Doing business in New Zealand - Grant Thornton

Grant Thornton New Zealand 2012
Doing business in New Zealand

Contents
3 Foreword
4 Country profile
6 Regulatory environment
8 Finance and banking
9 Imports
10 Business entities
12 Labour
15 Financial reporting and audit
18 Tax
Doing business in New Zealand 2

Foreword
If you are planning on
doing business in New
Zealand knowledge of the
investment environment
and information on the
legal, accounting and
taxation framework are
essential to keep you on
the right track…
New Zealand is a relatively small
trading market in world terms. It
welcomes foreign investment
and is a relatively easy country in
which to do business. Nevertheless, it
is essential that prospective investors
obtain advice concerning regulatory,
legal and cultural issues arising from the
conduct of business in New Zealand.
Grant Thornton has prepared this
guide to assist those interested in doing
business in New Zealand. It includes
legislation in force as of 1 August
2012. The guide does not cover the
subject exhaustively but is intended to
answer some of the important, broad
questions that may arise. When specific
problems occur in practice, it will
often be necessary to refer to the laws
and regulations of New Zealand and
to obtain appropriate accounting and
legal advice. If you require any further
information, please do not hesitate to
contact your nearest Grant Thornton
New Zeland office, details of which are
noted on the back cover.
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accounting and independent reports
Doing business in New Zealand 3

Country profile
Geography and population
New Zealand is situated in the South
Pacific Ocean, approximately 1,500
kilometres east of Australia. It covers
an area of 270,000 sq km (similar in
size to the British Isles) and comprises
two main islands, the North Island
and South Island. The landscape is
varied and often spectacular, which
makes New Zealand a popular tourist
destination.
New Zealand’s population is around
4.4 million. About three-quarters of
New Zealanders live in the North
Island and about half live in the four
largest cities of Auckland, Christchurch,
Wellington, and Hamilton.
New Zealand is a multi-ethnic
country, comprising around 68% of
people of European descent, 15%
Maori (tangata whenua, the indigenous
people), 10% Asian and 7% Pacific
peoples. This ethnic diversity is
projected to increase, with the Asian
population in particular increasing to
14% over the next 15 years.
Political system
New Zealand is a constitutional
monarchy with Queen Elizabeth II
as its sovereign head of state. New
Zealand does not have a constitution
that is embodied in a single document
or Act of Parliament, but rather the
constitutional law is contained in a
mixture of legislation, the Treaty of
Waitangi, case law and unwritten
conventions having their origins in
English law.
Constitutional power is vested in the
Crown, represented by the Governor-
General. All legislation that is approved
by Parliament must receive Royal
Assent from the Governor-General in
order to be given legal effect.
Legislative power is vested
in a parliamentary system with
representatives (Members of
Parliament) elected every three years
to one central government. Since
1996, New Zealand has used the
mixed member proportional (MMP)
representation voting system. The
National Party leads the present
Government, with support from ACT,
United Future, and the Maori Party.
Executive power is exercised by
the Cabinet, formed by the party
that controls the majority of votes in
Parliament. Cabinet is led by the Prime
Minister (currently John Key), who is
traditionally the leader of the governing
party or coalition.
Legal system
The legal system is based upon common
law and statute. New Zealand’s
common law has developed from and
is reliant upon English law principles.
However, many common law principles
have been codified by statute.
The court system is hierarchical.
Trials are conducted in either the
District Court (the lower jurisdiction)
or the High Court. Appeals may be
made to the Court of Appeal and,
with leave, to the Supreme Court. A
Disputes Tribunal is available as a lowcost
alternative for settling small claims.
Language
English is one of New Zealand’s two
official languages, and is universally
spoken. The other official language is
Maori (Te Reo).
Business hours/time zone
Normal business hours are 8.30am
to 5.00pm Monday to Friday. Many
retailers are also open on weekends
and one or more evenings. Trading
is permitted on all days, with the
exception of Good Friday, Easter
Sunday, Christmas Day and until
1.00pm on Anzac Day (25 April).
Certain businesses are exempt from
these restrictions. Banking hours are
normally 9.00am to 4.30pm Monday to
Friday, but retail branches are open in
the weekends in all large retail shopping
centres.
New Zealand’s time zone is GMT
+12 hours and +18 hours US Eastern
Standard Time. New Zealand adopts
daylight saving during the summer
months, from the last Sunday in
September until the first Sunday in
April.
Public holidays
New Zealand public holidays are as
follows:
• New Year - 1 and 2 January
• Waitangi Day - 6 February
• Good Friday
• Easter Monday
• Anzac Day - 25 April
Doing business in New Zealand 4

• Queen’s Birthday - 1st Monday in
June
• Labour Day - 4th Monday in
October
• Christmas – 25 & 26 December
• Provincial Anniversary Day - varies
between provinces across the country
Economy
New Zealand has a relatively
deregulated and open economy. It is
consistently ranked as one of the easiest
countries in which to do business, one
of the least corrupt, and having one of
the highest levels of economic freedom.
Major industries include agriculture,
forestry, fishing, horticulture,
manufactured goods (including food
processing).
Major imports include mineral fuels,
mechanical and electrical machinery,
vehicles, pharmaceuticals, textiles, and
plastics.
Major exports include dairy
products, meat, wood, mineral fuels,
machinery, fruit and nuts, wine,
fish, wool, horticultural produce,
manufactured goods and tourism.
Principal trading partner
Exports:
• Australia
• China
• USA
• Japan
• Korea
• Europe
• Southeast Asia
Imports:
• Australia
• China
• USA
• Japan
• Europe
• Southeast Asia
New Zealand is a proponent of free
trade and is an active member of the
World Trade Organisation (WTO). It
has completed free trade agreements
with ASEAN/Australia, China and
Malaysia, and is presently negotiating
agreements with India, Russia-Belarus-
Kazakhstan, the Gulf Cooperation
Council and Korea. It has special
trading relationships with Australia
(CER), Hong Kong (CEP), Thailand
(CEP) and Singapore (CEP), and is a
member of the Trans-Pacific Strategic
Economic Partnership (P4).
Cost of living
One of the greatest attractions of New
Zealand is the lifestyle it has to offer.
Not only do Kiwis seem to enjoy a
more relaxed living philosophy but
compared with many countries, an
enjoyable lifestyle seems to be more
obtainable. Auckland and Wellington
generally rank high on international
livability measures but the cost of living
has also increased.
The cost of living varies within
New Zealand, particularly the cost of
housing. Auckland is a more expensive
city in which to live and, following the
earthquakes in Christchurch, there is a
housing shortage in that city.
Visas
Visitors from many countries do not
require a visa for visits of less than three
months to New Zealand. Generally,
visitors are not allowed to work here.
However, visas or work permits are
available under various categories for
people wishing to work in New Zealand
either on a temporary or permanent
basis. Australian citizens and permanent
residents do not need a work visa to
work in New Zealand.
Long-term visas are available for
migrants bringing valuable skills or
qualifications, setting up a business, or
making a financial investment in New
Zealand. There are also opportunities
for family reunification by allowing
residents and citizens to sponsor family
members for residence.
For more information visit:
www.immigration.govt.nz
Doing business in New Zealand 5

