GST and supply of software products to a non-resident recipients outside Australia

Is the entity, a supplier of software products, making a GST-free supply under item 2 in the table in subsection 38-190(1) of the A New Tax System (Goods and Services Tax) Act 1999 (GST Act), when it supplies software products electronically to a non-resident recipient outside Australia?

Yes, the entity is making a GST-free supply under item 2 in the table in subsection 38-190(1) of the GST Act when it supplies software products electronically to a non-resident recipient outside Australia.

The entity is a supplier of software products. It sells or leases its software products to its clients. The entity is leasing software products to a non-resident, overseas recipient via the Internet.

The non-resident recipient acquires the software products to carry on its overseas enterprise. The non-resident recipient is neither registered nor required to be registered for goods and services tax (GST).

There is no agreement between the two parties to provide the supply to another entity within Australia. The non-resident recipient may use the software products to make other supplies to customers throughout the world, including those in Australia.

The entity is registered for GST.

Subsection 38-190(1) of the GST Act specifies circumstances where the supply of things other than goods or real property, for consumption outside of Australia, is GST-free. Software products supplied via the Internet are intangible digital products and are neither goods nor real property. As such, the supply of software products via the Internet is appropriately considered under subsection 38-190(1) of the GST Act.

Item 2 in the table in subsection 38-190(1) of the GST Act provides that a supply that is made to a non-resident who is not in Australia when the thing supplied is done is GST- free where: • the supply is neither a supply of work physically performed on goods situated in Australia when the work is done nor a supply directly connected with real property situated in Australia; or • the non-resident acquires the thing in carrying on the non-resident's enterprise, but is not registered or required to be registered.

The supply of software products electronically via the Internet to a non resident overseas recipient is not work physically performed on goods situated in Australia nor directly related to real property in Australia. Therefore, the supply satisfies the requirements of item 2(a) in the table subsection 38-190(1) of the GST Act.

The non-resident recipient acquires the software products in carrying on its enterprise overseas and is neither registered nor required to be registered for GST. Therefore, the supply satisfies the requirements of item 2(b) in the table in subsection 38-190(1) of the GST Act.

Item 2 in the table in subsection 38-190(1) of the GST Act is limited by subsection 38-190(3) of the GST Act which provides that a supply covered by item 2 in that table is not GST-free if: • it is a supply under an agreement entered into, whether directly or indirectly, with a non-resident; and • the supply is provided, or the agreement requires it to be provided, to another entity in Australia.

The supplier has not entered into an agreement, whether directly or indirectly, with the non-resident recipient to supply the software products to another entity in Australia, nor, has the supplier done so with or without an agreement. Therefore, the supply is not excluded by subsection 38-190(3) of the GST Act from being GST-free.

As the supply satisfies the requirements in item 2 in the table in subsection 38-190(1) of the GST Act and is not excluded from being GST-free by subsection 38-190(3) of the GST Act, the entity is making a GST-free supply when it supplies software products electronically to a non-resident recipient outside Australia.