Ryan

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Re: GST on foreign creditors

Postby Mike.Sheen » Mon Mar 02, 2020 10:56 pm

pricerc wrote:Additionally, the NZ tax office (IRD) doesn't allow GST credits unless the invoice is in NZD; so for NZ at least, it makes sense to continue to not allow GST on foreign currencies.


That's interesting.

For us backwards Australians, I'm almost certain I've had invoices from foreign suppliers in foreign currency which have charged us GST, so it makes sense for us under some circumstances to allow GST on foreign currencies. This is a relatively new development - and been pretty rare (at least as far as is my exposure to this). I'll have to dig out the invoices to be sure, but my recollection is we've had some invoices from Atlassian and Microsoft which were in FX and had a GST component.
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Re: GST on foreign creditors

Postby pricerc » Tue Mar 03, 2020 7:57 am

Mike.Sheen wrote:
pricerc wrote:Additionally, the NZ tax office (IRD) doesn't allow GST credits unless the invoice is in NZD; so for NZ at least, it makes sense to continue to not allow GST on foreign currencies.


That's interesting.

For us backwards Australians, I'm almost certain I've had invoices from foreign suppliers in foreign currency which have charged us GST, so it makes sense for us under some circumstances to allow GST on foreign currencies. This is a relatively new development - and been pretty rare (at least as far as is my exposure to this). I'll have to dig out the invoices to be sure, but my recollection is we've had some invoices from Atlassian and Microsoft which were in FX and had a GST component.


I was slightly surprised myself when I read that on their web site. It's possible that there's some caveat to it that I wasn't able to find. They're in the process of 'upgrading' the site, which of course means everything is harder to find now.

As I mentioned, the NZ IRD are only targeting consumers with the new legislation. Previously small purchases could be brought into the country by consumers without attracting GST. Businesses who are GST registered are not affected, and according to the links I provided, foreign GST collectors are not supposed to collect GST from businesses, only from consumers.

We were talking to one of our other (non-Jiwa) customers about the general topic, and they related having a supplier from whom they receive a separate GST-only invoice in NZD for goods that they've purchased in some other currency on a different invoice. Almost like what customs do. They seemed to think that it's something to do with exchange rate fluctuations - there's a potential for a seller and a buyer to use different exchange rates when making their respective GST claims and thus the tax department could 'lose out' on the deal.

It would not surprise me in the least if companies are nonetheless doing GST in foreign currencies. The IRD would probably never know unless they specifically audited for it.
/Ryan

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Re: GST on foreign creditors

Postby pricerc » Wed Mar 04, 2020 9:52 am

Ok,

so we have our customer, who is essentially buying one-off low-value items anonymously as a 'broker' for an NZ customer from a foreign supplier who is registered for GST in NZ. Since the foreign supplier doesn't know my customer's GST (ABN) number, they charge GST. In their home currency (at least USD, EUR and GBP). I don't think the legislators considered this scenario while drafting the new rules.

Currently (in JIWA 6), they're adding a non-stock line item for the GST. They can just carry on the same way for now.

I'm not really interested in spending hours tracking down the exact rules and liaising with the tax department to find out the technical legalities of what they're doing (looking again briefly on their web site, I've decided that the rules are ambiguous). I suspect the legislation is a bit flawed in this area, but that's a discussion for business owners to have with their tax departments.

So where I guess I'm going with this, is that we *do* need to allow for foreign currency GST, because whatever the law is at the moment, it could be changed any time, and we need to be able to work with it.
/Ryan

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