Regulatory environment
Restrictions on foreign ownership
New Zealand encourages foreign
investment; nevertheless, consent
is required for certain categories of
investment in New Zealand by overseas
persons. This process is administered
by the Overseas Investment Office
(OIO) on behalf of the government.
The general categories for which OIO
consent is required are investment in:
• ‘sensitive’ land
• business assets worth more than $100
million
• fishing quota.
For these purposes, overseas persons
comprise individuals who are not
New Zealand citizens and are not
ordinarily resident in New Zealand, and
companies that are either incorporated
outside New Zealand or have 25% or
more foreign ownership.
For more information visit:
www.linz.govt.nz/overseas-investment
Government approvals and
registration
Most businesses require no
Government approval. Overseas
companies carrying on business in
New Zealand and large 1 New Zealand
companies that have 25% or greater
foreign ownership must register and file
audited accounts with the Registrar of
Companies. These financial statements
are filed on public record and can be
viewed at: www.business.govt.nz
Competition rules
The Commerce Commission is
New Zealand’s primary competition
enforcement and regulatory agency.
It is an independent Crown entity
established by the Commerce Act 1986
and its role is to monitor commercial
activity in New Zealand in order
to ensure a competitive commercial
environment.
The Commerce Act 1986 aims to
promote competition in New Zealand
markets. It prohibits conduct that
restricts competition (restrictive
trade practices) and the purchase of
a business’s shares or assets if that
purchase is likely to lead to a substantial
lessening of competition in that market.
Practices specifically prohibited include:
• Arrangements having a purpose
or likely effect of lessening market
competition (including price fixing
and resale price maintenance)
• Taking advantage of a substantial
degree of market power to restrict
entry to that market, or eliminate or
deter other market competitors
The Act also provides for the
imposition of control, including
pricing control over goods and services
supplied in non-competitive markets.
Consumer protection
The Fair Trading Act 1986 was
developed with the Commerce Act to
encourage competition and to protect
consumers from misleading and
deceptive conduct and unfair trading
practices. The Act applies to all aspects
of the promotion and sale of goods
and services – from advertising and
pricing to sales techniques and finance
agreements.
Other consumer protection legislation
includes:
• The Consumer Guarantees Act 1993
This Act sets out minimum
guarantees that goods and services
must meet when sold in trade. For
goods, this includes guarantees as
to title, quality and fitness for any
particular purpose that the consumer
communicates. For services, this
includes guarantees as to the exercise
of reasonable care and skill, fitness
for the particular purpose of which
the services are sought, and that
services are provided within a
reasonable time and at a reasonable
price.
• The Sale of Goods Act 1908
This Act governs rights, obligations
and remedies of parties to contracts
for the sale of goods and addresses a
number of aspects of such contracts
that may result in dispute, including
the transfer of title and risk, and
rights and remedies of the parties in
the event of non-performance.
Doing business in New Zealand 6

• The Credit Contracts and Consumer
Finance Act 2003
This Act is intended to prevent
oppressive lending arrangements and
conduct by lenders and requires that
lending terms and funding costs are
adequately disclosed to borrowers.
Import and export controls
The importation and exportation of
goods may be subject to prohibition
and control. Generally, the importation
or exportation of weapons, endangered
species, live animals, insects, meat,
plants vegetables and drugs is
prohibited without authorisation and is
subject to strict controls.
Price controls
The Commerce Commission can
impose price controls on goods and
services where there is a lack of market
competition, there is scope for the
exercise of substantial market power,
and the benefits of price regulation will
exceed the costs. Industries subject to
specific regulation include electricity
lines services, telecommunications,
dairy, gas pipelines, airport services, and
financial services.
Use of land
The use of land is closely regulated.
The Resource Management Act 1991
governs the use of land, water, minerals,
the coastline, air and other physical
resources. A number of consents may
be required before a particular project
can proceed.
Local authorities administer controls
on development, generally through
various regional and district plans.
Exchange control
There are no exchange controls for
the transfer of funds into or out of
New Zealand. However, cash of
NZD$10,000 or the equivalent in
foreign currency being brought into
or taken out of New Zealand must be
declared.
Government incentives
There are very few fiscal or financial
incentives provided by the Government
to assist the development of business.
The Government is nonetheless keen to
promote investment into New Zealand
and the development and global
expansion of New Zealand businesses,
and assistance is available in various
forms from a number of Government
agencies, including:
• The Science and Innovation Group
within the Ministry of Business,
Innovation and Employment
administers a number of initiatives
designed to drive the science and
innovation sector. These include
TechNZ investments, the Technology
Development Grant and Technology
Transfer Voucher, and PreSeed
Funding. For more information visit:
www.msi.govt.nz
• New Zealand Trade and Enterprise
(NZTE) offer a range of programmes
to help businesses develop and
succeed globally. For more
information visit:
www.nzte.govt.nz/find-fundingassistance
• The New Zealand Venture
Investment Fund invests into
venture capital funds and partners
with angel investor groups to drive
investment into exciting young New
Zealand companies with high-growth
potential. For more information visit:
www.nzvif.com
• Investment New Zealand aims
to help link high-growth New
Zealand businesses and international
investors. For more information
visit: www.investmentnz.govt.nz
1
Large is currently defined as entities that have two of the
following three criteria: total revenue greater than $20
million; total assets greater than $10 million; and more
than 50 full time equivalent employees
Doing business in New Zealand 7

Finance and banking
Banking system
New Zealand’s central bank is the
Reserve Bank of New Zealand. Its
prime function is to use monetary
policy to control inflation and keep it
within a specific target band, currently
1 to 3%. The Reserve Bank implements
monetary policy by setting the Official
Cash Rate (OCR), which is reviewed
eight times a year. The Reserve Bank
also has other important functions
including the issuing of notes and
coins, managing New Zealand’s foreign
exchange reserves, and the registration
and prudential supervision of banks.
New Zealand’s banking industry
is substantially deregulated. This has
created a very competitive banking
environment; however, it has also led
to the situation where about 90% of
banking assets are now controlled
by Australian-owned banks. There
are presently 21 registered banks, the
largest include ANZ National Bank,
the Bank of New Zealand, ASB Bank,
Westpac, TSB Bank and Kiwibank.
Banks offer the usual full range
of lending, cash management and
investment services. Foreign currency
accounts may be operated in New
Zealand.
Money laundering rules are strictly
enforced and banks require evidence
of identity to open an account. No
tax identification number is needed,
although failure to provide a tax
number will result in a higher rate of
withholding tax being imposed on
interest earned.
Capital markets
Finance can be raised through New
Zealand’s capital markets. New Zealand
has one authorised stock exchange, the
NZX, which operates three securities
markets, namely the New Zealand
Stock Market (NZSX), the Alternative
Market (NZAX), and the Debt Market
(NZDX).
The NZSX and NZAX are New
Zealand’s equities markets. The NZSX
is the premier market with 167 listed
securities and total market capitalisation
of around $58 billion, while the NZAX
is a lower cost market designed for
small to medium sized, high-growth
companies and non-traditional entities
such as co-operatives.
The NZDX is the market for the
trading of debt securities, including
corporate and government bonds and
fixed income securities.
The NZX also launched a derivatives
market in 2010, which supports the
trading of dairy product futures and
options.
Other sources of finance
Debt and equity can also be raised
through the issue of securities directly
to the public. Such public offerings
are regulated by the Securities Act
1978 and other securities legislation
and generally require the issue of a
prospectus and investment statement.
This Act is about to be replaced by
another more comprehensive piece of
legislation which is currently known as
the Financial Markets Conduct Bill.
Raising capital from private equity
firms is a further option, although
the venture and seed capital markets
in New Zealand are very limited by
international standards.
Aside from trading banks, a range
of other financial institutions also exist
including finance companies, merchant
banks, building societies, credit unions,
friendly societies, and insurance
companies. They generally provide
deposit-taking and lending services but
usually to particular niche markets.
Financial Markets Authority
The Financial Markets Authority
(FMA) is a new Crown entity
established in 2011 to promote the
development of fair, efficient and
transparent financial markets, with
the objective of restoring investor
confidence in the markets. It took
over the functions of the Securities
Commission and Government Actuary,
and consolidated other regulatory
functions from the Ministry of
Economic Development.
The FMA is responsible for
overseeing and enforcing securities,
financial reporting, and company law
as they apply to financial services and
securities markets. It also regulates
securities exchanges, financial advisers,
financial service providers, trustees and
auditors.
Doing business in New Zealand 8

