New Zealand introduces draft Digital Services Tax legislation

Local contact

EY Global

7 Sep 2023
Subject Tax Alert
Jurisdictions New Zealand
  • A new bill would impose a 3% digital services tax on New Zealand users of digital services.
  • The proposed effective date of 1 January 2025 could be extended.
  • The "go-live" date will depend on whether the Government considers sufficient progress is being made in instituting a multilateral solution at the global level.

Executive summary

The New Zealand Government introduced a Digital Services Tax Bill (DST Bill) on 31 August. The DST Bill allows the Government to implement a 3% digital services tax (DST) on the gross digital services revenue of large multinational groups1 (MNE groups) where the revenue is attributable to New Zealand users or land.

The proposed commencement date is 1 January 2025. However, this date could be deferred by up to five years, providing legislative flexibility. A deferred commencement date would give the Government time to monitor implementation of Pillar One of the OECD's2 Two-Pillar multilateral solution and decide whether the DST Bill is necessary.

Detailed discussion


In 2019, the Government announced its intention to "seriously consider" a DST in the event of insufficient progress on an international multilateral solution and undertook public consultation on the potential design of a DST.3

On 31 August 2023, the Government introduced the DST Bill.4 The DST Bill includes many of the design elements of a 2019 consultation document. The DST Bill is intended to ensure digital businesses pay tax in New Zealand to reflect the value they derive from New Zealand users.

Proposed application date and impact of the OECD process

Although the proposed commencement date of the DST Bill is 1 January 2025, this date could be deferred by up to five years, with the latest possible implementation date being 1 January 2030. This would allow the DST to be deferred if the Government sees sufficient progress toward implementation of Pillar One of the OECD's Two-Pillar multilateral solution.

The Government has indicated that it remains committed to the OECD process. The DST Bill therefore does not represent a definitive commitment to impose a DST. Instead, it is intended to serve as a backstop and provide the Government with legislative flexibility if an acceptable multilateral solution cannot be implemented within a reasonable timeframe.

If sufficient progress is made at an international level, the Government may defer implementation of the DST or abandon the measure entirely. If the DST is imposed, the intention is that it will be repealed if an acceptable multilateral solution is implemented.

Design of the proposed DST

The proposed DST is conceptually similar to those introduced or proposed in other countries, including Canada5 and the United Kingdom.

It will be charged at a rate of 3% on an MNE group's gross "taxable digital services" revenue attributable to New Zealand users or New Zealand land. The DST will apply to an MNE group if both of these conditions are met:

  • One of the group's business activities or services includes in-scope "taxable digital services" (principally the provision of intermediation platforms, social media and content sharing platforms, and internet search engines).
  • The group's global annual gross "taxable digital services" revenue is at least EUR750 million.

The New Zealand DST will then apply if the annual gross taxable digital services revenue attributable to New Zealand users or New Zealand land exceeds NZ$3.5 million.

As the DST is intended to target certain highly digitalized business models that derive significant value from active user participation, some activities are specifically excluded from its scope. For example, loyalty programs accessed via online platforms would be excluded in certain circumstances.

Other in-scope activities

In addition to the above, the following additional activities are also subject to the DST:

  • Advertising on, linked to, connected with or facilitated by a platform or search engine detailed above
  • Activities in relation to user-generated data, gathered in connection with a platform, search engine or advertising described above
  • Incidental activities in relation to a platform, search engine or advertising described above
New Zealand users

The DST Bill has adopted the concept of a "New Zealand user" as opposed to looking at tax residency, as the latter would be difficult to determine in the context of a DST. A "New Zealand user" is defined to include any user of the digital services normally located in New Zealand, which could be determined by indicators such as:

  • Billing, delivery, internet protocol (IP) addresses
  • Telephone area codes
  • Bank details
  • Geolocation information

Under this approach, it would be possible for a New Zealand user to use an in-scope taxable digital service while not being physically present in New Zealand. Conversely, a foreign user that uses a digital service while visiting New Zealand would generally not be considered a New Zealand user if they are not normally located in New Zealand.

Filing and payment obligations

The DST will be administered by the New Zealand Inland Revenue Department (Inland Revenue). If the DST Bill is implemented in its current form, the following key filing and payment obligations will apply:

  • The ultimate parent entity of an in-scope MNE group must nominate one of its members to act as the "DST representative member."
  • The representative member must register with Inland Revenue within 90 days of the end of the first revenue year in which the MNE group meets the global revenue threshold.
  • The representative member must file an annual DST return, due six months after the end of the group's revenue year. This obligation generally exists regardless of whether there is any DST tax liability (i.e., nil returns are also generally required to be filed).
  • Any DST tax liability must be paid to Inland Revenue within six months of the end of the MNE group's revenue year.
  • Group members will be jointly and severally liable for any DST tax liability.

The DST Bill proposes a new penalty of up to NZ$100,000 where a DST representative member does not comply with the registration requirements. This penalty will apply at the discretion of Inland Revenue. A new penalty of NZ$500 for failing to file a DST return is also proposed. Other existing penalties may also apply in certain circumstances.

If implemented, the DST is expected to raise NZ$222 million over a four-year forecast period.6

Next steps

New Zealand's General Election will take place on 14 October 2023. All current draft legislation will lapse upon the dissolution of Parliament ahead of the General Election. Whether the DST Bill survives then becomes a question of whether the new Government reinstates the bill following the election.

If the new Government reinstates the DST Bill, it is likely to proceed through the normal stages of the New Zealand parliamentary process. This process will include the opportunity for public submissions on the draft legislation and may include refinement of the current design.


For additional information with respect to this Alert, please contact the following:

Ernst & Young Limited (New Zealand), Auckland
  • Dean Madsen, New Zealand Tax and Law Leader
  • Paul Smith, New Zealand Indirect Tax Leader
  • Paul Dunne, New Zealand Tax Policy Leader

Published by NTD’s Tax Technical Knowledge Services group; Carolyn Wright, legal editor

For a full listing of contacts and email addresses, please click on the Tax News Update: Global Edition (GTNU) version of this Alert.