Kiribati VAT on non-resident digital services

Foreign providers liable to register and collect VAT on electronic services

The Pacific Ocean island country of Republic of Kiribati imposes 12.5% Value Added Tax collection obligations on non-resident providers of digital or electronic services to local consumers. See the Value Added Tax Act, 2013

Foreign providers required to VAT register must appoint a VAT representative responsible for registering with the Internal Revenue Board and then filing VAT returns for the provider.

There is a VAT registration threshold for foreign providers of is AUD 100,000.  And there are no specific marketplace or digital platform deemed supplier rules switching the obligations to them.

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Asia Pacific VAT on digital services

VAT in the Republic of Kiribati

The VAT regime in Kiribati operates as an indirect consumption tax levied on the supply of goods and services at each stage of production and distribution. VAT is ultimately borne by the end consumer, but it is collected and remitted to the government by businesses involved in the supply chain. Below is a breakdown of the VAT system in Kiribati:

1. Tax Base and Rate

   • VAT Rate: Kiribati’s VAT rate is set at 12.5%, which applies to the taxable supply of most goods and services, including imports.
   • Taxable Supplies**: The VAT is charged on the sale of goods and services made within Kiribati, as well as on the importation of goods into the country. This includes both goods sold for domestic consumption and those imported for business
   • Exemptions: Certain goods and services are **exempt from VAT**, meaning no tax is charged, and input VAT incurred in their production cannot be reclaimed. These typically include basic foodstuffs, education, health services, and certain financial services.
   • Zero-Rated Supplies**: Some supplies, such as exports, are **zero-rated** for VAT purposes. Zero-rated supplies mean that VAT is charged at 0%, and businesses can reclaim any input VAT incurred in making such supplies.

2. VAT Registration

   • Compulsory Registration Threshold: Businesses whose annual turnover exceeds a prescribed threshold (currently set at AUD 100,000 are required to register for VAT.
   • Voluntary Registration: Businesses below this threshold can opt to register voluntarily if they engage in taxable activities. This allows them to reclaim input VAT on their purchases.
   • Reregistration: If a registered business falls below the threshold for a certain period or ceases taxable activities, it may apply for deregistration.

3. Input Tax Credit Mechanism

   • VAT-registered businesses can claim input tax credits on VAT paid on their purchases and imports related to their taxable activities. This input VAT can be offset against the VAT collected on sales (output VAT). The credit system ensures that VAT is only applied to the value added at each stage of production.
   • Input VAT Deductions: Input tax credits are only available for VAT incurred on inputs used for making taxable or zero-rated supplies. No input credit is available for inputs related to exempt supplies.
   • Partial Exemptions: If a business makes both taxable and exempt supplies, it can only claim input VAT to the extent that the purchases relate to the taxable portion of its activities.

4. VAT Filing and Payment Obligations

   • Filing Period: VAT returns are generally required to be filed on a monthly or quarterly basis, depending on the size of the business.
   • Payment Deadline: VAT liabilities must be paid by the 20th day of the month following the end of the taxable period. Late payments are subject to interest and penalties.
   • Refunds: If input VAT exceeds output VAT in a particular period, the business may be entitled to a VAT refund, though there are conditions and potential delays in processing.

5. Administrative Provisions

   • Records and Invoicing: VAT-registered businesses are required to issue tax invoices for their supplies, which must include specific details such as the VAT registration number, the amount of VAT charged, and the total value of the transaction. Records of all transactions must be kept for at least six years.
   • Penalties for Non-Compliance: Non-compliance with VAT obligations, such as failure to register, file returns, or pay VAT, can result in penalties, which include fines, interest on unpaid VAT, and possible legal actions.

6. Cross-Border Transactions

   • Imports: VAT is charged on the importation of goods, with the VAT amount usually calculated on the Customs value plus any applicable customs duties.
   • Exports**: Exports of goods and certain services are zero-rated, meaning no VAT is charged on the supply, but input VAT related to those supplies can be claimed.

In summary, the VAT regime in Kiribati follows the standard principles of a consumption-based tax system with a single-rate structure, a credit-offset mechanism for registered businesses, and a focus on administrative compliance and timely remittance of VAT collections. The regime aims to ensure that VAT is paid at each stage of the supply chain but is ultimately borne by the final consumer.