Imports
Import restrictions
There are a number of restrictions
on the goods that may be imported
into New Zealand. These restrictions
relate primarily to consumer safety
issues, as well as illegal substances and
firearms. New Zealand tightly monitors
imports, especially in relation to food
and agricultural produce, in order to
prevent the introduction of pests. Other
goods are restricted for environmental
reasons and because of United Nations
sanctions.
Customs duties
Import licensing no longer exists but
there are tariffs in some circumstances,
although more than 80% of the total
value of imported goods are tariff-free.
Tariff rates vary from item to item and
also depend on the country of origin,
with some countries such as Australia,
Canada, Malaysia, Singapore, Thailand,
China, and Pacific Forum countries
having preferential rates.
Generally, import tariffs of 5%
apply to textiles and a range of other
imported products that are also made in
New Zealand, such as processed foods,
machinery, steel, and plastic products.
Tariffs of 10% apply mainly to clothing,
footwear, and carpet.
Goods and services tax (GST) is
payable to Customs for goods imported
into New Zealand, and is generally
recoverable by GST-registered persons.
Doing business in New Zealand 9

Business entities
Summary
• Foreign investors may operate in
New Zealand through whatever
entity they choose
• The most common entities used
by foreign investors are locally
incorporated companies or a branch
of the foreign entity
Subsidiary company
Formation
Incorporating a company is an online
process undertaken via the New
Zealand Companies Office website. It is
a relatively simple, speedy and low cost
procedure. Grant Thornton can arrange
this for you.
The first step in incorporating a
company is to reserve the company’s
name. Once this is done, an
incorporation application is filed
containing particulars of company
addresses, shares, shareholders and
directors. The final step is the lodging of
signed director and shareholder consent
forms. It is not mandatory to lodge
a formal constitution. In the absence
of a formal constitution, a company
is regulated by the constitutional
provisions of the Companies Act 1993.
A formal constitution may add to or
vary those Companies Act provisions
and accordingly, that option should
be considered having regard to the
company’s particular circumstances.
Management and officers
A company incorporated in New
Zealand must have at least one
shareholder and one director. A director
must be an actual person and may also
be the sole shareholder. There is no
requirement to have a New Zealand
resident director or shareholder, nor
is there a requirement to appoint a
company secretary.
Minimum capital/capital maintenance
There is no restriction on the size
of a company’s capital. The shares
of companies incorporated in New
Zealand do not have a par value. At
the time of any issue of shares, the
director(s) must be satisfied that the
consideration for and terms of issue of
the shares are fair, and pass a resolution
and sign a certificate to that effect.
Filing requirements
The Registrar of Companies maintains
a file for each company registered in
New Zealand. This records addresses,
shareholders, directors and certain
other information in relation to the
company. This information must be
updated annually, is available publicly
and can be accessed online.
A “large” company incorporated
in New Zealand that is 25% or more
controlled by non-residents must
file audited financial statements with
the Registrar of Companies. There is
no requirement to file the financial
statements of an overseas parent
company unless there is a branch of
that overseas company operating in
New Zealand. Generally, the financial
statements must be filed within six
months of the company’s balance
date. This may be extended in limited
circumstances.
Dissolution and insolvency
A solvent company may be removed
from the company register by a process
known as a “members voluntary
liquidation”. This requires the
shareholders to appoint a liquidator,
generally a suitably qualified
accountant, who takes control of the
company, discharges its liabilities and
distributes the surplus to shareholders.
A strike-off mechanism is available
whereby the directors or shareholders
may simply request the Registrar of
Companies to remove the company
from the company register. However,
such a mechanism should only be
employed after obtaining appropriate
professional advice due to the issues
that arise, including residual exposure
to creditors.
A company is not allowed to trade
while it is insolvent (liabilities exceed
assets). The directors of an insolvent
company should seek advice from an
insolvency practitioner or a lawyer
regarding their options. These include:
• Receivership
• Creditors compromise, being a
legally binding agreement entered
into by all of the company’s creditors
• Voluntary administration
• Liquidation
Doing business in New Zealand 10

Branch in New Zealand
Registration
An overseas company must register
with the Registrar of Companies within
10 working days of commencing to
carry on business in New Zealand. This
process, which is undertaken online,
involves reserving the company’s name
and then filing a registration application
containing:
• particulars of its directors and
principal place of business in New
Zealand
• evidence of its incorporation and a
copy of its constitution
• details of the person in New Zealand
authorised to accept service of
documents on its behalf.
For Australian companies, most of this
information is automatically provided
due to information sharing between
the New Zealand Companies Office
and The Australian Securities and
Investment Commission.
Filing requirements
An overseas company that operates a
New Zealand branch must file separate
audited financial statements for both
the entity itself and the New Zealand
branch operations within six months of
balance date.
Other New Zealand trading
alternatives
Other means of carrying on business in
New Zealand include:
• Individual (sole trader)
• Trust
• Partnership or joint venture,
although in the case of partners
or joint venture parties that are
companies incorporated overseas,
this would ordinarily require
registration in the manner previously
described
• Limited partnership
• Look-through company (LTC) - (see
Look-through companies, p24)
Doing business in New Zealand 11

Labour
Summary
• New Zealand has traditionally had
a workforce skilled in construction
and production but there has been
a long-standing shift towards
employment in the services sector
• A state-operated social welfare
system provides benefits during
sickness, unemployment, disability
and retirement and is funded by
general taxation
• New Zealand enforces minimum
wage legislation
Wages
The average weekly earnings for fulltime
salary and wage earners is around
NZD$898 (as at June 2011).
Minimum wage
From 1 April 2012, the adult minimum
wage rate (before tax) for employees
aged 16 or over is $13.50 per hour ($540
for a 40-hour week).
The rate applying to new entrants
(employees aged 16 and 17 who are new
to the workforce) and employees on the
training minimum wage, is $10.80 per
hour ($432 for a 40-hour week).
By law, employers must pay at
least the minimum wage - even if an
employee is paid by commission or by
piece rate. The minimum wage applies
to all workers aged 16 years or older,
including home workers, casuals, and
temporary and part-time workers.
Social welfare costs
There are no mandatory contributions
made by employers or employees to
fund social security. New Zealand’s
comprehensive social welfare benefits
are funded through general taxation.
Pensions
There are no compulsory
superannuation savings schemes in
New Zealand, although the voluntary
KiwiSaver superannuation regime
requires a compulsory contribution
from employers of 2% of the
employee’s gross salary or wage where
the employee is a registered member
of a KiwiSaver scheme. Outside of
KiwiSaver, many employers pay
pension contributions for their
employees. Employer and employee
contributions are usually paid into a
superannuation or pension fund, the
assets of which are kept separate from
the assets of the employer. Employer
contributions are generally subject to
employer superannuation contribution
tax (ESCT) at the employee’s marginal
tax rate.
Fringe benefits
Non-cash benefits are subject to fringe
benefit tax (FBT), which is borne by
the employer and not the employee.
Examples of benefits subject to FBT
include motor vehicles provided by the
employer that are available for private
use, the provision of private healthcare,
loans at concessional rates of interest,
and free, subsidised or discounted
goods and services.
Holidays and leave
Holiday pay
Under the Holidays Act 2003,
employees are entitled to a minimum
of four weeks annual leave after the
first year of employment. Payment for
annual leave is at the employee’s average
weekly earnings over the 12-month
period before the leave is taken.
Employees can ask (in writing) to
cash-up up to one week of their annual
holidays each year.
There are also 11 statutory public
holidays each year – see country profile,
p4.
Sick leave
For most employees, there is a
minimum provision of five days paid
sick leave after the first six months of
continuous employment. An additional
five days paid sick leave accrues from
that point on, after each subsequent
12-month period. Employment
agreements can provide for more
generous sick leave provisions.
The relevant daily pay must be used
to calculate payment for sick leave. It
reflects what the employee would have
been paid if they had worked on the
day in question.
Doing business in New Zealand 12

