Doing business in New Zealand - Grant Thornton

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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
Page 1 and 2: Grant Thornton New Zealand 2012 Doi
Page 3 and 4: Foreword If you are planning on doi
Page 5 and 6: • Queen’s Birthday - 1st Monday
Page 7 and 8: • The Credit Contracts and Consum
Page 9 and 10: Imports Import restrictions There a
Page 11 and 12: Branch in New Zealand Registration
Page 13 and 14: Paid parental leave Paid parental l
Page 15 and 16: Financial reporting and audit Domes
Page 17: From 2013 onward the criteria for d
Page 21 and 22: Non-residents Non-resident withhold
Page 23 and 24: Groups Each company in a group file
Page 25 and 26: Individuals Individuals are taxed i
Page 27 and 28: Returns GST returns are filed on a

Doing business in New Zealand - Grant Thornton

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