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LETS GET DOWN TO BUSINESS.

Question :
I am closing on a contract for consulting services to a US Foundation and wanted my accountant to provide advice on the contract but they’ve let me down with a very slow response this week. Is there a tax incentive to having the contract be between the US entity and my company as opposed to my personal name as the “contractor”? I am invoicing from my registered company so expected the contract to state the two entities being the “Foundation” (client) and my registered company, with me signing as CEO/Director. Is this a huge issue in NZ?

Question submitted 20/06/20 @ 06:28am
Industry: Funding & Finance
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  • Morena – hoping a couple of the accounting/finance experts can jump onto this. Until then, the tax treatment may depend on where the ‘services are technically delivered’ – are they delivered in NZ or the US? It would be way simpler if they were delivered in NZ because you just treat it like normal – the question on which entity is really more about ‘which entity’ is doing the work – is it your consulting company or you personally. The rates of tax comparisons depend on what other work you have. However having in the legal entity is arguably better for liability protection.

    If the service ‘is delivered’ in the US – then there are a whole bunch of technical tax issues to work through – so you had better get some good advice on that! Sorry to say that but I am sure there are some good accountants out there …

    Andy

    Kia ora Andy – I appreciate the response and yes the work will be delivered in NZ. Since the NZ GST registered company is 100% mine I guess arguably the contract could be delivered either by myself personally, or the GST registered company. I believe I am not required to charge the US client GST on my consulting fees?

    However I will need to charge the client for local expenses for the work which will incur GST, so I am looking to invoice that through company. When other contracts increase my annual income, I can shift all invoicing to the company to benefit from the differing taxation levels.

    I think I have that correct…I’m awaiting replies from a CPA. Anyway, thanks for the reply on a Saturday 🙂

    Kia ora, assuming that the US company doesn’t have an NZ presence at all these are exported services therefore zero rated for GST purposes. Zero rated services are a bit different to exempt services, in that if you are registered for GST you still need to include them on your return, it’s just that the rate of GST they attract is 0% rather than the regular 15%. Taxpayers are able to claim GST inputs (expenses) on costs incurred in connection with zero-rated services.It would be a bit unusual to bill for the expenses through one entity and the services through another. Tricky to articulate why without a big essay, but consider this, I think you are required to register for GST if you have sales in excess of $60k NZD per annum even if they’re all zero-rated. So if you put the contract for the services in your personal name you may need to register for GST in your personal name too (if not already registered).

    Also per Andy’s note it is worth giving consideration to your potential liability in the US, if there are any risks with your services (there usually are) it would seem wise to sign the contract with your company so that you have limited liability. Also consider your insurance position, make sure you have appropriate cover for the type of services you are providing.

    Hope that’s of some help!

    Morena Hera – I would pause/think about the two entity thing, and suggest the income and expenses needs to be in the same place, not in separate places. Andy

    Kia ora Warren and thank you for the clarity around Zero rated services.

    On insurers, can anyone provide referrals for consulting and event management companies?

    Andy – thanks also for feedback on invoicing from one place, which now makes more sense.

    thank you!!

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