Paid parental leave
Paid parental leave funded by the
Government was introduced in New
Zealand in 2002. This provides payment
for up to 14 weeks leave upon the birth
of a child or adoption of a child under
six. Payment is capped at a maximum
of NZD$475.16 a week before tax. The
payment can be taken by one parent, or
shared between two eligible parents.
Under the Parental Leave and
Employment Protection Act 1987
provision also exists for unpaid leave.
For more information visit:
www.dol.govt.nz/er.
Accident compensation
The Accident Compensation Act 1982
removed the right to sue in the New
Zealand Courts for damages for death
or injury by accident in New Zealand.
In place of such prior rights, the
legislation introduced a comprehensive
no-fault accident insurance scheme
covering all personal injury by way of
accident and occupational disease (see
workplace accident compensation under
other taxes, p27). The compensation
scheme is funded by payroll levies
imposed on employers and employees.
Healthcare
Healthcare is provided on a subsidised
basis to individuals who are on a
low income and have a community
services card or to individuals with a
medical condition necessitating high
use of health services. Entitlement
to healthcare does not depend on
insurance, although private insurance is
available.
Employment protection legislation
A number of statutes provide
protection to employees. The
primary statute is the Employment
Relations Act 2000. This governs the
negotiation, content and enforcement of
employment agreements, and contains
a number of protections for employees.
Objectives of this legislation include:
• The promotion of good faith dealings
and negotiations between employers,
and employees and their unions
• The promotion of collective
bargaining and protection of
individual choice
• The promotion of mediation in
dispute resolution in preference to
judicial intervention
• Observance of the principles
underlying International Labour
Organisation conventions on
freedom of association and the right
to organise and bargain collectively
The Employment Relations Act also
allows employers and employees to
agree to trial periods of 90 days or less.
This is aimed at encouraging employers
to take on new staff.
Other legislation governing
employment includes the:
• Holidays Act 2003
• Parental Leave and Employment
Protection Act 1987
• Minimum Wage Act 1983
• Wages Protection Act 1983
• Equal Pay Act 1972
• Health and Safety in Employment
Act 1992
• Human Rights Act 1993.
Doing business in New Zealand 13

Unions
Trade union membership is voluntary.
Employees may negotiate individual
employment agreements with their
employers. Only members of a
registered union can be party to a
collective employment agreement.
The Employment Relations Act 2000
provides unions with workplace access.
Personnel limitations: foreigners/
nationals
A visa or work permit is required for a
person to work in New Zealand unless
they are:
• a New Zealand citizen or holder of a
New Zealand resident or permanent
resident visa
• an Australian citizen or Australian
permanent resident
• exempt from the requirement to hold
a permit to be in New Zealand.
Key employees of a business that
wants to relocate its operations to New
Zealand may be eligible for a work
visa and, later, for residence under the
Employees of Relocating Businesses
Category.
Employers in New Zealand who
wish to recruit from overseas must
provide evidence that there are no
suitable New Zealand applicants for the
job.
For more information visit:
www.immigration.govt.nz
Work visas are available under various
categories for people wishing to work
in New Zealand either on a temporary
basis or permanently. A person may
qualify for a temporary work visa if:
• they have a job offer from a New
Zealand employer
• there is a specific purpose or event
for which they need to come to New
Zealand to work
• they are a student or trainee who
wants to work in New Zealand
• they wish to join a partner in New
Zealand and work
• certain other criteria are met.
Doing business in New Zealand 14

Financial reporting and audit
Domestic requirements
Presently, all companies registered in
New Zealand, whether or not they
are incorporated in New Zealand,
must prepare financial statements that
comply with the requirements of the
Companies Act 1993 and the Financial
Reporting Act 1993.
The Financial Reporting Act 1993
requires compliance with generally
accepted accounting practice in New
Zealand (NZ GAAP). For most
companies this necessitates compliance
with applicable financial reporting
standards (ie, accounting standards
that have the force of law behind them,
which means that if they are breached
significant fines and/or imprisonment
can result) or, where there is no
applicable reporting standard,
accounting policies that are appropriate
to the entity’s circumstances and that
have authoritative support within the
accounting profession in New Zealand.
It should be noted that significant
amendments are likely to be made
to this legislation within the next 12
months so please consult our website
for the latest details:
www.grantthornton.co.nz/Services/
Audit/IFRS/financial-reportingchanges.html.
There is currently a category
of companies called “exempt”
companies and their financial reporting
requirements are outlined in legislation.
They are companies that have total
assets and turnover not exceeding
NZD$450,000 and NZD$1,000,000
respectively, are not subsidiaries
of other companies and have no
subsidiaries of their own, and have up
to nine months after balance date within
which to complete financial statements.
The Government has indicated that
it intends to modify the Financial
Reporting Act 1993 and remove this
type of company. It will be replaced by
a reporting regime where a company
or a group of companies with common
ownership that have total assets below
$60 million or revenues less than $30
million per year will no longer be
required to produce general purpose
financial statements in accordance with
NZ GAAP.
Accounting standards
NZ GAAP currently differs from US
GAAP and International Financial
Reporting Standards (IFRS) in a
number of respects:
• The Financial Reporting Act 1993
does not permit standards to be
overridden where compliance with
NZ GAAP would not give a true
and fair view. Instead, the applicable
standards must always be followed
and, if they do not present a true and
fair view, then the directors must cite
why this is the case and present the
financial statements in a way that
they believe does present a true and
fair view. The auditor then needs to
determine whether they concur with
the directors’ point of view or not
• “Exempt” companies may elect to
prepare financial statements that
are not consistent with NZ GAAP
because there is a concessional
framework for small companies
provided by the Financial Reporting
Order 1994 (a regulation stemming
from the Financial Reporting Act
1993)
• Entities that meet the criteria for
differential reporting (see differential
reporting, p16) have the option to
exempt themselves from complying
with certain financial reporting
standards, including the requirement
to prepare a statement of cash flows
and segment reporting
New Zealand equivalents of
International Financial Reporting
Standards (IFRS)
NZ GAAP is presently undergoing a
transition. Currently, all entities must
report under New Zealand equivalents
of International Financial Reporting
Standards (NZ IFRS) or New Zealand
Financial Reporting Standards (FRS).
However, going forward, the External
Reporting Board (the body that
creates applicable financial reporting
standards) in April 2011 signalled that
public sector entities will for periods
commencing on or after 1 July 2014 be
required to report under New Zealand
equivalents of International Public
Sector Accounting Standards (NZ
IPSAS). Not for Profit organisations
will have a modified form of NZ IPSAS
and the operative date for these types
of entities is likely to be for periods
commencing on or after 1 April 2015.
Doing business in New Zealand 15

NZ IFRS is an adaptation of IFRS to
provide financial reporting guidance
for not only profit oriented entities,
but also for entities that operate
in the public and Not for Profit
sectors. For listed companies, NZ
IFRS is now virtually identical to
Australian equivalents of IFRS. The
difference between these two bodies
of standards and those issued directly
by the International Accounting
Standards Board is that some additional
disclosures are required (eg, disclosure
of audit fees). Further details can
be found in New Zealand Financial
Reporting Standard 44 Additional
Disclosures.
Companies which satisfy all of the
following three criteria are permitted
to continue to apply “old NZ GAAP”
and, therefore, are not required to apply
NZ IFRS until further notice:
1 The company is not an issuer, as
defined by the Financial Reporting
Act 1993 (the Act), in either the
current or preceding accounting
period
2 The company is not required
by section 19 of the Act to file
its financial statements with the
Registrar of Companies
3 The company is not “large”, as
defined by section 19A of the Act
(which also aligns with the size
criteria for differential reporting)
Companies that are required to prepare
financial statements in accordance
with generally accepted accounting
practice in New Zealand (ie, companies
that are not “exempt”) and meet the
three criteria will continue to have a
choice between two sets of accounting
standards, the existing “old NZ GAAP”
and NZ IFRS.
Audit requirements
The financial statements of all
companies must be audited, except
where shareholders unanimously
resolve that no auditor be appointed.
That exception does not apply to:
• subsidiaries of foreign companies
(if there is a New Zealand holding
company, and then subsidiaries
below that, then only the parent and
consolidated financial statements of
the New Zealand holding company
need be audited)
• companies controlled by overseas
persons who hold more than 25% of
the voting shares, whether directly or
indirectly held
• entities that raise funds from the
public or are listed on New Zealand’s
stock exchange (issuers)
• branches of foreign companies.
On the New Zealand Companies Office
website there is a financial reporting
calculator where you can check whether
or not there is a need for an audit (www.
business.govt.nz/companies/learnabout/updating-company-details/
financial-reporting).
Differential reporting
An entity qualifies for differential
reporting exemptions (ie, it is a
qualifying entity) when it does not have
public accountability and:
• at balance date, all of its owners are
members of the entity’s governing
body
• the entity is not “large”.
A company is considered “large” where
it exceeds any two of the following
thresholds:
• Total income of $20 million
• Total assets of $10 million
• 50 employees
Doing business in New Zealand 16

