Are digital products taxable in New Caledonia?

Digital products sold by nonresident businesses to customers in New Caledonia are subject to Transaction General Tax (TGC). The standard TGC rate in New Caledonia is 11.00%. B2C transactions are taxable, while B2B transactions are handled through a reverse charge mechanism. The registration threshold is XPF 7,500,000. This means that foreign businesses must register for TGC in New Caledonia once their sales exceed this threshold to customers in the territory.

Determining if your digital product is taxable in New Caledonia

To determine whether TGC applies to the sale of your digital product or service, there are three main factors to consider:

1. Customer's location: You need to identify the location of your customer, as tax regulations vary by country. Common pieces of evidence for customer location determination include billing address, customer account address, IP address, and credit card country.
2. Taxability of your product: Your digital product or service needs to qualify as a digital good or service for TGC purposes. This typically means that it is delivered electronically over the Internet or an electronic network, is automated, relies on technology, and is not a physical good.
3. Customer's tax registration status: If you sell to other businesses located in New Caledonia, you should collect and validate their tax registration numbers (TGC IDs). In New Caledonia, sellers are not responsible for TAX on B2B transactions with the proper documentation, and the responsibility of accounting for tax is transferred to the buyer through a reverse charge mechanism.

Getting TGC compliant in New Caledonia

To ensure compliance with TGC regulations, here are the general steps that a US-based company selling software or other digital products should take:

1. Collect customer addresses and TGC IDs: Even if you are not registered for TGC, collecting customer TGC IDs can save you expenses in the future. This step can be taken right away for customers outside the US.
2. Understand your TGC obligations: Determine where you have TGC obligations by cross-checking customer locations and the product taxability and registration thresholds in each country. Each country has its own registration threshold, which triggers the requirement to register for TGC.
3. Monitor TGC exposure and register in exposed jurisdictions: If your sales reach the registration threshold in New Caledonia, you are required to register for TGC in that jurisdiction. While each country has its own processes for registration, these procedures are simplified in the European Union through the One-Stop Shop (OSS) process, where you can register with one member state on behalf of the entire EU.
4. Apply TGC where necessary: Identify transactions that require TGC collection and apply the correct rates to those invoices. Though New Caledonia utilizes the reverse charge mechanism for B2B transactions, you should still validate TGC IDs for B2B transactions to confirm the customer's status, but charge TGC if a valid TGC ID is not provided.
5. File TGC returns, make payments, and keep records: Periodically file TGC returns with the jurisdictions in which you sell, reporting the TGC collected and remitted. Be prepared for foreign exchange conversions and cross-border payments in various currencies. Many countries also have a legal requirement to keep TGC records for a certain period of time.

Risks of delaying compliance

Delaying TGC compliance can expose your business to various risks:

• Audits: As TGC legislation for digital goods is relatively new, audits for international sellers are increasing. Facing an audit for which you are not prepared can result in fees and penalties that can significantly impact your business.
• Paying out of pocket: Regardless of whether your customers pay TGC, you are responsible for the TGC on the sales you make. If you are audited or register late, you may have to pay the TGC out of pocket, along with penalties and fees.
• Reputational risk: When expanding internationally, your compliance with TGC rules may be questioned by potential business partners or customers. Failure to comply with TGC regulations can harm your reputation and even lead to blocked business opportunities.

To learn more about VAT rules and regulations for nonresident businesses around the world, explore Anrok's VAT index for digital products.