Corporate Tax 2010 - BMR Advisors

Simpson Grierson
New Zealand
examples of supplies exempt from GST include:
financial services (although some business to business
supplies of financial services are zero-rated, rather than
exempt);
residential rental accommodation;
new fine metals (e.g. refined gold, silver and platinum); and
donated goods sold by non-profit organisations.
There are detailed rules for determining whether goods and services
are treated as being supplied or consumed in New Zealand.
GST registration is compulsory where the total value of taxable
supplies by a person in a 12-month period exceeds a set threshold
(currently $60,000).
2.4 Is it always fully recoverable by all businesses If not,
what are the relevant restrictions
GST input tax credits can only be recovered on the cost of goods
and services if they are acquired by a registered person for the
principal purpose of making taxable (i.e. non-exempt) supplies.
Businesses will generally meet this requirement, unless and to the
extent that they make exempt supplies (e.g. suppliers of financial
services, such as banks) or apply goods and services to nonbusiness
uses.
2.5 Are there any other transaction taxes
Gift duty may apply where property is disposed of for inadequate
consideration and either:
the donor is domiciled, or is a company incorporated, in NZ;
or
the property is situated in NZ.
Gift duty applies, on a progressive scale (the maximum rate being
25%), on gifts in excess of a de minimis threshold (currently
$27,000 total value of gifts per donor per 12-month period).
Certain exemptions (including gifts to charities) apply.
2.6 Are there any other indirect taxes of which we should be
aware
There are customs duties (including “import GST”) payable on
some goods imported from outside of New Zealand, excise duties
levied on certain types of goods such as fuel, liquor and tobacco,
and gaming and casino duties.
3 Cross-border Payments
3.1 Is any withholding tax imposed on dividends paid by a
locally resident company to a non-resident
Yes. Under New Zealand’s domestic tax rules dividends paid to
non-residents are subject to non-resident withholding tax
(“NRWT”) at 30%, or at a reduced rate of 15% to the extent
dividends are fully imputed. However, most of New Zealand’s
DTAs limit NRWT on dividends to 15% (and in some cases less
under the revised DTAs with Australia, the US and Singapore - see
question 1.1).
In addition, the foreign investor tax credit (“FITC”) regime ensures
that income which has been taxed at New Zealand company level is
not subject to a further level of New Zealand tax when it is
distributed to non-resident shareholders. The relief is provided to
non-resident shareholders via a credit available to the New Zealand
ICLG TO: CORPORATE TAX 2010
© Published and reproduced with kind permission by Global Legal Group Ltd, London
company paying the dividend, which must be used to fund a
“supplementary dividend” (equal to the credit) paid to the nonresident
shareholder. The aggregate dividend amount (comprising
the initial dividend and the supplementary dividend) is subject to
15% NRWT when paid. The supplementary dividend effectively
funds the NRWT liability in respect of both the initial dividend and
the supplementary dividend. Consequently, the foreign shareholder
receives the full amount of the initial dividend in cash, even though
NRWT has been paid.
Note that the FITC regime only applies to dividends to the extent
they are “fully imputed” (i.e. full New Zealand company tax has
been paid on the underlying income). Therefore FITC has no
application to dividends consisting of untaxed income (e.g. where
the New Zealand company has used tax losses to shelter the
income) or capital gains (generally not taxed in New Zealand).
Amendments to the FITC regime are needed as a consequence of
the reduced maximum tax rates on some dividends under the
revised DTAs with the US, Australia and Singapore (see question
1.1).
3.2 Would there be any withholding tax on royalties paid by a
local company to a non-resident
Yes. Royalty payments to non-residents are generally subject to
15% NRWT (this is subject to a cap, generally 10% or 15%, in any
applicable DTA, and 5% under the revised DTAs with Australia, the
US and Singapore - see question 1.1). This is a final New Zealand
tax unless the recipient and payer are associated for New Zealand
income tax purposes.
3.3 Would there be any withholding tax on interest paid by a
local company to a non-resident
Yes. Interest payments to non-residents are generally subject to a
15% NRWT (capped at 10% or 15% by most DTAs and in certain
instances 0% under the revised DTAs with Australia and the US -
see question 1.1), unless the non-resident has a New Zealand branch
(in which case different withholding tax rules apply). This is a final
New Zealand tax unless the recipient and payer are associated for
New Zealand income tax purposes.
However, where a local company (or other person) borrows from a
non-resident non-associated lender (that does not have New
Zealand branch) the local company may, by completing certain
registrations, opt-in to the approved issuer levy (“AIL”) regime.
Under this regime, if the New Zealand resident borrower pays the
2% AIL in respect of the gross interest payment, NRWT is zerorated.
AIL is a duty payable by the New Zealand borrower and so
is not likely to be creditable in a non-resident lender’s home
jurisdiction. It is a contractual (rather than statutory) matter
whether the levy is deducted from each interest payment (as if it
were a withholding tax) or accounted for separately by the
borrower. The levy is deductible to the borrower for income tax
purposes.
Note that under the revised DTAs with Australia and the US (see
question 1.1), New Zealand retains the right to impose AIL, even
where the DTA provides that the resident of the other state is
exempt from New Zealand tax on interest derived from New
Zealand.
3.4 Would relief for interest so paid be restricted by reference
to “thin capitalisation” rules
Yes. Thin capitalisation rules apply (inter alia) to companies
175
WWW.ICLG.CO.UK
New Zealand