From 2013 onward the criteria for
determining “large” will be increased.
The External Reporting Board, an
entity put in place as a result of the
Financial Reporting Act 1993, is
responsible for determining what the
size criteria should be and at this stage
has signalled that it will either be total
revenue greater than $30 million or total
assets greater than $60 million. For
public benefit entities (ie, the public and
Not for Profit sectors) “large” will be if
annual expenditure exceeds $30 million.
In contrast to companies, there are no
asset or revenue thresholds for public
benefit entities.
It should be noted that the
differential reporting regime that
sits behind NZ IFRS is likely to be
replaced with a reduced disclosure
regime (RDR) similar to that currently
in place in Australia. The fundamental
difference between the two regimes is
that RDR only reduces disclosure; it
does not modify any of the recognition
and measurement principles present
in IFRS. Differential reporting is
largely based on IFRS, but it does
provide some alternative methods for
recognising assets, liabilities, revenue
and expenses to reduce compliance
costs.
completion. All companies required to
file financial statements must complete
these within five months of balance
date, so effectively filing is required
within six months of balance date.
Penalties for non-compliance
The Financial Reporting Act 1993
provides for substantial penalties for the
company and each of its directors for
non-compliance with:
• applicable financial reporting
standards (NZ GAAP)
• filing requirements with the New
Zealand Companies Office.
Filing requirements
All issuers and foreign owned
companies as detailed are required to
file their audited financial statements
with the New Zealand Companies
Office within 20 working days of
Doing business in New Zealand 17

Tax
Summary
The principles summarised in this
general outline are relevant to New
Zealand tax residents generally and to
non-residents who derive income from
New Zealand.
The criteria for determining tax
residence are outlined in the sections
dealing with companies (see residence
criteria: companies, p22) and individuals
(see residence criteria: individuals p25).
Residence and source
New Zealand taxes:
• Residents on world-wide income
• Non-residents on income that is
derived from New Zealand.
Calculation of taxable income
Income tax is calculated on gross
income less allowable deductions.
Taxable income may differ from
accounting income as a result of both
permanent and temporary differences
in the basis of income recognition and
matching of expenses. For example,
temporary differences can arise due
to differences in tax and accounting
depreciation rates, or the time at
which income from certain financial
arrangements is recognised, and the
non-deductibility for income tax
purposes of general accruals and
provisions.
New Zealand has not enacted capital
gains tax legislation as such, although
some capital receipts may be taxable in
certain circumstances (including profits
from certain real property disposals
and profits arising from the disposal of
financial instruments).
Expenses of a revenue nature that
are incurred in deriving gross income
or conducting a business are generally
deductible in calculating taxable
income. There are exceptions to this
general rule. Examples include certain
entertainment expenditure that is
limited to 50% deductibility and the
denial of tax deductions to employees
for employment-related expenditure
(although such expenditure may be
reimbursed by employers free of tax).
Tax depreciation
Depreciation of capital assets (excluding
land) that decline in value when used
is deductible at rates determined by
the New Zealand Inland Revenue
Department. Tax depreciation is
generally calculated on a straight line or
diminishing value basis at the taxpayer’s
option. Certain intangible property
(excluding goodwill) is depreciable on
a straight line basis over the term of its
legal life.
From the start of the 2011/12 income
year, no depreciation can be claimed
on buildings which have an estimated
useful life of 50 years or greater.
Asset purchases costing $500 or less,
subject to certain criteria, can generally
be expensed at the time of acquisition
as opposed to being capitalised and
depreciated.
Gains on the disposal of depreciable
assets are taxable to the extent of any
excess of the sale price over tax writtendown
value. However, any gain in
excess of original cost is generally not
taxable.
Loss carry forward
Taxpayers may carry forward net tax
losses arising in any year to subsequent
years for offset against future income.
Special loss carry forward rules apply to
companies (see use of losses, p23).
Treatment of foreign income
Foreign income earned directly
Foreign income of New Zealand
residents that is earned directly
from overseas is generally taxed
in accordance with the principles
applicable to the calculation of taxable
income and at the tax rate applicable to
the taxpayer concerned. Foreign taxes
paid on that income may be credited
against the New Zealand tax liability,
but only to the extent of the New
Zealand tax payable on that income.
Foreign income may be taxable
irrespective of whether the income in
question is remitted to New Zealand.
For example, income arising from
foreign bank accounts is taxable
even though it may be capitalised or
reinvested.
Foreign income derived by an
individual may not be subject to New
Zealand tax if the person is considered
a transitional resident of New Zealand
(see transitional resident, p25).
Doing business in New Zealand 18

Attributed foreign income
New Zealand’s international tax regime
taxes residents holding interests in
overseas entities (including companies,
investment funds, superannuation
funds, and certain life insurance
policies), in respect of their effective
proportionate interests in the
underlying income of such entities
or funds. For these purposes, New
Zealand recognises two categories of
foreign investment:
• Controlled foreign companies (CFC)
• Foreign investment funds (FIF)
CFC rules
A CFC is a foreign company, including
a unit trust, in which:
• five or fewer New Zealand residents
hold an aggregate interest exceeding
50%
• a single New Zealand resident holds
an interest of 40% or more and
a non-resident does not hold an
equivalent or greater interest.
The CFC rules were substantially
revised with effect from income years
starting on or after 1 July 2009. Under
the new rules, a person with an income
interest in a CFC of greater than
10% is not required to attribute CFC
income or losses if one of the following
exemptions applies:
• The active income test is met
(essentially, less than 5% of the
CFC’s total income is ‘passive’)
• The CFC is resident in Australia and
meets certain other criteria
If these exemptions do not apply,
then only the CFC’s passive income is
attributed and subject to tax.
FIF rules
The FIF rules apply to interests in:
• foreign companies and unit trusts
that are not CFCs
• foreign superannuation schemes
(schemes established outside New
Zealand)
• life insurance policies issued by
foreign insurers that are not offered
or entered into in New Zealand.
Various methods are available to
calculate FIF income. The default
method for less than 10% interests is
the fair dividend rate (FDR) method,
which taxes 5% of the opening market
value of the interest at the start of the
tax year.
There are specific exclusions from
the FIF rules for:
• interests of 10% or more in a CFC,
which are subject to the CFC rules
• interests in certain Australian listed
companies
• interests held by individuals
where the total cost of all such
overseas interests does not exceed
NZD$50,000
• interests in certain superannuation
schemes where no contributions are
made whilst resident
• interests held by transitional
residents.
Recent changes to the tax legislation,
applying to income years beginning on
or after 1 July 2011, extend the active
income exemption applying to CFCs
to investors holding non-portfolio
interests (10% or greater) in FIFs. Such
investors in non-portfolio FIFs can
also choose to apply the portfolio FIF
methods such as FDR.
Income of overseas trusts
New Zealand resident settlors of
overseas trusts may be taxed on income
that is not distributed by the trusts as
beneficiary income.
Tax year end
The New Zealand tax year ends on 31
March and the standard balance date
for tax purposes coincides with that
date. An alternative balance date can
be obtained in limited circumstances,
including the alignment of the balance
date with that of an overseas parent
company or to a recognised industry
balance date. An alternative tax balance
date cannot be obtained merely
because such a date coincides with the
anniversary of the commencement of
business.
Doing business in New Zealand 19

