Doing business in New Zealand - Grant Thornton

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