ANSWER ID:32926

When importing goods from overseas, GST is levied at 15% of the landed-cost of the goods and is payable to the Customs agent, not your overseas supplier. The GST paid to Customs needs to appear in box 13 of the GST return*, so you need to create one purchase order (bill) to record the overseas purchase and another purchase order (bill) to record the costs associated with the import.

A Customs agent is usually employed to handle the costs associated with the import. Generally, the Customs agent will arrange payment for, and collection of, the goods on arrival in New Zealand, and may pay your customs duty, freight, insurance and GST liability. You will need to reimburse the Customs agent for these costs.

*This support note is for businesses reporting their GST on a Payments Basis. Our support note GST paid to Customs for imported goods - Invoice Basis is for those reporting on an Invoice Basis.

Setup

1. Go to the Accounts command centre and click Accounts List and ensure the following two Liability accounts exist. You can create an account by clicking New.
   GST Input Tax Adjustments - This account should be linked to the GST return where it will be reflected in box 13.
   GST Paid to Customs - This account will hold the value of GST paid to Customs.
   Here are our examples:
   
   
   
2. Create a new GST Code called GST on Import (go to the Lists menu and choose GST Codes, then click New). Here's our example:
   
   
3. Go into the Accounts command centre and click Prepare GST return.
   
4. Select the GST Input Tax Adjustments account in Box 13. See our example below.
    

Methods of recording overseas purchases

• Method 1: Record the overseas purchases, treating the import costs as expense items.
  
• Method 2: Record the overseas purchases, including all costs in the item value.
  
  

Method 1: Record the overseas purchases, treating the import costs as expense items 

1. Create an Expense (or Cost of Sales) account for the Customs Agent's charges. See our example below.
   
   
2. Create a bill (Purchases > Enter Purchases) to record the purchase from your overseas Supplier as normal, excluding the GST. If the supplier charges you freight, this will need to be included on this purchase. Here's our example.
   
3. Create a separate bill for the imports costs paid to the customs agent (not including any freight charged by the supplier).

1. Enter the Import Agent's/Customs' charges, using the E GST code to exclude any GST.
2. On another line, enter the value of the total GST on the Import, using the Allocation Account GST Paid to Customs. Code this line as GST Exempt.
3. For the import duty charged by the customs agent use the expense account created above.
4. For any other expenses the Customs agent may be charging you, for example overseas freight and/or insurance, enter as below, selecting the applicable expense account and GST code E.
5. Make sure the GOI GST Code is applied to the GST on Import . See our example below.
    

Note: This transaction will increase expenses and record the GST to be included in the GST adjustment.

1. Before running the GST Return, run the GST [Detail - Payments] report, filtered for the GOI (GST on Import) GST Code for the relevant period. Here's our example:
   
   
2. Record a journal entry (go to the Accounts command centre and click Record Journal Entry) to transfer the balance from the GST Paid to Customs account to the GST Input Tax Adjustment account. See our example below.
   
   

3. Prepare your GST Return as usual - remember to enter the GST Input Tax Adjustments account for Box 13 (as shown above).
   As shown in the following example, Box 13 should show the applicable GST amount:
   

Method 2: Record overseas purchases, including all costs in item value

1. Create an Expense (or Cost of Sales) account for the Customs Agent's charges if you don't already have one (see example above).
   
2. Create a new inventory item called GST on Imports. Indicate that the item is 'I buy' only and that the Expense account it is linked to is the GST Paid to Customs account. This may prompt a warning that costs are usually allocated to an Expense account - disregard this warning. See our example below.
   
   
   
3. Click the Buying Details tab and select E as the GST Code when Bought.
   
4. Record the initial purchase of goods from the supplier as shown in our example:
    
   
5. Record the bill from the Customs Agent. When entering the bill:
   Select the Item layout.
   Enter a line on the purchase for the item created above.
   Enter the price as the value of GST paid to customs.
   Enter extra lines for each item that the import bill applies to, and add a portion of the freight/insurance costs to each line.
   Note: You must enter zero quantities in the Received column. This is because you want to increase the stock's total value only and not the quantity on hand.
   
   Here's our example:
   
   
   
6. Pay the invoice as usual.
   
7. Record a journal entry to transfer the GST amount from GST Paid to Customs to GST Input Tax adjustments. Here's our example:
   
   
   This journal entry ensures the GST is reported in the GST Return at Box 13.
   

   Note: This transaction will increase the average cost of the item(s) and include GST on the Return as shown in the following example.