Annual tax return and assessment
New Zealand operates a self-assessment
regime whereby taxpayers file an annual
tax return and self assess the tax liability
for the year. In preparing the return, the
taxpayer calculates the amount of any
tax payment outstanding (see terminal
tax below) after credits in respect of
taxes deducted at source, provisional
tax and foreign taxes paid. The taxpayer
also calculates any provisional tax
obligations in the subsequent tax year.
The filing date for a company’s tax
return is 7 July following balance date
for taxpayers with balance dates from
1 October to 31 March. Taxpayers
with balance dates from 1 April to 30
September must file returns by the 7th
day of the 4th month following balance
date. For example, a 30 June balance
date taxpayer must file its return by the
following 7 October. In all cases, this
may be extended to 31 March following
the normal due date where the taxpayer
has an automatic extension of time by
virtue of being on the Inland Revenue
agency listing with a recognised tax
agent (such as a Chartered Accountant).
Tax payment obligations and timing
Taxes deducted at source
In general, there are five broad
categories of income that are taxed at
source:
1 Non-resident passive income, being
dividends, interest and royalties
derived from New Zealand by nonresidents
and that are subject to nonresident
withholding tax (NRWT)
2 Resident passive income, being
dividends and interest that is derived
by residents and subject to resident
withholding tax (RWT)
3 Income from employment (salaries,
wages and taxable allowances) that is
subject to ‘pay as you earn’ (PAYE)
deductions
4 Income from the performance of
various specified personal services,
including sales commissions,
directors fees, entertainment fees and
labour only contracts, that is subject
to withholding tax
5 Income from work undertaken in
New Zealand by non-residents
that is subject to non-resident
contractor’s tax (NRCT)
The obligation to deduct is imposed on
the payer who must account to Inland
Revenue for the tax deducted.
Terminal tax
Annual tax liabilities in excess of
provisional tax paid and taxes deducted
at source (PAYE, RWT, NRCT and
other withholding taxes) give rise to
terminal tax obligations.
The due date for payment of terminal
tax is dependent on the taxpayer’s
balance date and whether they file
their own returns or use a tax agent
(eg, external accountant) who has an
extension of time arrangement with
Inland Revenue.
For taxpayers with the standard
balance date of 31 March, terminal tax is
due by:
• 7 February of the following calendar
year, if the taxpayer is not linked
to a tax agent or does not have an
extension of time
• 7 April of the following calendar
year, if the taxpayer is linked to a tax
agent and has an extension of time to
file the relevant tax return.
Provisional tax
Provisional tax is not a separate
tax but a way of paying income tax
progressively as the income is received
through the year. Generally, three
instalments of provisional tax are paid
(two during the year and the final
instalment shortly after year end), based
either on an uplift of the prior year tax
liability or a forecast of the current year
tax liability. The amount of provisional
tax paid is then deducted from the final
tax liability for the year as determined
in the tax return. Provisional tax is
payable if the prior year tax liability
exceeds $2,500.
Where provisional tax is underpaid
or overpaid having regard to the actual
tax liability for the year, taxpayers are
generally exposed to use of money
interest (UOMI) payable either to or
by Inland Revenue. UOMI is calculated
based on the under or overpayment
at each provisional tax due date and
accrues until the balance is either
paid or refunded. The present rates of
UOMI are 1.75% on overpayments
and 8.4% on underpayments. UOMI is
generally assessable or deductible.
Doing business in New Zealand 20

Non-residents
Non-resident withholding tax
Dividends, interest and royalties that
are derived from New Zealand and paid
to non-residents are subject to nonresident
withholding tax (NRWT). The
payer must deduct the NRWT at source
and pay it to Inland Revenue by the
20th of the following month. NRWT is
generally a final tax.
The rate of NRWT is set by domestic
legislation but is often subject to
limitation under a double tax treaty (see
below). The domestic NRWT rates are:
• Dividends: 0 - 30% (typically
reducing to 5% or 15% under a tax
treaty)
• Interest: 15% (typically reducing to
10% under a tax treaty)
• Royalties: 15% (typically reducing
to 5% or 10% under a tax treaty)
A 0% NRWT rate applies to fully
imputed dividends paid to either a
non-resident shareholder with a 10%
or greater direct voting interest or to a
non-resident shareholder holding less
than 10% and where the NRWT treaty
rate would otherwise be less than 15%.
A 0% NRWT rate also applies to fully
imputed non-cash dividends.
New Zealand borrowers that are
not related to the overseas lender can
effectively elect to pay a tax-deductible
Approved Issuer Levy (AIL) of 2%,
in which case no NRWT is payable in
respect of interest paid. A 0% AIL rate
applies to interest paid on or after 7
May 2012 on certain retail bonds.
Double tax agreements
New Zealand has presently entered
into 37 double taxation agreements.
The agreements provide a basis for
relieving double taxation of residents of
the respective jurisdictions where they
enter into commercial arrangements
with parties resident in the other
jurisdiction or are deemed resident in
the other jurisdiction. The agreements
provide rules for determining which
jurisdiction has the priority right of
taxation and limit or eliminate double
tax exposures that would otherwise
arise under the domestic laws of the
respective jurisdictions.
Countries that are currently party
to double tax agreements with New
Zealand are:
Australia
Austria
Belgium
Canada
Chile
China
Czech Republic
Denmark
Fiji
Finland
France
Germany
Hong Kong
India
Indonesia
Ireland
Italy
Japan
Korea
Malaysia
Mexico
Netherlands
Norway
Philippines
Poland
Russia
Singapore
South Africa
Spain
Sweden
Switzerland
Taiwan
Thailand
Turkey
United Arab Emirates
United Kingdom
USA
A renegotiated treaty with Canada
is pending. Negotiations are also
in progress for new or amended tax
treaties with Japan, Netherlands, Papua
New Guinea, Vietnam and the United
Kingdom.
The tax rate limitations that generally
apply under the tax treaties to passive
income are as follows:
• Dividends: 0 - 15% (dependent on
number of shares held)
• Interest: 10%
• Royalties: 5% or 10%
However, both the rates and the
scope of any limitation should be
confirmed in each case by reference
to the terms of the relevant tax treaty.
New treaties being entered into or
those being renegotiated or amended
(presently Australia, Chile, Hong
Kong, Mexico, Singapore, Turkey and
the United States) are introducing lower
withholding tax rates.
Doing business in New Zealand 21

