Taxation in New Zealand
The sections below provide the basic information on taxation in New Zealand.
|Taxable Income Band NZD||National Income Tax Rates|
|0 - 14,000||10.5%|
|14,001 - 48,000||17.5%|
|48,001 - 70,000||30%|
Resident individuals are subject to income tax on worldwide income. Non-resident individuals pay tax on New Zealand-source income only.
Employment income - Generally, the responsibility for determining the taxability of employment income paid to an employee rests with the employer. Gross income includes all salaries, wages, bonuses, retirement payments and other compensation. Employer-paid items, including hardship allowances, meal allowances and cost-of-living allowances, tuition for dependent children, per diems, and payments made on an employee's account, are generally included in gross income. Payments or reimbursements by employers of some relocation expenses may be excluded from gross income. Employer-provided accommodation for up to three months after arrival as a result of a work-related relocation is specifically exempt from income tax and fringe benefit tax.
New Zealand has a work-based savings initiative called KiwiSaver. Most New Zealand registered employers must make compulsory contributions to a KiwiSaver fund or a complying superannuation fund for all eligible employees who have elected to participate. To be eligible, employees must satisfy the following conditions:
Employers are subject to withholding tax on all KiwiSaver contributions.
Income from personal services (salary and wages) rendered by a non-resident in New Zealand is generally not taxable if the non-resident is physically present in New Zealand for 92 days or less within a consecutive 12 month period, if the services are provided for or on behalf of a non-resident employer and if the income is taxable in the non-resident individual's country of tax residence. This period is often extended to 183 days by double tax treaties.
Self-employment and business income - Self-employed persons (including independent contractors) are subject to tax on profits derived from any business activity, including the sales of goods, services and commissions. Although New Zealand's tax system does not have a dependent contractor regime, withholding taxes apply to many forms of payments made to individuals in business. Self-employed persons and other individuals carrying on business activities may be subject to New Zealand's Goods and Services Tax regime.
Non-resident entertainers are generally subject to withholding tax at a rate of 20%. This tax may be treated as a final tax. Non-resident contractors are generally subject to withholding tax at a rate of 15% for income from contract services. This tax is neither a minimum nor a final tax and is paid on account of any annual income tax liability.
Payers may not be required to withhold tax if either of the following circumstances exists:
Business losses may be offset against a taxpayer's other net income in the year when the loss is sustained. The balance of any loss may be carried forward and offset against future net income of the taxpayer.
Directors' fees - Directors are generally taxed as self-employed persons. Directors' fees paid by New Zealand companies to non-resident individual directors are generally taxable in New Zealand. No special provisions apply other than a requirement for the payer to deduct withholding tax, generally at a rate of 33%.
Attributed income from personal services - Personal services income earned through an interposed entity, including a company or trust, may be attributed to the individuals performing the services and taxed at the personal tax rates. This attribution may occur if the individual and interposed entity are associated persons and the services are supplied to a single or limited number of clients. Attribution will not apply if both the individual and interposed entity are non-residents.
Investment income - Dividends received from a New Zealand resident company may have imputation credits attached. The imputation credits represents tax paid by the company on the underlying profit from which the dividends are paid that is passed on to the shareholder. A resident shareholder is assessed on the combined amount of the dividend plus the imputation credits, and receives a tax credit for the amount of the imputation credits. Non-residents are only assessed on the dividend amount and potentially a supplementary dividend amount and do not receive a tax credit for the amount of the imputation credits.
Income earned on investments in certain unlisted portfolio investment entities (PIEs) may be allocated and taxed at the fund level at individual investor rates, with a maximum rate of 28% and no further tax on distribution. Listed PIE distributions may also be excluded from gross income.
Dividends (other than PIE distributions) and interest paid by New Zealand resident companies to New Zealand resident individuals are generally subject to an interim tax through a resident withholding tax (RWT) deduction.
The RWT rate on dividends is 33%, reduced by any imputation credits attached to the dividends.
Certain types of interest are exempt from RWT.
The rates of RWT on interest are elective rates of 10.5%, 17.5%, 30% or 33% if the interest recipients supply their tax identification numbers. The RWT rate on interest paid to companies is generally 28% if the recipients supply their tax identification numbers. The default RWT rate if interest recipients do not supply their tax identification numbers is 33% for all recipients. The recipients include the gross interest and dividends in their gross income and receive a credit for RWT.
Non-residents are subject to withholding tax at a rate of 30% on dividends. This rate is reduced to 15% to the extent that cash dividends are fully imputed or to the extent that imputation credits are passed on through the payment of supplementary dividends under the foreign investor tax credit regime. The rate is reduced to 0% to the extent that noncash dividends are fully imputed.
A 0% rate also applies to fully imputed cash dividends paid to non-residents if the non-residents have a direct voting interest of at least 10% in the paying entity or if a tax treaty would reduce the New Zealand tax rate below 15%.
Non-residents are subject to withholding tax at a rate of 15% for interest and royalties. Certain tax treaties may reduce this rate.
Non-resident withholding tax is a final tax on dividends, cultural royalties and interest paid to nonrelated persons. It is a minimum tax on non-cultural royalties and on interest paid to related persons. Non-resident withholding tax rates may be reduced under New Zealand's double tax treaties. A 0% rate of non-resident withholding tax may apply to interest paid to unrelated non-residents by transitional residents in relation to money borrowed while they were non-residents, so long as the interest does not relate to carrying on a business through a fixed establishment in New Zealand.
