Doing business in New Zealand - Grant Thornton

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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
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
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Page 9 and 10: Imports Import restrictions There a
Page 11 and 12: Branch in New Zealand Registration
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Doing business in New Zealand - Grant Thornton

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