Non-residents that are resident in a
jurisdiction with which New Zealand
has a tax treaty are generally exempt
from New Zealand tax for business
profits derived from New Zealand,
provided there is no permanent
establishment (branch or fixed place
of business) here. However, that
exemption may not be available
where the income is connected with
the exploitation of natural resources
in New Zealand, and in some other
circumstances. The exact nature of
any exemption available should be
confirmed by reference to the terms of
the relevant tax treaty.
Non-resident employees: treaty tax
exemption
Non-resident employees who are
resident in a jurisdiction with which
New Zealand has a tax treaty and who
undertake work in New Zealand will
generally be exempt from New Zealand
tax provided:
• they are not present in New Zealand
for more than 183 days in total in
any 12 month period
• their employer is not resident in
New Zealand or operating through
a permanent establishment in New
Zealand.
Foreign investor tax credit
Previously, the foreign investor tax
credit (FITC) mechanism ensured
that non-resident shareholders
receiving dividends from New Zealand
companies only bore a total effective
underlying tax cost of 30% (28% from
the 2011/12 income year), being the
New Zealand company tax rate.
However, given that the majority
of NRWT rates have been reduced to
nil for most fully imputed dividends,
the FITC regime is generally no longer
required. From 1 February 2010, the
FITC regime only applies to fully
imputed dividends paid to shareholders
who hold a less than 10% stake in the
company and for which NRWT rates of
at least 15% apply.
Non-resident contractors’ tax
Payments made to non-residents who
perform services in New Zealand
under contract, or who lease or rent
equipment for use in New Zealand,
may be subject to the deduction of
non-resident contractors’ tax (NRCT)
at source. The rate of NRCT is 15%
(or 20% for companies and 30%
for individuals who do not supply a
completed tax code declaration).
Contract payments are exempt from
NRCT where:
• total payments are $15,000 or less in
a 12 month period
• the contractor is eligible for full relief
under a double tax agreement and is
present in New Zealand for 92 days
or less in a 12-month period
• the contractor has provided a current
certificate of exemption to the payer.
Companies
Liability to tax
New Zealand tax resident companies
are subject to New Zealand income tax
on worldwide income. Non-resident
companies are liable for New Zealand
tax on income that is derived from New
Zealand.
Residence criteria: companies
A company will be tax resident under
New Zealand domestic law if:
• it is incorporated in New Zealand
• it has its head office in New Zealand
• it has its centre of management in
New Zealand
• control of the company by its
directors is exercised in New
Zealand, regardless of whether
decision-making by directors is
confined to New Zealand.
Tax rates
Companies pay income tax at a flat
rate of 28% (effective from the 2011/12
income year). The 28% tax rate also
applies to the New Zealand income of
non-resident companies that are subject
to annual assessment here, as distinct
from companies subject only to NRWT
as a final tax. Trading income of New
Zealand resident companies is taxed
at the same rate as investment income.
Non-resident companies can be taxed
at different rates for certain passive
investment income (dividends, interest
and royalties).
Doing business in New Zealand 22

Groups
Each company in a group files its own
tax return and is responsible for its own
taxes. However, two or more companies
that are part of a 100% owned group
of companies can elect to be treated as
a consolidated group and be taxed as if
they were one company. A consolidated
group files a single tax return and is
assessed and pays tax accordingly. A
single company in the consolidated
group is nominated as the group’s
representative for these purposes.
The ability to ignore or defer the
income tax consequences of transactions
between consolidated group members
is a significant advantage arising from
the formation of a consolidated group.
However, taxation consequences can
arise when a member withdraws from
the consolidated group (for example,
where that member company is sold)
or assets are subsequently transferred
outside the consolidated group.
Disadvantages include joint and
several liability of each company for the
group’s income tax and the potential
for adverse tax consequences to arise
where a company withdraws from the
consolidated group.
Use of losses
A company may carry forward tax
losses indefinitely to subsequent years
for offset against future earnings,
provided there is at least 49%
continuity of shareholding from the
start of the year of loss to the end of
the year of loss utilisation. There is
no requirement to meet a continuity
of business test. There is no ability to
carry back losses to prior tax years.
Two or more companies that have at
least 66% commonality of shareholding
may offset losses by election. Loss
offset is achieved by either:
• the profit company deducting the
losses of the loss company from its
net income
• the profit company making a
tax-deductible payment to the
loss company of an amount that is
equivalent to the loss to be utilised (a
“subvention payment”).
Ownership percentages are calculated
with regard to direct shareholdings
and indirect shareholdings that may be
held through interposed companies.
Concessions exist that may exclude
the effect of changes in shareholdings
for interests of less than 10% in
calculating continuity and commonality
of shareholding. However, for most
practical purposes, these concessions
will not apply to closely held
companies.
Dividends
Dividend income is generally
considered to be gross income of the
receiver. If a New Zealand company
receives a dividend from another New
Zealand company, that dividend is
subject to tax except if the dividend
is paid between 100% wholly owned
companies. Dividends received from a
foreign company are exempt income.
New Zealand resident companies
must deduct resident withholding tax
(RWT) from dividends paid to New
Zealand resident shareholders. RWT is a
deduction on account of the tax liability
of the shareholder. The withholding
tax rate on dividend income is 33%,
however, the deduction is reduced to
the extent of any imputation credits that
are attached to the dividend (refer to
dividend imputation below).
As a result recent reductions in the
company tax rate (firstly from 33% to
30%, and then to 28% effective from
the 2011/12 income year), a dividend
fully imputed at 28% will be subject to
an effective deduction of 5% RWT.
Dividend imputation
New Zealand operates a dividend
imputation system whereby tax paid
at the company level can effectively
be credited against shareholder tax
liabilities in respect of dividend
distributions. Companies maintain an
imputation credit account to record
New Zealand tax paid at the company
level and imputation credits allocated at
the time that dividends are paid.
The effect of allocating imputation
credits is to reduce the shareholder’s
tax liability by an amount reflecting
underlying tax paid on the dividend
received. Imputation credits also reduce
the amount of RWT to be deducted at
the time the dividend is paid.
The extent to which a dividend is
imputed is at the discretion of the payer
company. It is not necessary that the
Doing business in New Zealand 23

full amount of underlying company
tax of any dividend be allocated as an
imputation credit (ie, dividends need
not be fully imputed). However, rules
govern the ability of the payer company
to vary the ratio of imputation credits
allocated to dividends within any year.
Transfer pricing
New Zealand’s transfer pricing regime
seeks to protect the integrity of the
New Zealand tax base by ensuring
that all cross-border transactions with
associated persons are priced, for tax
purposes, on an arm’s-length basis.
There are various methods available
for determining the arm’s-length
amount of consideration. Generally,
New Zealand’s rules follow OECD
guidelines.
Thin capitalisation
New Zealand has thin capitalisation
rules applying to both inbound
investment (where a single non-resident
controls a New Zealand taxpayer,
including branches of non-residents)
and to outbound investment (where
New Zealand companies controlled by
New Zealand residents have interests in
CFCs or non-portfolio FIFs).
These rules aim to ensure that New
Zealand taxpayers do not deduct a
disproportionately high amount of
the worldwide group interest expense.
Interest deductions are denied to the
extent that interest-bearing debt is
greater than:
• 75% of total assets of the New
Zealand taxpayer (reduced to 60%
from the 2011/12 income year for
inbound investment)
• 110% of the worldwide debt
percentage for the group.
There are certain minimum thresholds
that have to be met for outbound
investors prior to these rules applying.
Qualifying companies
From the 2011/12 income year, the
Qualifying Company (QC) regime is
closed for new entrants. Any existing
QCs have the option to continue under
this regime or, alternatively, transition
into a new entity including a new
“look-through company” vehicle (see
below).
Previously, a New Zealand resident
company that had five or fewer
shareholders and derived minimal
overseas income could elect Qualifying
Company status. The effect of QC
status is that although the QC is a taxpaying
entity in its own right, capital
gains can generally be distributed taxfree
without the necessity of liquidation
as is ordinarily required.
A QC could then elect Loss
Attributing Qualifying Company
(LAQC) status, so that losses of
the LAQC could flow through to
shareholders in proportion to their
shareholdings. For income years
starting from 1 April 2011, losses can
no longer be attributed to shareholders
so the LAQC rules are effectively
redundant.
Look-through companies
A new tax vehicle, the “look-through
company” (LTC), was introduced
with effect from the 2011/12 income
year. It is a flow-through vehicle and
is treated like a partnership for income
tax purposes. All income, expenses, tax
credits and losses flow through each
year to shareholders in proportion
to their shareholding, subject to the
application of a loss limitation rule
(which effectively seeks to limit the
losses allocated to a shareholder to
the extent of their investment in the
LTC). An LTC will still be treated as a
company for company law purposes.
Portfolio investment entities
A portfolio investment entity (PIE) is a
collective investment vehicle (eg, listed
company, managed fund or KiwiSaver
scheme) which has elected to become
a PIE subject to the various eligibility
requirements being met.
A PIE is taxed on its investment
income at the prescribed investor rates
elected by its investors. From 1 October
2010, these rates are 0%, 10.5%, 17.5%
and a capped rate of 28%. PIE tax at a
rate greater than 0% is a final tax for
those investors who have selected the
correct rate.
Doing business in New Zealand 24