As an alternative to non-resident withholding tax on interest, if the borrower and lender are not related persons and if the interest is paid by a person registered as an approved issuer with respect to a registered security, the interest is subject only to an approved issuer levy of 2% of the interest actually paid. The New Zealand government pays the 2% levy on interest paid on its loans from non-residents that meet these criteria. Non-resident withholding tax and approved issuer levy may be imposed at a rate of 0% on interest paid to non-resident holders of certain widely held corporate bonds and similar securities.
The foreign investor tax credit (FITC) provisions reduce the effective rate of New Zealand tax imposed on dividends received by a non-resident investor from a New Zealand company. To the extent that a New Zealand company is owned by non-resident investors and imputation credits are attached to dividends paid, the company may claim a partial refund or credit of its New Zealand company tax liability.
The FITC provisions generally apply for dividends paid to non-residents only if they hold less than 10% direct voting interests and if the New Zealand tax rate, after any tax treaty relief, is at least 15%.
Taxation of employer-provided stock options - In New Zealand, any benefit conferred under an agreement to sell or issue shares to an employee is taxable to the employee as remuneration. The benefit is calculated as the difference between the fair market value of the shares on the day they are acquired and the amount paid for the shares.
Individuals resident in New Zealand who exercise share options are subject to tax on the difference between the strike price and the fair market value of the shares on the date of exercise. The liability arises in the income year in which the options are exercised.
If the employee is a Transitional Resident at the time the options are exercised, the value of the benefit is apportioned based on the ratio of the employee's transitional residency period in New Zealand to the total employment period during the sourcing period (the sourcing period is generally from the grant date to the vesting date).
For resident individuals who are not transitional residents, from 1 April 2018, the value of the benefit may also be apportioned based on the ratio of the time the individual was a non-resident of New Zealand to the total employment period during the sourcing period.
From 1 April 2017, employers can choose to withhold tax on share options under the Pay-As-You-Earn (PAYE) system. If PAYE is withheld at the correct extra pay tax rate (up to 33%), an employee should have no further tax to pay with respect to the share-option benefit. If the employer chooses not to withhold at source, employees need to account for tax on the value of the share-option benefit themselves, either through provisional tax instalments paid throughout the year, or in one lump-sum payment after the year-end.
Employers are required to disclose the share-option benefits received by employees to Inland Revenue (New Zealand's tax authority) through their monthly payroll reporting, regardless of whether PAYE is withheld. This reporting requirement applies from 1 April 2017.
Individuals are considered resident in New Zealand for tax purposes if they meet either of the following conditions:
Resident individuals arriving for the first time in New Zealand after 1 April 2006, or who have been absent for at least 10 years before returning to New Zealand, are considered to be transitional residents and are eligible for an exemption on certain income arising from sources outside New Zealand for the first 48 months of their residence. However, transitional residents can elect to waive the exemption.
New Zealand has no general capital gains tax, but profits from the sale of real and personal property may be subject to regular income tax in certain circumstances, including the following:
Profits on the disposal of certain residential land (other than a "main home") acquired from 1 October 2015 may be taxable if sold within a two-year period, regardless of the taxpayer's purpose for the acquisition. This two-year period is extended to a five-year period if the taxpayer enters into an agreement to purchase residential property on or after 29 March 2018.
From 1 July 2016, residential land withholding tax (RLWT) applies to the sale of residential land located in New Zealand by "offshore RLWT persons" if the land was acquired on or after 1 October 2015 and is sold within a two-year period. This two-year period is extended to a five-year period if the taxpayer enters into an agreement to purchase residential property on or after 29 March 2018. An "offshore RLWT person" is defined broadly for individuals and other entities, with reference to citizenship, immigration status and physical absence throughout specific time frames for an individual vendor. RLWT is not a minimum or final tax but is deducted on account of any annual income tax liability. Any excess RLWT is refundable.
An accrual taxation system applies to New Zealand resident individuals who are parties to various types of financial arrangements, including debts and debt instruments. Under the accrual system, foreign-exchange variations related to the financial arrangements are included in calculations of income and expenditure.
Estate duty is not levied in New Zealand, and gift duty has been abolished.
Salary and wage earners generally have tax deducted from their salaries at source under the Pay-As-You-Earn (PAYE) system. Income tax on other income is generally due on 7 February (7 April if on a tax agency list) following the end of the fiscal year.
Certain taxpayers must pay advance payments of provisional tax, generally in the 5th, 9th and 13th months following the beginning of their income years. These taxpayers are generally persons whose preceding year's tax liability on income from which no tax was withheld was greater than NZD 2,500. Interest may be imposed on persons whose tax liability on income from which no tax was withheld was greater than NZD 60,000 if the provisional tax paid by each instalment date is less than the minimum amounts deemed due at those instalment dates.
A non-resident individual must file an income tax return showing all taxable New Zealand-source income, except income subject to a final non-resident withholding tax.
From 1 October 2015, “offshore persons” must generally have a fully functional New Zealand bank account to obtain a tax identification number, which is necessary to meet their tax filing and payment obligations. Individuals without a New Zealand bank account are generally required to satisfy comprehensive due diligence documentation requirements, including providing notarized copies of identification documents and proof of a bank account held in a country with which New Zealand has an exchange-of-information agreement in order to satisfy the Commissioner of Inland Revenue of the applicant's identity and background.
If a New Zealand resident derives income from a foreign country, foreign income tax paid on that income is allowed as a credit against income tax payable in New Zealand. The credit is limited to the amount of tax payable in New Zealand on the same foreign-source income.
New Zealand has entered into comprehensive double tax treaties with 40 countries.
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