Individuals
Individuals are taxed in accordance
with the general principles outlined (see
calculation of taxable income, p18). The
most significant exception to the general
position arises for employees, who
are not permitted any tax deductions
and are assessed in respect of any
allowances, including accommodation,
provided in relation to employment.
However, employers may reimburse
employees tax-free for work-related
expenditure that would otherwise meet
general deductibility tests.
Residence criteria: individuals
An individual is tax resident in New
Zealand if:
• their permanent place of abode is in
New Zealand, irrespective of whether
the taxpayer has a permanent place of
abode outside New Zealand
• they are personally present in New
Zealand for more than 183 days in
total in any 12 month period.
A taxpayer who is resident may only
subsequently become a non-resident if
they:
• are absent for more than 325 days in
any 12 month period
• do not maintain a permanent place of
abode in New Zealand.
Resident individuals: tax rates
Individuals are taxed at progressive
rates according to total taxable income.
Rates for the 2011/2012 income tax year
are:
Total income (NZD)
Marginal rate
Income to $14,000 10.5%
$14,001 - $48,000 17.5%
$48,001 - 70,000 30.0%
$70,001 and over 33.0%
Tax returns are filed on an individual
basis. There is no provision for the
amalgamation of household incomes
meaning that, for example, a married
couple file separate tax returns and each
is taxed accordingly.
Non-resident individuals: tax rates
Non-resident individuals are taxed at
the same marginal tax rates as resident
individuals, except in relation to
income that is subject to non-resident
withholding tax (see non-resident
withholding taxes, p21).
Non-resident employees: exemption
Non-resident employees may be
exempt under domestic law from
New Zealand tax in relation to the
performance of employment duties in
New Zealand provided that:
• the visits to New Zealand do not
exceed 92 days in total in any tax
year
• the employee is subject to tax
elsewhere on that income
• the work is performed for a nonresident.
This exemption is distinct from the
employee tax exemption that may apply
under New Zealand’s tax treaties (see
non-resident employees: treaty tax
exemption, p22).
Transitional resident
New Zealand has transitional resident
rules which apply to new New Zealand
tax residents or returning residents who
have been non-resident for at least 10
years. These rules provide an exemption
from income tax for foreign income
(other than employment income or
income from the provision of services
performed offshore) derived by anyone
meeting the criteria.
Doing business in New Zealand 25

Employee taxes: PAYE
Employers are required to register
with New Zealand Inland Revenue and
deduct ‘pay as you earn’ (PAYE) tax for
wages, salaries and taxable allowances
paid to employees who are subject to
New Zealand tax. Consequently, nonresident
employers with employees
working in New Zealand must register
and deduct PAYE unless the employee
is exempt from New Zealand tax in
accordance with domestic law (see
non-resident employees: exemption,
p25) or a tax treaty (see non-resident
employees: treaty tax exemption, p22).
Tax returns of individuals are filed
in accordance with the general position
previously outlined (see tax year end,
p19; annual tax return and assessment,
p20; tax payment obligations and timing
p20; use of money interest (UMOI),
p20). There is a notable exception in the
case of salary and wage earners having
minimal investment income, in which
case no returns need to be filed.
Compulsory accident insurance (ACC)
Employees are subject to a compulsory
levy on earnings from employment that
is capped at a fixed level of earnings.
The levy applicable to the 2012/13 tax
year is 1.70% (inclusive of GST) and is
capped at earnings of NZD$113,768 for
that year (or $111,669 for self-employed
earners). The levy provides personal
accident insurance cover for loss of
earnings as a result of workplace and
recreational injury and disability.
KiwiSaver
KiwiSaver is a voluntary, work-based,
superannuation scheme which requires
a minimum 2% contribution from
employees with a range of benefits also
provided to members, including:
• A one-off $1,000 kick-start for
entering the scheme
• Compulsory employer contribution
of 2%
• Tax credit available to members from
the Government of up to $521.43 per
year
• First home deposit subsidies
• Savings withdrawals for first homes
The minimum employee contribution
is proposed to increase to 3% from 1
April 2013, matched by an increase in
the employer contribution to 3%.
Goods and services tax (GST)
GST tax base
GST is a consumption tax imposed
on the supply of goods and services in
New Zealand with limited exemptions,
notably financial services (such as
the issue and sale of debt instruments
and equities), salaries and wages and
the provision of residential rental
accommodation. GST is also levied by
Customs on goods imported into New
Zealand.
GST is borne by the final private
consumer. It is imposed throughout
the chain of production and therefore
applies to business-to-business
transactions, but businesses registered
for GST receive credit for the GST paid
on goods and services they purchase.
GST is levied at the rate of 15%
(increasing from 12.5% on 1 October
2010). Some supplies are zero-rated
(GST at 0%), including exported goods
and services. Zero-rated supplies are
treated as taxable supplies and not
exempt supplies, so GST registered
taxpayers can still recover the GST paid
on related purchases.
There is a limited regime for the
zero-rating of financial services to
businesses, which allows financial
service suppliers to recover some of
their GST costs.
Compulsory zero-rating also applies
to supplies that include land and that
are made between registered parties
where the purchaser acquires the goods
with the intention of using them for
making taxable supplies and is not
intending to use the land as a principal
place of residence.
Registration
Registration for GST is mandatory if
supplies of taxable goods or services
exceed NZD$60,000 in any 12 month
period, or are expected to. Voluntary
registration is permitted, enabling
businesses making annual taxable
supplies below this threshold to obtain
GST refunds for supplies received from
other GST-registered businesses.
Doing business in New Zealand 26

Returns
GST returns are filed on a one-monthly,
two-monthly, or six-monthly basis
according to taxpayer requirements and
annual turnover. A one-month return
basis is mandatory where annual taxable
supplies exceed NZD$24 million. A sixmonth
return basis can only be elected
where annual taxable supplies do not
exceed NZD$500,000.
Taxpayers may also file on either an
invoice (accruals) or payments (cash)
basis. The invoice basis is mandatory
where the annual value of taxable
supplies exceeds NZD$2 million.
Other taxes
Workplace accident compensation (ACC)
The Accident Compensation Act
1982 removed the right to sue in the
New Zealand Courts for damages
in respect of death or injury by
accident in New Zealand. In place
of such prior rights, the legislation
introduced a comprehensive no-fault
accident insurance scheme covering all
personal injury by way of accident and
occupational disease.
The compensation scheme is funded
by payroll levies imposed on employers
and employees. No levy is payable
for earnings exceeding NZD$113,768
per employee. Employer levies are
calculated according to the risk
classification of the employer’s business,
modified in some cases by actual claims
experience. The employee earner
premium is fixed at 1.70% (inclusive of
GST) for the 2012/13 year, irrespective
of the employee’s occupation.
Property taxes
Local authorities (local government)
raise funds through the imposition
of levies and rates on owners of
residential and commercial property.
Rates vary according to the relevant
local authority and are based upon the
unimproved value of the property and
range from (very approximately) 0.25%
for residential properties to 1.5% for
commercial property.
Stamp duty
New Zealand abolished stamp duty in
1999.
Capital gains tax
New Zealand does not have a
comprehensive capital gains tax regime,
but some capital receipts are taxable in
certain circumstances (including profits
from certain real property disposals
and profits arising from the disposal of
financial instruments).
Estate taxes
New Zealand does not impose
inheritance, estate or death duties.
Gift duty
New Zealand abolished gift duty with
effect from 1 October 2011.
Doing business in New Zealand 27

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